Transparency in Government Procurement (TGP)

Government Procurement (GP) in developing countries is estimated to account for 9-20 percent of Gross Domestic Product (GDP). GP covers purchases of goods and services made by the national, provincial or municipal governments and its various agencies out of their budgetary resources. GP can also be financed from aid received through bilateral or international aid programmes. The share of GP in national public finances is significant. An effective, competent and transparent procurement process can therefore enhance national and global welfare.

Transparency in Government Procurement (TGP) was one of the four “new issues”, included in the World Trade Organisation (WTO) at the 1996 Singapore Ministerial Conference. Article 21 of the Singapore Ministerial Declaration agreed to “establish a working group to conduct a study on transparency in government procurement practices, taking into account national policies, and, based on this study, to develop elements for inclusion in an appropriate agreement”. In 2001, during the Fourth Ministerial Conference in Doha, WTO Members agreed to launch negotiations on transparency aspects of government procurement after the Fifth Ministerial, subject to explicit consensus on modalities at that Session. However, Members did not reach an agreement at the Fifth Ministerial Conference at Cancún in 2003 and consequently no decision was taken.

A clear and efficient government procurement process is fundamental for development. Transparent, impartial and understandable procedures can contribute to the enhancement of national welfare, by restricting corruption and rent-seeking behaviour. It can moreover improve competence and effectiveness through the efficient allocation of resources and bids to competent tenders. Stable institutions and good governance are key features of a well functioning state. Transparency in the rules and actions of the procuring authorities is therefore essential.

Many developing countries are nevertheless sceptical of WTO negotiations on Transparency in Government Procurement (TGP). The Doha Text states that negotiations shall be limited to transparency aspects of government procurement only. However, the disbelief of some developing countries is due to three main reasons. First, the fear that the negotiations on TGP will inevitably expand to include market access issues. Second, accession to a possible agreement on TGP could restrict their policy choices in developing and supporting small and medium-size enterprises. Finally, the implementation costs that a possible agreement on TGP implies for developing countries would be considerable. Moreover, the harmonisation of different procurement regimes would entail changes not only at the national, but in many cases also at the local level.

II. Study Plan

The research project on TGP will cover five issues. These are: scope and definition of transparency in government procurement, WTO core principles vis-à-vis a TGP, elements of technical assistance and capacity building, dispute settlement aspects and select country case studies. A brief paragraph elucidating the likely content of each is given below.

2.1 Scope and Definition

A clear distinction between the definition and scope of transparency in government procurement is required. It would be useful to examine the suitability of a narrow vs. a broad approach. The paper could discuss whether the scope should be restricted to the availability of information on rules and procedures rather than extended to the harmonisation or overhauling of procurement practices. In the latter case, it could encroach on domestic policy space and lead to higher administrative and logistical costs. While defining “transparency” and identifying its scope some other issues may also be examined. These are who is doing the procurement? What is being procured? What types of transactions are covered?

This paper would also look into the scope and definition of the existing plurilateral agreement of the Committee on Government Procurement and see how and on what basis those elements (if at all) can be taken into consideration for a possible multilateral agreement on transparency in government procurement. It may also look into the aspects of estimating the damage caused to an affected party for not adhering to transparency in government procurement.

2.2 WTO Core Principles and TGP

In this issue paper, it will be important to examine how the Doha mandate on TGP can be implemented without contradicting the two core principles of the WTO, namely non-discrimination between countries (Most Favoured Nation Treatment) and non-discrimination within a country (National Treatment). A future agreement on TGP will not only contradict Article III of the GATT but also test WTO core principles vis-à-vis the Doha Mandate. As per Article III, government procurement is exempted from the basic rules of National Treatment. Furthermore, if the WTO’s National Treatment and MFN are imposed on members in the TGP, it will exclude them from giving price and other preferences to domestic producers. This could lead to a violation of the Doha mandate.

Furthermore, this issue paper will also discuss the appropriateness of a possible multilateral agreement on transparency in government procurement by examining the relevant issues in the light of the Preamble of the Agreement Establishing the WTO. In so doing, it will look into the development dimensions of transparency in government procurement.

2.3 Technical Cooperation and Capacity Building

Technical cooperation (TC) and capacity building (CB) are essential for ensuring the successful implementation of a possible multilateral agreement on transparency in government procurement. Further, it is necessary to identify the individual needs of developed and least-developing countries in order to sketch out technical cooperation and capacity building plans. The provisions on technical cooperation should match the specific requirements in a possible agreement; compliance with the rules of a possible agreement might require changes in national legislation and building up of new institutions. This calls for the involvement of multilateral and inter-governmental agencies (other than the WTO) in making technical and financial resources available, in response to specific requests from developing and least developed countries.

2.4 Dispute Settlement and TGP

Two distinct points of view are emerging on the likely dispute settlement procedures for any possible agreement on TGP. One states that any commitment on transparency in government procurement should be subject to the Dispute Settlement Understanding (DSU) as applicable to other existing WTO agreements. Another view has been that it is questionable whether the dispute settlement system could impose obligations on transparency in the absence of commitments with respect to market access. This issue paper will look into various dimensions of transparency in government procurement and dispute settlement.

2.5 Country Case Studies

The country case studies will be done by considering the following hypothesis: “Increased transparency in government procurement will reduce corruption.” Among others, the case study will examine the existing policy on government procurement, how is it being implemented, how transparent it is, has this policy been changed over time to make it more transparent (or otherwise), is there a federal policy or different agencies have different policies (if yes, should they be harmonised for achieving better transparency), is there a regulatory body to monitor the policy on government procurement (if yes, how is this body functioning; positive aspects and shortcomings). Other issues, which may also be examined, are: a) Transparency as a means to prevent covert discrimination; b) Transparency as a means to promote value for money; and c) Does absence of transparency create barriers to trade? If the analysis infers that the hypothesis is true, what could be the possible policy measures (and concomitant implementation mechanism) to improve transparency in government procurement. 

2.6 Researchers

The TGP research group comprises nine international experts and one coordinator. The papers produced so far cover the following issues:

1. International Cooperation and the Reform of Public Procurement Policies
2. Southern Issues and Perspectives on a Transparency in Government Procurement Agreement within the WTO
3. Transparency in Government Procurement: Dispute Settlement Aspects of a Possible Multilateral Agreement
4. Case Study on Electronic Government Procurement in Brazil
5. Transparency – a Prescription to Cure Corruption in  Government Procurement? (case study of China)
6. Transparency within the South African Public Procurement System
7. Government Procurement in Ecuador
8. Transparency in Government Procurement: A Malaysian Focus
9. Synthesis Report: Unpacking Transparency in Government Procurement: Rethinking the WTO's Government Procurement Agreement