CENTRE EUROPÉEN DE DROIT ET D’ECONOMIE – CEDE - EUROPEAN CENTER FOR LAW & ECONOMICS OPENING UP OF INTERNATIONAL GOVERNMENT PROCUREMENT Based on the research program "Europe and competitiveness“ www.cede-essec.fr By Dr. Viviane de Beaufort , ESSEC Business School – co-founder of the ECLE With the participation of Edouard Devilder and Edouard Simon , ESSEC Business School, research assistants European Center for Law and Economics
INTERNATIONAL GOVERNMENT PROCUREMENT Definition � Contract signed with a government entity or an institution (States or awarding entities) via an international tendering process "Major contracts" � Large amounts which are continuing to rise • Localization increasing to the benefit of emerging countries • (by 2015, 90% of world growth will be generated outside Europe - Trade and Investment Barriers Report 2011) Activities with very high value added • Long-term follow-up (maintenance and services contracts lasting several decades) • Sectors considered as "strategic" from an economic point of view: knock-on effect/ • technology/jobs, etc. Large groups : Thales, Saab, EADS, AREVA, DCNS, Rheinmetall, etc. • …And political implications: a good indication of a country’s influence on the international stage! European Center for Law and Economics
GPA and opening up of GOVERNMENT PROCUREMENT The Government Procurement Agreement (GPA): (Annex 4B of the Marrakesh Declaration establishing the World Trade Organization) Although it represents a major part of a country's market for foreign � suppliers, government procurement was excluded from the application of the multilateral trade rules under the GATT. � A specific Agreement on Government Procurement (GPA )was signed and came into force in1996. Main aspects � Provisions relating to national treatment and non-discrimination Procedural aspects designed to ensure that covered procurements are � carried out in a transparent and competitive manner Application of the WTO Dispute Settlement Understanding � � An open agreement (any WTO Member can accede to the GPA) European Center for Law and Economics
Principle of non discrimination Article I Article III Scope and Coverage National Treatment and Non-discrimination any law, 1) This Agreement applies to regulation, procedure or practice regarding any procurement by entities covered by this …Each Party shall provide immediately Agreement, as specified in Appendix 1*. and unconditionally to the products, services and suppliers of other Parties 2) This Agreement applies to procurement by offering products or services of the any contractual means. treatment no less Parties *For each Party, Appendix 1 is divided into favorable than: five Annexes: Annex 1 contains central government entities . • Annex 2 contains sub-central government a) that accorded to domestic • entities . products, services and Annex 3 contains all other entities that • suppliers… procure in accordance with the provisions of this Agreement. Annex 4 specifies services, whether listed b) that accorded to products, services and • positively or negatively, covered by this suppliers of any other Party. Agreement. Annex 5 specifies covered construction • services. 4 European Center for Law and Economics
APPLICATION in the EUROPEAN UNION Opening up of European government procurement (EU & EU Members States) To operators in the EU member States but also to operators in countries signatory to the GPA Equal treatment principle Guarantees the application of equally favorable conditions to operators coming from countries signatory to the GPA Art. 5 directive 2004/18/EC • Art.12 directive 2004/17/EC • � Incorporation of the GPA into EU law Since January 1, 1996 when the GPA came into force all covered contracting entities (meaning States, EU and so on )have to comply with the requirements of the GPA European Center for Law and Economics
BUT ….! LIMITED EFFECTIVENESS OF THE GPA Few States are party to the Agreement Canada, EU, Korea, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Norway, the Netherlands, Aruba, Singapore, Switzerland, Chinese Taipei, USA AND Numerous exceptions to the Agreement Parties have negotiated important limits to their market opening commitments in the form of minimum thresholds or exclusion of sectors or entities (such as sub-federal). And there are even more exceptions... European Center for Law and Economics
What Exceptions? 1/ THE "DEFENSE EXCEPTION" EXCEPTION TO THE GPA AGREEMENT (ART. XXIII §1) Nothing in this Agreement shall be construed to prevent any Party from taking any action or not disclosing any information which it considers necessary for the protection of its essential security interests relating to the procurement of arms, ammunition or war materials, or to procurement indispensable for national security or for national defense purposes. EXCEPTION TO THE EU TREATY ( ART. 346) 1) The provisions of the Treaties shall not preclude the application of the following rules:… b) any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes. 7 European Center for Law and Economics
What Exceptions? 2/ THE "PUBLIC INTEREST" EXCEPTION (ART. XXIII §2) […]Nothing in this Agreement shall be construed to prevent any Party from imposing or enforcing measures necessary to protect public morals, order or safety, human, animal or plant life or health or intellectual property; or relating to the products or services of handicapped persons, of philanthropic institutions or of prison labour. Trade and Investment Barriers Report 2011 European Commission THE "PUBLIC INTEREST" EXCEPTION This exception ThThis exception is open to broad interpretation European Center for Law and Economics
THE "PUBLIC INTEREST" EXCEPTION is open to broad interpretation Public safety motives Transport safety requirements in Japan are earthquake-related: only 4% of Japan's total public procurement are open to foreigners � National preferences : (WTO 2009-2010 report or Trade and Investment Barriers European Commission Report 2011) USA, American Recovery and Reinvestment Act of 17/2/2009: • Section 604 requires the Department of Homeland Security (DHS) to procure US-manufactured textile and apparel goods, subject to certain exceptions • Section 1605 requires that only US-produced iron, steel and manufactured goods be used in public buildings and public works funded by this Act Regional markets closed down due to a power split between federal and local agencies Canada: national preference rules allowing a price difference of up to ten per cent to be taken into account. Applies in Quebec, Ontario and British Columbia. European Center for Law and Economics
Exceptions regarding underdeveloped countries They are are not required to open up their markets… The GPA authorises differential treatment for developing countries (Art. 5 GPA) But what is a "developing country“? • Eg: China’s resistance as regards adhesion to the GPA • * cf. December 2010 US Trade Report to Congress on China’s compliance with WT Result: obvious discrimination among WTO States which are not party to the GPA Eg: Indigenous Innovative Procurement Scheme (China) or Sanitary and Phytosanitary (SPS) import requirements (India) Access of foreign companies to the procurement market is becoming even more difficult than before • Eg: a recent law introduced a 25% preference margin for local goods and services and restricted to national suppliers the procurement of goods and services considered of national strategic interest (Brazil) European Center for Law and Economics
OFFSETS CONSTITUTE FURTHER BARRIERS Offsets in government procurement are measures used to encourage local development or improve the balance-of-payments accounts by means of domestic content, licensing of technology, investment requirements, counter-trade or similar requirements. What about offsets in the GPA? Article XVI Offsets §1 Entities shall not, in the qualification and selection of suppliers, products or services, or in the evaluation of tenders and award of contracts impose, seek or consider offsets. European Center for Law and Economics
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