Opinion

India and the WTO procurement deal

Updated on: Feb 21, 2013

Government procurement holds out promise in the context of slowdown, but India should weigh its options.

In 2010, India attained an ‘observer status’ in the >WTO Government Procurement Agreement (GPA). Its ascension to full member status in GPA hangs in the balance. It gathered momentum with the slowdown in world trade and increase in current account deficits of several major economies.

The potential size of the market for government procurement is estimated at $1.6 trillion and the need for principles of good governance is felt all the more in these difficult economic times, making active participation of developing countries in the WTO GPA a much-sought-after initiative.

The literature on government procurement suggests two key objectives for countries anticipating accession to the WTO GPA: a) to enhance export markets as provided by GPA member countries, and b) to embrace reforms to internal market and administration so as to benefit from good governance aspects of the WTO GPA.

While a country can employ a combination of objectives, its strategy of accession to the Agreement would need to be considered on its own merits, based on an assessment of potential benefits and costs.

In the WTO GPA, commitments are made in the form of ‘government entities’ apart from committing certain sectors of goods, services and concession contracts. These commitments are further qualified by thresholds (value of the government purchase) above which the agreement begins to apply, and exclusions and exceptions are determined.

MARKET ACCESS

Despite the touting of good governance principles of transparency and integrity, these reasons appear to pale in comparison with tangible economic reasons of “market access”.

The GPA members present huge figures as indicative of potential market access opportunities. In practice, a large number of contracts granted by the Government are below the threshold value, which is out of the purview of the commitments under the WTO GPA. Further, countries maintain significant ‘exceptions’ and ‘exclusions’ for social purposes or for procurement pertaining to certain utilities, or exclude procurement by their sub-central entities.

For instance, in case of Chinese Taipei, data reveals that more than 95 per cent of total procurement contracts above threshold are awarded to domestic firms while in the EU, less than 5 per cent of the size of its total government procurement market — that is, out of €292 billion only €13 billion contracts in value terms was awarded to other GPA countries.

Furthermore, owing to the absence of the principle of non-discrimination, WTO GPA members prohibit the access of certain markets to certain other member countries unless comparable market access is dealt out.

In WTO GPA negotiations, once the size of one’s government procurement market and resultant “negotiating capital” is calculated, a complex game of layering one’s demands with respect to different negotiating countries comes into play. Several newer challenges are experienced, such as certain countries refusing to commit their sub-central government entities or procurement pertaining to the provision of certain utilities to the disciplines of the WTO GPA.

Countries may also offer certain restricted markets to selective countries in return for increased market access distinct from the market access available to other member countries of the WTO GPA.

INDIA’S SITUATION

Where does all this leave India? India may desist from joining the WTO GPA indefinitely. However, such a decision to ‘abstain’ from joining this agreement will not be passive anymore and will have to be taken after defending and foraging for market access opportunities elsewhere.

The following are some specific factors that India should consider while deciding its possible accession to the WTO GPA:

India remains outside an elite club which is currently formulating modalities and disciplines for participation in government procurement.

POTENTIAL AREAS

The members of the club will evolve newer channels of inducing increased participation and impel exclusion of countries through increased application of “Buy Local” laws which may exempt WTO GPA countries in certain countries.

If India considers joining the agreement at a later point of time, it may encounter harsher demands from the then existing members.

The WTO GPA contains certain flexibilities for developing country members — it allows them to phase-in entry of certain entities and social exceptions can be maintained when concomitant market access opportunities are pledged.

Keeping these factors in mind, a CUTS study on government procurement has done some quantitative analyses of market access opportunities for India in GPA and non-GPA countries. It argues that other than construction services, pharmaceuticals and computer and related services offer biggest opportunities for the Indian firms.

Most of the opportunities in these sectors are expected to emerge from the EU, Japan and the US, who are members of the WTO GPA.

By calculating market access opportunities in government expenditure, our study reveals that there is a sizeable market in many major economies who are currently not members of the WTO GPA but expected to be — for instance, $1.7-trillion market in China, $ 960-billion market in Brazil.

Among those who are members of the WTO GPA, government expenditure accounts for as much as 56.2 per cent of gross domestic product in France, a market worth $1.56 trillion and as much as 42.4 per cent in the US amounting to a market of $ 6.37 trillion. These countries present opportunities for Indian suppliers to develop their competitiveness and contest for procurement contracts internationally in sectors such as information technology, pharmaceuticals, minerals, machinery and electrical equipment.

Thus, membership to the WTO GPA may not be entirely bad news for India but it is important to bear in mind that potential benefits of joining this agreement will be determined by various factors, such as India’s ability to compete with other member countries, willingness of other countries to make their procurement market available to Indian firms.

Hence, it is advisable to enter this negotiation armed with pertinent information seeking to optimise value for both parties. In this regard, inputs from stakeholders in different government departments, industries, public sector undertakings are crucial, keeping in mind the value that our commitment can generate and what we expect from other GPA members.

(The authors are lawyer and policy analyst, respectively, with CUTS.)

Published on February 21, 2013

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