Liberalizing government procurement

Opening state procurement procedures to international competition
Incorporating public procurement in world trade
Extending the coverage of contracts, sectors and countries where there is in principle open and non-discriminatory access to tendering for public procurement of goods and services.

The general lowering of government procurement barriers benefits consumers, particularly the poor, who rely heavily on publicly provided goods and services. These gains would accrue in the form of lower prices and improved quality of goods and services and also from the increased supply of publicly provided goods and services which would be made possible by the cost-savings in government expenditure programmes. These savings may be significant in developing countries, where public expenditure management systems are weaker.

The existence of discriminatory government procurement policies can be viewed as a non-tariff barrier against imports that compete with the domestically produced goods and services purchased by the home government. The liberalisation of such policies could be viewed therefore as an elimination or lowering of the implicit tax or import-price-raising measure. This would lower import and producer prices and as a result, imports would increase in these sectors, as domestic production is displaced by imports. Alternatively producers may not cut production, but rather reduce the abnormal profits or rents they gained previously on protected sales to the public sector.

In most countries the government is the largest single purchaser in the economy, accounting for up to 15% of GDP in many developed and developing countries. Government's procurement activity is usually governed, in principle at least, by the same contract law that regulates private buying and selling activity. However, various forms of domestic preference (overt policies or hidden discretionary actions) in government procurement allow governments to use their purchasing power to promote various economic, social or political objectives or policies. These objectives often relate to the protection of employment and production in declining industries or 'strategic' defence and high-tech sectors.

Although governments may be required or seek to obtain the best product or service at competitive prices, there are often qualifications on this which permit discrimination or preference for domestic suppliers. Overtly and formalised discriminatory measures may include: 1. Price differentials applied against foreign bids (so that foreign bids may be accepted only if the lowest domestic bid is more than a certain percentage higher than the foreign one); 2. Discounts' for the domestic content of the bid; 3. Selective sourcing policies (when only domestic firms are invited to bid); 4. Set-asides of certain procurements to specific domestic sectors; 5. Assignments of certain procurements for domestic industries only; and 6. Requiring foreign contractors to procure from the local market as a condition of contract award. Less formal and more hidden forms of discrimination include: 1. Selective and discretionary tendering procedures; 2. Manipulating the time and method of giving notice of tenders in order to favour domestic suppliers; 3. Short deadlines for submitting bids, which foreign suppliers are unable to meet; and 4. Product or service standards which are only readily met by domestic producers.

The first set of codes under the [General Agreement on Tariffs and Trade on Government Procurement] came following the [Tokyo Round] (1981), when it was agreed that it would be desirable to eliminate discriminatory procurement practices eventually. However, the scope and coverage of this code was quite limited. As a result the [Uruguay Round] sought to reinforce and extend the rules (including extension to services), and a new [Government Procurement Agreement] (GPA) came into force in 1996.

The GPA did not require the participation of all signatures, but it did expand the list of public agencies (central government, sub central government and other entities such as public utilities) of existing and new signatories. The GPA was applied as a result of contacts by central government of more than SDR 130,000, by sub central government of SDR 200000 in general (though SDR 355000 for instance in the case of the US), and by utilities normally about SDR 400,000. Construction services in general became subject to a SDR 5 million threshold. Above these thresholds contracts tendered by the public entities covered became open to international competition. The thresholds are not inflation-adjusted, and decline therefore in real terms over time.

The European Union's position on government procurement issues is to (i) focus on two areas of the WTO's existing multilateral work programme on government procurement: transparency in procurement, and the GATS work on procurement of services, and (ii) expand the scope and coverage and membership of the Agreement on Government Procurement.

1. The absence of inflation indexation in the [Government Procurement Agreement] (GPA) monetary thresholds means that more of the government procurement by existing signatories to the GPA will (formally at least) become subject to international competition.
Type Classification:
E: Emanations of other strategies
Related UN Sustainable Development Goals:
GOAL 10: Reduced InequalityGOAL 12: Responsible Consumption and ProductionGOAL 16: Peace and Justice Strong Institutions