Emergency Committee For American Trade - Publications

SECTION III.3: GOVERNMENT PROCUREMENT

Government procurement comprises a significant share of the global economy, representing from 10 to 15 or even 20 percent of the gross domestic product (GDP) for many countries around the world. More efficient, accountable, competitive and transparent government procurement structures are increasingly critical for all governments, as they seek to provide their citizens with the highest quality goods and services within significant fiscal constraints.

ECAT strongly supports full access of U.S. goods and services to the government procurement markets of key trading partners through provisions guaranteeing government procurement decisions are made on a non-discriminatory, transparent, technology-neutral and pro-competitive basis. Key mechanisms to promote strong government procurement rules include the Government Procurement Agreement (GPA) of the World Trade Organization, government procurement chapters in U.S. free trade agreements (FTA) and the 1999 Asia Pacific Economic Cooperation (APEC) forum principles on procurement, as well as other means. Each of these areas is discussed below.

WTO Government Procurement Agreement

Government procurement issues were first negotiated by the predecessor organization of the WTO, the General Agreement on Tariffs and Trade (GATT), in the Tokyo round of trade negotiations that entered into force in 1981, and the original agreement was amended in 1988. The Uruguay Round negotiations, which created the WTO in 1995, greatly expanded the coverage of the original agreement, producing the WTO Government Procurement Agreement (GPA).

The GPA is one of four WTO plurilateral agreements (along with the Agreement on Trade in Civil Aircraft, International Dairy Agreement and International Bovine Agreement). Unlike other WTO agreements, WTO member countries are not obligated to join the GPA or the other plurilaterals. At present, there are 37 parties to the GPA, out of 149 WTO members

Parties to the GPA
Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, European Communities, Estonia, Finland, France, Germany, Greece, Hong Kong China, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Liechtenstein, Lithuania, Luxemburg, Malta, Netherlands and with respect to Aruba, Norway Poland, Portugal, Singapore, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom), Switzerland, and the United States

An additional nine WTO members are negotiating accession to the GPA: Albania, Bulgaria, Georgia, Jordan, Kyrgyz Republic, Moldova, Oman, Panama, and Chinese Taipei.

Key Elements of the GPA

Key elements of the GPA include the following:

Non-Discrimination: In general, the GPA requires parties to provide non-discriminatory treatment to products, services and suppliers of other parties, as well as most-favored nation treatment with respect to other parties to the GPA. In addition, the GPA requires that the non-discrimination principles be applied to companies that are domestic with some foreign affiliation or ownership or on the country of origin of the product or service being provided.

Coverage: In acceding to the GPA, parties indicate the extent of GPA coverage for their national and sub-national entities, as well as the threshold of procurements that are covered. Specific exemptions of procurements are also included.

Tendering Procedures: The GPA requires parties to follow certain procedural requirements to guarantee full access and non-discriminatory treatment in bidding on government contracts, including rules on open, selective and limited tendering that provide an equal opportunity to domestic and foreign entities to bid on contracts. The GPA also prescribes certain minimum deadlines for the preparation and submission of tenders and public invitations to participate in tenders. The GPA also requires that only tenders that meet the basic requirements of the tender notice can be eligible for the award. Following an award, the GPA requires parties to provide public notice on the award. If requested, the party must provide explanations to rejected bidders on why their bid was rejected.

Transparency of Government Procurement Rules: The GPA requires each party to publish laws, regulations, administrative rulings and judicial decisions of general application related to government procurement. GPA members are also required to provide statistics on their procurements to other GPA members.

Offsets: The GPA prohibits the use of offsets (to promote local development through domestic content, technology licensing, investment requirements or similar measures), although developing countries may negotiate some limited use of offsets as a condition for qualification to bid on particular projects.

Developing Countries: The GPA recognizes that the development objectives of developing countries must be taken into account in their accession to the GPA. It also incorporates provisions on technical assistance and information centers to promote the capacity of developing countries to implement more open and non-discriminatory government procurements.

State-to-State Enforcement: Enforcement is available for violations of these commitments under the WTO’s normal dispute settlement mechanism. Cross-retaliation, however, is not permitted (e.g., retaliating in non-government procurement sectors such as commercial imports for a government procurement violation and vice versa).

Bidder-to-Government Enforcement: The GPA also mandates the establishment of a domestic bid challenge system that provides suppliers who believe that the procurement was handled inconsistently with a government’s GPA commitments recourse before an independent domestic tribunal, such as national courts or another entity designated by the GPA party.

Efforts to Expand Membership in the GPA

The United States has continued to work to increase membership in the GPA. GPA membership is an important issue in the accession negotiations for both Russia and Vietnam, and ECAT urges that the final accession packages make concrete progress towards the GPA accession of both countries by a date certain as discussed in section II.1.

ECAT also strongly supports the accession of existing WTO members to the GPA, including in particular such key WTO members as China, Brazil, India, and Malaysia. As discussed in section IV.1, China already agreed as part of its overall WTO accession to begin GPA negotiations “as soon as possible.” While it finally began technical consultations with the United States on the possibility of joining the GPA, China has not made any concrete progress towards starting negotiations. ECAT believes that it is very strongly in both China’s and the United States’ interest for these negotiations to start quickly and conclude by the end of 2007.

Efforts to Reform and Simply the GPA

The WTO Committee on Government Procurement held five meetings focusing largely on revising the text of the existing GPA to streamline and modernize the agreement in compliance with the requirement in GPA Article XXIV.7. In accordance with GPA Article XXIV.7(c) calling on Parties to seek greater coverage of the GPA, GPA members made requests for expansion of coverage to other GPA members. The United States and European Union tabled initial offers in December 2005 and the other GPA members are expected to submit offers in early 2006.

In 2006, the Committee seeks to conclude negotiations to reform and simplify the GPA, which would be expected to be included as part of the final Doha Development Agenda package.

Other WTO Government Procurement Activities

The WTO General Agreement on Trade in Services (GATS), negotiated as part of the Uruguay Round Agreements concluded in 1994 explicitly provides that its key market access obligations do not apply to government procurement activities.

At the first WTO Conference in Singapore in 1996, the WTO created a new multilateral Working Group on Transparency in Government Procurement. As discussed in section II.1, efforts to launch negotiations in transparency in government procurement as part of the Doha Development Agenda were not successful.

In addition, the GATS mandates that “there shall be multilateral negotiations on government procurement in services” under the GATS within two years of its entry-into-force. The Working Party on GATS Rules continues to review this issue and a proposal by the European Union for a GATS framework for government procurement in services.

Issues being considered are whether such a framework should include market access or transparency and procedural commitments only.

Government Procurement Chapters in Free Trade Agreements

Recent U.S. FTAs negotiated with Chile, Singapore, Australia, Morocco, Central America and the Dominican Republic, Bahrain, Peru and Colombia include important commitments in the area of government procurement that should be included in future agreements. Among the most notable provisions are the following commitments:

Commitments in U.S. FTA Government Procurement Chapters
General Provisions
National treatment and non-discrimination for U.S. suppliers
National treatment and non-discrimination of local suppliers with foreign affiliation
Offsets
Prohibition of offsets to qualify or select suppliers, goods or services.
Non-Disclosure of Information
Nothing in the agreement requires disclosure of confidential information where such disclosure might prejudice fair competition.
Publication of Procurement Information
Parties must promptly publish information relating to covered procurements in widely disseminated and readily available media, including laws, regulations, procedures and policy guidelines and administrative and judicial rulings of general application.
Publication of Specific Procurements
Parties must publish notice of intended procurement in widely disseminated and readily available media that includes name and address and relevant contact information of the procuring entity, a description of the procurement and the address and time limit for tenders and, where appropriate the submission of an application for participation in the procurement.
Parties encouraged to publish notices of planned procurements with estimated dates of notice of intended procurements.
Time Limits
Procuring entity shall set forth time limits for tendering that allow adequate time for suppliers to submit applications or requests to participate and prepare response tenders.
Generally, procuring entity should provide that the submission of tenders shall not be less than 30 days from the date of publication of the notice of the intended procurement or, in selective tendering circumstances, the date on which the entity invites suppliers to submit tenders. Certain exceptions to this time period are specified.
Procuring entity must require all participating suppliers to submit tenders with a common deadline.
Information on Intended Procurements and Modifications
Procuring entity is required to promptly provide, upon request, tender documentation including all information necessary to permit suppliers to prepare and submit responsive tenders.
Where the procuring entity modifies the criteria or technical requirements set out in the notice of tender, amends or reissues the notice, it must transmit that documentation to all suppliers that are participating and provide adequate time for suppliers to modify and re-submit their tenders as appropriate.
Technical Specifications
Procuring entity may not prepare, adopt or apply technical specifications or prescribe any conformity assessment procedure with the purpose or effect of creating unnecessary obstacles to trade between the Parties.
Procuring entity shall specify performance-based and functional requirements wherever appropriate rather than design or descriptive characteristics and base technical specifications on international standards where possible, except when the use of an international standard would fail to meet the program requirements or would impose greater burdens than recognized national standard.
Procuring entity may not require technical specifications that require or refer to particular trademarks, patents, copyright, design or type, specific origin, producer or supplier unless there is no other description, in which case the words “in equivalent” shall be included.
Tendering Procedures
Sets forth neutral guidelines to place conditions on participation of suppliers.
Sets for the procedures for selective and limited tenders to ensure that they proceed in a neutral, non-discriminatory and fair manner.
Requires procuring entity to notify participating suppliers of award decision.
Requires procuring entity to provide a written notice and explanation when it rejects an application for participation or inclusion on multi-use lists.
Requires written explanation for the rejection of an application.
Ensuring Integrity in Procurement Practices
Requires that criminal or administrative penalties exist for corrupt procurement acts by procurement officials and others.
Domestic Review of Supplier Challenges
Requires availability of impartial and independent administrative or judicial entity to receive and review challenges of suppliers.
Requires that the independent review entities have the power to take prompt interim measures to preserve the supplier’s ability to participate in the procurement.
Exceptions
Exempts measures to protect public morals, order, safety; human, animal or plant life and health; intellectual property; or goods or services of handicapped persons, philanthropic or not-for-profit institutions, or prison labor, as long as the measures do not otherwise constitute arbitrary or unjustifiable discrimination or a disguised restriction on international trade.

These provisions provide important new access to international government procurement markets and strong procedural guarantees to ensure greater fairness and objectivity in international procurements.

ECAT strongly supports including similar provisions in future free trade agreements that are negotiated as discussed in section II.2, including with Korea, Malaysia, Thailand, Ecuador, and Southern Africa. While Korea already is a full member of the WTO GPA, the FTA negotiations with Korea represent an important opportunity to expand and improve Korea’s commitments in this important area.

APEC Principles

APEC has long advocated improvements and liberalization in government procurement markets throughout the Asia-Pacific region. In the 1995 Osaka Action Agenda (OAA), APEC leaders specifically listed government procurement as an area to take steps to achieve the 1994 Bogor Declaration to achieve free trade and investment by 2010 for developed member economies and 2020 for developing Members. The OAA commits APEC members to

develop a common understanding on government procurement policies and systems, as well as on each APEC economy's government procurement practices; and
achieve liberalization of government procurement markets throughout the Asia-Pacific region.

In 1995, the APEC Government Procurement Experts Group was established to promote work in this area. A survey was conducted of APEC member countries in 1995 and 1996 and updated in 1997 to provide information on each government’s procurement processes.

In 1999, APEC completed negotiations of its Non-binding Principles for Government Procurement that provide key principles to provide ample and equal opportunity for participation of all qualified suppliers in government procurements. The principles focus on the following areas and include illustrative examples of best practices:

Transparency
Value for Money
Open and Effective Competition
Fair Dealing
Accountability and Due Process
Non-Discrimination

The Experts Group uses these principles to review and report on individual APEC members’ procurement practices.

ECAT Position: ECAT supports the development of procurement markets around the world that operate on an open, transparent, non-discriminatory, technology-neutral and pro-competitive basis. In particular, ECAT supports the accession of our trading partners, particularly including China, Brazil, India, Vietnam, Malaysia and Russia, to the WTO Government Procurement Agreement, as well as continued work to improve the WTO Government Procurement Agreement and progress in the ongoing WTO GATS negotiations to produce more open, non-discriminatory government procurement markets for services.

ECAT also supports the inclusion of strong government procurement chapters in all FTAs, including with Korea, Malaysia, and Thailand, to provide new market access, fairness, transparency and procedural guarantees. ECAT also supports continued work by the Administration to enforce effectively existing FTA government procurement commitments.

As well, ECAT supports the work of APEC in advancing strong government procurement principles throughout the Asia-Pacific region.