Government procurement has been treated quite differently in trade agreements initiated by the US than in those that have been led by Asian governments. US-led trade agreements, including the Trans-Pacific Partnership Agreement (TPP), incorporate government procurement commitments as an important element. In contrast, Asian-led trade agreements omit or minimize government procurement provisions. The parties to Asian agreements, such as the Regional Comprehensive Economic Partnership (RCEP), should consider the benefits of including government procurement in their trade pacts.
Benefits of including procurement in trade agreements
The benefits of incorporating government procurement into trade agreements are three-fold. First is the significant role of government procurement in countries’ economies. At the WTO Ministerial meeting in Bali, Indonesia in December 2013, the WTO Director-General Roberto Azevêdo emphasized that since government procurement represents 15% to 20% of gross domestic product worldwide, it plays an important role in economic activity. He also pointed to the growing significance of government procurement in international trade, which he attributed, at least in part, to the expansion of the WTO Government Procurement Agreement (GPA) and related trade agreements that cover government procurement.
Second, a country’s undertaking of procurement commitments in a trade agreement has domestic benefits. The Asia Development Bank (ADB), Asia Development Bank Institute (ADBI), and the Inter-American Development Bank (IDB) elaborated upon these benefits in a recent publication. They concluded that: “An efficient procurement system founded on the principles of non-discrimination and transparency can ensure the optimal use of public funds.” In addition, they found that including government procurement, as well as competition policy and investment provisions, in a trade agreement “are key factors in facilitating FDI flows and the development of production networks.” A procurement system that complies with international procurement rules sends a positive signal that the country is open to international business and investment.
Third, when trade agreements cover government procurement, the parties to the agreement are opening their procurement to one another under an umbrella of common principles. According to ADB, ADBI, and IDB that “foster[s] deeper economic integration” among the parties to the agreement.
US–led TPP includes government procurement
The US has included a government procurement chapter in all of its free trade agreements (FTAs), beginning with the North American Free Trade Agreement in 1994. The US has had two broad objectives for the procurement obligations in its FTAs. One has been to obtain new market access opportunities for US goods, services and suppliers in its partners’ procurement markets, in exchange for access to the substantial US procurement market. The second objective has been to ensure that the procurement covered under the FTA is conducted in a non-discriminatory, fair, transparent, and predictable manner. To meet these objectives, the FTAs specify the procurement covered under the agreement and the disciples that apply to the conduct of that procurement.
The US is engaged in negotiations of the TPP with 11 other countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam. The TPP is intended to be a comprehensive agreement with government procurement as an integral element. Its government procurement chapter will likely be similar to those in other US FTAs. Aligning the TPP with other FTAs will be facilitated by the fact that the US and six of its TPP partners (Australia, Canada, Chile, Mexico, Peru, Singapore) have already exchanged procurement commitments under FTAs.
With its present Asian parties, the TPP will be the largest agreement in Asia to include strong government procurement commitments. Moreover, it may expand beyond its current membership. Other Asian countries, such as the Republic of Korea, are examining whether to seek membership in the TPP. As a consequence of its size, the TPP could be expected to play an important role in setting the procurement standards for trade agreements in Asia.
The significance of TPP’s role in setting procurement standards will be enhanced if, as expected, its provisions reflect the recent revision of the WTO GPA. The GPA is the largest international procurement agreement, covering 43 WTO members. Only four of the GPA parties are from Asia (Hong Kong, China; Japan; Republic of Korea; and Singapore). However, the People’s Republic of China (PRC) and New Zealand are both in negotiations to join the GPA.
Asia-based FTAs generally avoid procurement
In contrast to US-led FTAs, including the TPP, Asian-based FTAs have excluded government procurement or included procurement-lite provisions. In a recent study of the PRC and India FTAs in effect in June 2011, Ganeshan Wignaraja found that they all omitted procurement, with the exception of one Indian agreement with the Republic of Korea. However, that agreement only provided for cooperation with respect to procurement. Similarly, the ADB 2013 Asian Economic Integration Monitor concluded that the Association of Southeast Asian Nations’ (ASEAN) trade agreements “do not effectively address” government procurement or other non-tariff barriers. Its overall assessment of ASEAN FTAs was that they “hardly promote regional economic integration or ASEAN’s integration with the wider Asia or the global economy.”
The trend of Asian agreements to avoid government procurement commitments appears likely to continue in the RCEP. It is proposed as an FTA between the 10 ASEAN Members (Brunei Darussalam, Cambodia, Indonesia, LAO PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam) and the six countries with which ASEAN has FTAs. The “plus six” group is comprised of Australia, PRC, India, Japan, the Republic of Korea, and New Zealand.
To date, the RCEP has not included government procurement. However, it should consider including procurement obligations in order to take advantage of the benefits outlined above.
Of the 16 countries engaged in the RCEP negotiations, six have undertaken procurement obligations in other non-Asian agreements. One-quarter (Australia, Japan, the Republic of Korea, Singapore) have government procurement commitments with the US under the GPA or an FTA. Two other RCEP parties (Brunei Darussalam and New Zealand) are parties to the Trans-Pacific Strategic Economic Partnership Agreement (P4 Agreement), which includes government procurement commitments and was the precursor to the TPP.
In addition, three other RCEP participants are engaged in negotiations that will include coverage of procurement. As noted above, the PRC is in negotiations to join the GPA, as it promised to do when it joined the WTO in 2001. In addition, Malaysia and Viet Nam are participating in the negotiation of the TPP.
Only seven RCEP countries (Cambodia, Indonesia, LAO PDR, Myanmar, Philippines, Thailand, India) are not party to any agreement that obligates them to open their procurement. However, that should not prevent the RCEP from incorporating procurement obligations.
For its less developed members, the RCEP could provide transitional measures to facilitate the opening of their procurement markets. To do so, it could draw upon the transitional measures in the revised GPA. Those measures include the temporary use of higher thresholds (monetary values above which procurement is opened), the phasing in of specific entities and services, use of price preferences to favor local goods and services and offsets. In addition, some of the countries could be given additional time to undertake procurement obligations. That approach was used in the P4 Agreement, in which Brunei Darussalam was given two additional years to negotiate its procurement schedule.
If the RCEP and other Asian-based agreements do not include government procurement commitments, they will be foregoing important opportunities to enter new markets, enhance regional integration, and contribute to the definition of rules that apply to international procurement in Asia. Moreover, it would likely mean that the TPP would play the greater role in influencing the development of government procurement rules in the Asia and Pacific region.
ADB. 2013. Asian Economic Integration Monitor. Manila
ADB, ADBI, and IDB. 2013. Shaping the Future of the Asia and the Pacific-Latin America and the Caribbean Relationship. Manila, Washington DC, Tokyo.
Sanchita Basu Das. ADBI Asia Pathways. 2013. RCEP and TPP: Next stage in Asian regionalism.
Ganeshan Wignaraja. 2011. Economic Reforms, Regionalism, and Exports: Comparing China and India. East-West Center.