Behind the talks on transparency in government procurement

While the major developed countries remain unstinting in their push to bring government procurement under WTO discipline, developing countries are urging caution in approaching what is one of the few policy instruments available to them to achieve socioeconomic goals. These differences were played out in recent discussions at a WTO working group.

GENEVA: Discussions on 29 May at the WTO Working Group on Transparency in Government Procurement (WGTGP), a “Singapore agenda” item for study and with a focussed agenda, in terms of paragraph 26 of the Doha Ministerial Declaration, showed that there has been no change in the positions of various countries on this subject.

The discussions in the first formal post-Doha meeting of the WGTGP were based on a checklist of issues - definition and scope, procurement methods, information on national legislation and procedures, information on procurement opportunities, tendering and qualification procedures, and time periods - and technical cooperation and special and differential (S&D) treatment for developing countries.

Before the group was a secretariat note on the first set of five items out of a checklist of points made and issues raised in an informal note, sixth revision, by the chair of the WGTGP in November 1999 (document Job (99)/6782).

The note purports to be in pursuance of a request made at an informal meeting of the working group in March (to prepare for the formal meeting). It deals with the five items on the basis of information considered by the working group on provisions in existing international instruments (the UNCITRAL model law, the World Bank procurement guidelines for projects and programmes financed by it) and the Government Procurement Agreement, a plurilateral agreement among mainly the OECD members of the WTO.

In providing a summary of the discussions in the working group since its establishment in 1997, the secretariat note is in fact attuned to negotiations for an agreement and goes much beyond transparency issues.

Also before the working group was an Australian discussion paper on one of the items on the checklist, namely methods of procurement, that says its objective is for a “flexible, non-prescriptive” approach to selection of methods of procurement. However, whether intended or not, some of its ideas on “probity and accountability” really fall in the realm of an agreement where the WTO will have remit over the administration of procurement policies by member governments.

When government procurement was brought onto the WTO agenda after the 1996 Singapore Ministerial Conference as the subject of a study process in the WGTGP, internal documents and papers of the US and EC left little doubt that they were approaching the issue in terms of access for their corporations to the procurement markets of developing countries, and that for them an agreement on “transparency in government procurement” would only be the first step to getting this issue into the WTO neo-mercantilist framework.

Some trade officials said that the two main demandeurs, the EC and the US, were this time around less strident in their tone in pushing for negotiations on this issue, and were more in a ‘listening’ mode.

Some trade diplomats, however, said this would be misleading.

The EC’s and US’ current posture and interventions in the WGTGP on 29 May, while attempting to suggest that they were in a ‘listening’ mood rather than pushing demands, seemed to be aimed more at ‘persuading’ the developing countries to agree by consensus at the next Ministerial Conference (in Cancun, Mexico in September next year) to start negotiations on this (and the other three so-called “Singapore issues”: investment, competition policy and trade facilitation).

However, it was also apparent that the attempt was to secure agreement on negotiations at Cancun, and then, as happened in the Uruguay Round (and at Doha), to change the mandate and scope of the negotiations as they went along.

For example, questions raised or suggestions by developing countries to confine the discussions (and, for that matter, even the checklist of issues) to those matters relevant to “transparency” met with the response that these could be addressed in the actual course of negotiations!

Since Singapore, the WGTGP process has had a low priority for the developing countries, which by and large are short-staffed. It is so even now. Several developing-country diplomats in the past have been known to just ‘pick up’ the draft reports of meetings from the secretariat and file them to their capitals as their own, thus presenting an even more misleading view to the capitals. By the time, in the small number of developing-country missions that do cover such meetings, the reports of those attending are absorbed and reflected in refining their views and positions, the tendency among developing countries is to start from the status quo (after having already conceded something in the past). The approach of developed countries, on the other hand, is to use this as the starting point to go back and achieve what they had to put aside in earlier talks.

Reality of S&D treatment

The EC, in its interventions on 29 May, was at pains to suggest that it was agreeable to providing “flexibility” to developing countries in terms of even the obligations they might undertake under “transparency”.

And though there was also talk about S&D treatment, it is apparent that developing countries and even organizations (like the UN Conference on Trade and Development (UNCTAD) or other more limited intergovernmental organizations of the South) that evoke this (with some even seeing it as providing a ‘niche’ for their own activities and existence) need to do some fundamental rethinking.

The concept of S&D treatment figured in the Punta del Este Declaration (which launched the Uruguay Round) as a fundamental principle and element, is adverted to often in the WTO agreements, and has been reiterated in the Doha Ministerial Declaration. However, the way the subject is being dealt with by the major trading powers (whether as an “implementation” issue or within the WTO Committee on Trade and Development) shows that as far as the majors and the WTO trade officials are concerned, this will remain a concept to which some genuflections would be made but without any concrete or operational content.

In terms of the WTO and its agreements and remit that go far beyond trade in goods and now involve or attempt to involve the domain of domestic policy (in services, intellectual property rights, etc.), the invoking of S&D treatment as a slogan - or, by the likes of the EC, as an offer of “flexibility” - could prove very misleading and even dangerous to the developing world, which is still trying to cope with the Uruguay Round commitments and what exactly the provisions on S&D treatment therein mean in operation and practice.

For, the only operational S&D treatment in the WTO agreements seems to be in terms of clear rights for the highly industrialized world - in such areas as agriculture, subsidies and credits, and even services and intellectual property rights. Where developing countries are concerned, however, S&D treatment appears to consist of, at best, the hortatory and discretionary ability of the majors to grant some concessions. And as is now being seen, in the seven years of trade under the WTO, invariably the concessions and trade preferences are given by the majors at no cost to themselves, but by altering the competitive trading conditions for one set of developing countries to the detriment of others.

The S&D concept was evolved by Raul Prebisch in the context of trade between unequal partners, and when “trade” and the rules, rights and obligations of that trade involved only the crossing of goods across borders. It was a move to ensure that the developing countries would be able to export to markets of developed countries on a preferential basis (vis-a-vis suppliers from other developed countries) and compete on an equal basis with domestic suppliers. This was what the concept of the Generalized System of Preferences (GSP) - generalized, non-reciprocal and non-discriminatory preferences - was all about.

But this has been distorted into preferences as between classes of developing-country exporters and suppliers - first between developing and developed, and later among developing - while domestic producers remain protected and more benefits are obtained by developing exporters which have subcontracting or other schemes linked to domestic firms of industrialized importers.

To invoke an S&D concept as originally envisaged by Prebisch in the writing of rules in areas of activity involving domestic economic policies of countries, more so developing countries, and for governments of these countries to point to S&D provisions in these to persuade their domestic parliaments, businesses and consumers, is likely to turn into a con game which would quickly rebound against them.

Key policy instrument

At the WGTGP informal meeting in March, India and a few others had suggested that the group should have a general discussion, in the light of the Doha work programme, before proceeding to address issues. The agenda suggested by the Chair had no such items, but was initiated under any other business!

In the discussions and general statements in the 29 May meeting, India said that government procurement is one of the very few policy instruments for developing countries to achieve socioeconomic goals. Hence, members should move cautiously in this area. In India’s view, developing countries would find it difficult to take on new obligations in addition to the Uruguay Round commitments. Any agreement in this area should focus exclusively on transparency, with no obligation to change domestic laws. There should be exclusion of the scope of any negotiations towards an agreement to bring under “transparency” tenders not open to foreign suppliers. Also any agreement should have no link to the WTO dispute settlement mechanism.

India said that the discussions at the next meeting (in October) should focus on items in the Chairman’s checklist of issues, and delete those items that are not related directly to transparency.

However, it was apparent that the EC and others did not want this, with the EC suggesting that the issues like those raised by India could be dealt with in the negotiations!

Honduras and Malaysia stressed that in terms of the Doha mandate, there should be explicit consensus at the next Ministerial Conference before negotiations could proceed.

India insisted that the issues raised related to the study process and clarifying of the issues in relation to the Ministerial meeting to enable ministers to take a decision. It was not a matter to be clarified in negotiations, if a consensus to start them is achieved. Otherwise, developing-country negotiators will not have a “level playing field” for the negotiations.

The developing countries had so far not achieved anything from the promises of S&D treatment in the Uruguay Round and the agreements resulting from it. There was still no headway made in addressing the implementation problems relating to the Uruguay Round agreements, and promises of flexibility will not get around the problem. The Doha Ministerial Declaration required work only on the transparency problems, and the study process had to relate to the mandate and nothing more.

At the next Ministerial, India said, every member had the right to prevent the launch of negotiations by denying consensus, if the issues are not properly clarified in the study process itself.

The EC, in more general comments, said that it had been “stimulated” by the Indian statement but had not been prepared for it. It was however unwilling to “open up” the mandate of the working group, and said that the checklist had been agreed to (in 1997, when the study process began) and should not be changed.

Switzerland and Canada supported the view, while Morocco said it had recently adopted a law for government procurement and was ready for WTO negotiations.

However, said some trade diplomats, the EC line (as that of the US) seemed to suggest that their aim is to have a building-block approach to the various aspects of government procurement, starting with “transparency”. In such a context, even an agreement to negotiate transparency could become problematic.

India again proposed that the next meeting of the working group (10-11 October) review the checklist of items and on that basis have further discussions.

According to some participants, there was no objection to the Indian reiteration of the need to address the checklist at the next session. The Chair apparently concluded the discussions by saying that the working group would revert to it at the next meeting. But it remains to be seen what would be done at the next meeting.

The EC also said that while it supports a WTO agreement in this area, it favoured a principles-oriented approach that would grant flexibility to developing countries and create a rules-based environment of transparency that would lower procurement cost and discourage unscrupulous practices.

The US agreed with India that the mandate is limited to transparency and not market access. It however disagreed that government procurement as a policy tool would be diminished by more transparency.

However, this argument is only partially correct. Given prevailing power equations, and the way the major industrial countries and their embassies in major developing-country capitals ‘canvass’ procurement contracts on behalf of the corporations of their countries (particularly those getting the ears of personalities in power through funding of elections), even transparency notifications would provide sufficient information to corporations to use it to make governments change policy.

At an earlier stage, internal papers and documents of the US and EC clearly brought out that for them “transparency” is just an opening gambit in a strategy to ultimately secure greater market access for their own corporations and their ability to bid on government procurement in developing countries. There is little evidence that any of these objectives has been given up by the EC or the US.

Discussions on checklist items

The WGTGP then discussed the first six items on the Chairman’s checklist of issues: definition and scope, procurement methods, information on national legislation and procedures, information on procurement opportunities, tendering and qualification procedures, and time periods.

On definition and scope, the EC, the US and Switzerland said that they should be as broad as possible. However, Malaysia and Indonesia said sub-central agencies and services should be excluded.

The discussions again showed divergences, not only over policy issues but also arising from the lack of capacity of developing countries to fulfill any future obligations. India and others cited these to argue that any WTO transparency agreement should carry no obligation to change domestic laws and regulations. Any WTO negotiations or accord should not place restrictions on procurement policies of countries.

The secretariat note on these issues, purportedly based on earlier discussions in the group, has focussed mainly on what could be negotiated and how - whether based on the language relating to government procurement in GATT 1994 and GATS (General Agreement on Trade in Services) - and for bringing within the scope contractual agreements or transactions entered into by government entities.

However, several countries had problems with bringing within the scope public-sector undertakings and public utilities and their contracts, when there would be no such requirement relating to private-sector competitive entities and service providers.

India said these were issues to be discussed and agreed to by governments in the study process, and it was not for the secretariat to make distinctions between what should be covered and what need not.

India and several others noted that extending the terms of any transparency agreement to all levels of governments and entities would be too burdensome. In many large countries, governing entities ranged from village and district levels to state and federal levels. Procurements were all subject to financial rules and procedures and subject to state audits. These could not be brought under further scrutiny at the WTO or new obligations.

The issue of government procurement in services was being addressed in a GATS working group and hence should not be considered in the transparency study group, India said. Malaysia agreed with this view.

The EC however insisted on the need for a broad coverage, with a higher “threshold” for developing countries. The US shared the EC approach. The US was also concerned over the Indian view that any future agreement could not be allowed to require changes in domestic law at the end of the day. If there were no change in law, there would be no transparency, the US argued.

The US wanted national legislations to be notified by countries as part of the study process. The Chair said that in response to earlier requests, only 10 members had notified and provided information. Indonesia said that extending these questions beyond central governments, or having a low threshold, would be too burdensome.

India argued that even now under GATT and GATS, the developed countries invoked “security” as a consideration in obtaining exemptions from their own obligations. In India’s view, “development” should also be made an exception.

On procurement methods, Australia submitted a paper (document WT/WGTGP/W/31) that would leave to the government the right to decide what method to use. The Australian paper said that the objective is premised on the belief that a government going to tender has the right to decide what it wants to achieve for the money it spends. Hence, it is important that governments have the flexibility to select the method of procurement necessary to deliver their procurement objectives.

In this view, the paper said, governments can choose among a range of recognized procurement methods: open, selective, pre-qualification, sole source. As no single procurement method suited all situations, the appropriateness of one method over another should be determined by the circumstances of each procurement. Attaching a specific procurement method to either prescribed conditions or a monetary threshold may impede a government’s ability to realize the efficient and effective delivery of the objectives. A non-prescriptive approach would enable a government to fully consider the requirements and existing market conditions of each procurement and to select a method on its merits.

This idea of a non-prescriptive approach obtained wide support, trade officials said.

However, what was flagged in the paper would appear to suggest that the future agreement, if any, would go beyond transparency and deal with administration of procurements, including domestic judicial or administrative processes to deal with them.

Some of the other ideas in the Australian paper have the potential for circumscribing the policy options of developing countries: they are presented in terms of “probity” and “accountability” of governments, though it is not clear to whom governments are to be accountable.

It says, for example: “The selection of the most appropriate procurement method and the subsequent procurement process need to occur within a robust accountability and probity framework. Such a framework sets out government accountability requirements to ensure objective, fair and consistent treatment of tenderers, regardless of the procurement method selected, and provide guidance on issues such as confidentiality and conflict of interest.”

“A robust accountability and probity framework,” the Australian paper adds, “also requires appropriate documentation of key decisions in the procurement process, including details of the procurement method selected. This documentation creates an audit trail of the decision-making process, facilitating scrutiny by the relevant bodies and mechanisms outlined in the accountability and probity framework.”

It is difficult to avoid the suspicion that behind all these nice-sounding phrases and the rubric of “globalization” lurk the 21st-century version of the white man’s burden and neo-mercantilism.

Trade officials said there was less disagreement on information on national legislation, with the EC and the US calling for information on all laws and regulations while India said the obligation should be limited to providing information and that there should be no review or examination of the laws and regulations.

Brazil said that its laws and regulations on procurement were already available on the Internet but that it would oppose any obligation to have all tenders translated into WTO official language and notified. It said there are 2,500 entities at federal level that undertake procurement in Brazil. Venezuela supported Brazil’s view.

On the issue of information on procurement opportunities, tendering and qualification procedures, the US said this was a critical area “where the rubber meets the road” because this is how interested suppliers could learn about opportunities. Thailand said this should only apply to mega-projects.

On the issue of time periods, India, supported by Jamaica, said that this should be deleted from the checklist because it is not directly related to transparency.

The US said this was important because potential suppliers should be given enough time to bid. It was supported by Malaysia, which called for more discussions on this item.

Some of the remarks and demands under this item seemed to suggest that the major industrialized countries were attempting to make WTO members do some work to provide information for the benefit of the major transnational corporations to enable them to tender. Why developing countries should be asked to undertake obligations at the WTO to cut costs for TNCs or the commercial wings of various embassies is an issue that no one seemed ready to challenge openly.

Summing up the discussions, WGTGP Chairman Amb. Ronald Saborio Soto said that the first formal meeting had been useful, with points of convergence but also differences of positions, and that a lot of work remained to be done.

The next meeting, he said, would take up the remaining six items on the checklist: transparency of decisions on qualification, transparency of decisions on contract awards, domestic review procedures, other matters related to transparency, information to be provided to other governments, and WTO dispute settlement procedures. (SUNS5130)

From TWE No. 281 (16-31 May 2002)