Economic Paper

2310-1385 (online)
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This series examines current economic issues from a Commonwealth perspective. The titles in the series are technical papers of topical interest to specialists concerned with trade, micro and macroeconomics, development economics and related subjects.
Trade Effects of Rules on Procurement for Commonwealth ACP Members

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Peter Trepte, Peter Pease, Anthony Butler, Annamaria La Chimia
15 Nov 2011
9781848591233 (PDF)

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This Economic Paper assesses the potential trade effects of rules on procurement policies in Commonwealth ACP countries. It provides a practical guide for policymakers and negotiators to determine the impact of government procurement rules and policies taken at the national level or negotiated in trade agreements.

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  • Abbreviations and acronyms
  • Summary,

    The overall objective of this analysis is to assess the potential trade effects of rules on procurement policies on Commonwealth African, Caribbean and Pacific (ACP) group members. The main aim is to facilitate the understanding of Commonwealth ACP members about the effects on their economies of negotiating rules on government procurement policies in regional and international trade agreements and to determine strategies that will best advance their development interests in these forums.

  • Introduction

    One of the challenges facing those who are negotiating trade agreements affecting government procurement is the confusion which exists concerning terminology and the scope of the issues being negotiated. As a result, the first task of this report is to provide a clear and concise explanation of some of the issues and terms used in the context of public procurement regulation. This is not a purely academic exercise; it is also important because the primary task of the report is to assist the negotiating parties. They need to understand fully the benefits and costs of a transparent procurement system and, separately, the effect of trade agreements containing procurement rules on their economies. It should be emphasised at the outset that when we talk of a procurement ‘system’, we are referring to whatever laws, regulations, decisions, procedures and practices are in place in any given country to regulate public procurement. The precise legal and regulatory framework will differ from country to country so that the term ‘system’ will be used as shorthand to cover all eventualities.

  • Definitions and Clarifications

    Before turning to the substance of the report, it is important to shed some light on the terminology used in the context of procurement and international trade. The terminology is not standard and many people use terms differently. Whatever terms are used, however, it is critical to understand what is meant by them in order to appreciate the significance of what is being discussed or negotiated. The following terms are used in this report.

  • Transparent Government Procurement

    As indicated in the introduction, we propose to consider the issue of transparent government procurement independently of market access. Whilst increased market access may improve procurement results by providing a greater pool of national and international bidders and a larger variety of products and prices, the real benefits in procurement are to be found in a sound and transparent national procurement system, regardless of whether foreign bidders are given privileged access to the domestic procurement market.Where any country is seeking membership of a regional or international economic organisation in respect of procurement, its membership will depend on the quality and level of transparency of that system. For the purposes of establishing a negotiating position, it is therefore necessary for a country seeking membership or association to be aware of the adequacy of its own procurement system. That will be the first issue for discussion. The question of market access comes later.

  • Market Access

    That procurement is now firmly part of the international trade debate is in no doubt, as is evidenced by the large number of bilateral and regional trade arrangements which contain provisions relating to it.53 These include the numerous bilateral free trade agreements (FTAs) entered into by the USA, the EU and EFTA with parties around the world, as well as the EU’s move towards economic partnership agreements (EPAs) with the 77 ACP countries. Whilst the provisions of each of these agreements are somewhat, and in some cases very, different,54 the general trend is that most are now beginning to follow the model provided by the WTO’s GPA, i.e. they include text establishing basic transparency provisions (the legal framework) and separately negotiate the coverage (market access) conditions. The transparency provisions will reflect those discussed above and will be based on an underlying procurement system which meets the requirements of the organisation in question. These may include the EU directives on procurement, the main text of the GPA 1994, the UNCITRAL model law on procurement55 or the OECD/DAC baseline indicators and their associated scoring methodology, which rewards features in a system that reflect good practice. In addition, the ‘coverage’ (market access conditions) of the provisions is be negotiated separately. These contain reference to the entities and contracts covered as well as any exemptions and reciprocity conditions.

  • Potential Trade Effects

    Trade effects or, more precisely, procurement-related actions which affect trade are quite often identified and considered from a narrow perspective, notably in the context of procurement actions which might have a discriminatory trade effect. This includes such things as domestic preferences, which provide a price or purchase73 preference for goods and services that are produced domestically or contain a defined level of domestic content or use of domestic labour. Similar effects are also attributed to other mechanisms such as ‘set-asides’ which set aside all or a given percentage of contracts for regional or even national firms, effectively excluding foreign competition for those contracts. The same discriminatory effect may be sought through what is, in effect, a procurement ban, where international competition is requested (or permitted) only where there is insufficient domestic supply.

  • Policy Options

    Based on the above analysis, the issues to be considered are clear, but the policy options that are available will depend on the situation of the country in question. There are two main concerns: transparency and market access.

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    • Dominica

      There is very little up-to-date information on the procurement system in Dominica. The two main reviews are the World Bank’s Country Procurement Assessment Report of 2003 and the OECS CPAR, also of 2003, which is effectively a reproduction of the World Bank CPAR. The latest review of the procurement system appears to be contained in the WTO’s Trade Policy Review of October 2007.108 This latter document indicates that very little has changed since 2003, although new and improved legislation is apparently imminent, as it was in 2003. This assessment is based on these reports. As a member of the Caribbean Community (CARICOM), Dominica is participating in the development of a common policy framework on public procurement in advancing the CARICOM single market economy.

    • Nigeria
    • Samoa
    • Tanzania

      This annex is based on a report commissioned by the Commonwealth Secretariat; its terms of reference are attached at the end of the main report. The possibility of conducting field work and empirical research was not foreseen by the terms of reference and therefore the study builds on available data, using and elaborating the outcomes of the literature on the economic and legal aspects of government procurement. Relevant data and studies were accessed via OECD andWorld Bank electronic resources and the Government of Tanzania’s official public procurement websites. Important data were also available in the Tanzania Procurement Journal (see also the Bibliography).

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