In this blogpost, Priyanka Kansara, Student, National Law University, Jodhpur, writes about Government Procurement Agreement, legal rules and regulations and statutes and the pros and cons of Government Procurement Agreement.
Introduction
Government Procurement Agreement (hereinafter the GPA) is a voluntary kind of Plurilateral Agreement, the obligation of which depends on the discretion of the member State[1]. The term GPA is considered as a synonym to public procurement, which is cumulatively meant by purchasing by the government, public utilities and state-owned enterprises etc., for certain non-commercial purposes i.e. public purposes etc[2]. It is said that Government Procurement is of considerable economic significance at both the national and international level as well because it is accountable for a significant portion of national GDP[3]. GPA is the principle instrument in WTO, which is providing a systematic framework for the conduct of International trade in government procurement.
The key objectives for countries anticipating accession to the WTO GPA-
- To enhance export markets as provided by GPA member countries;
- To embrace reforms to the internal market and administration so as to benefit from good governance aspects of the WTO GPA.
The plus point of GPA is that it provides a transparent framework of laws, regulations, procedures and practices regarding government procurement. It also encourages transparency in members’ procurement agencies and commits each party to provide non-discriminatory, timely, transparent and effective procedures enabling suppliers to challenge alleged breaches of the Agreement[4]. The WTO GPA may provide a legal right to access member’s government procurement market; the meaning is that by joining the agreement, the member state gives the signal to rest of the world or rather member state of a willingness to give stability, predictability, and credibility to the system, which it has adopted. Moreover, it is also sad that the differential treatment in public procurement is given only to the member states, which have acceded to the GPA, not to all the member states. The government procurement law may not apply to procurements relating to the military, emergency, national security, international loan and mechanical & electronic products. It depends on the State as to which sector they limit their procurement, for example, Russia has limited it to military and national security issues; similarly, India prefers to focus on fair competition and transparency[5].
The GPA and India
Government Procurement can be understood in a simple way; if India and EU has signed a Foreign Trade Agreement (FTA) and in the same they had incorporated a GPA clause; the meaning of the clause is that India will have to allow companies from EU to bid for contracts for all government procurement; where tenders are floated to procure some goods or services, for example, medicines for public health facilities, companies based in EU would have right to bid for such contract[6]. It, sometimes, helpful for a country to grow their economy and market access; for India, it is a fifty-fifty situation. Though, India has not yet acceded to the GPA.
The GPA, as a part of Plurilateral Agreement within WTO system, provides a framework for the progressive liberalization of the market for procurement in goods, services and constructive services etc. The GPA can be helpful on enhancing Competition regime in India, strengthen the producers and Consumers relations; though the lack of transparency and accountability, which can create problems in the effective and efficient functioning of the country’s economy.
India, being a welfare State, has an additional duty to protect and promote the local producers and traders and balance the developmental agenda besides ensuring the pragmatism of procurement[7]. India’s position can be said unique as it has provided the platform for the Government procurement to the International trades though it is not providing any internationally binding commitment.
India became Observer State with regard to GPA in 2010 and as of now, it has not progressed from the same status. India’s GP scheme is being handled by various rules, such as, General Financial Rules of 2005, and executive instructions by some executive bodies i.e. Ministry of finance, Central Vigilance Commission.
It is said that prior to any commitment towards any International obligation for Government Procurement, what India needs is a thorough assessment of competitiveness in different sectors of Indian Economy and financial policy goals. Moreover, there are various structural and practical procurement challenges faced by public authorities. These include inadequate control measures, inefficient spend management, poor data reporting and management and inadequate spend analytics. Further, developing nations are facing enormous pressure from foreign players for relaxation of policies and incentives.
In India, Government Procurement comprises of about 25 to 30 percent of its Gross Domestic Product. Government Procurement forms at least 50 percent of the expenditure budget of Central Government departments such as the defence, railways and telecom.[8]The Government Procurement machinery in India is plagued with issues ranging from lack of transparency and accountability to failure to safeguard rights of domestic companies and firms.[9] It is, therefore, imperative that the governmental ability to restrict competition through discrimination is not waived in the light of domestic interests.[10]
Legal rules & regulations and statutes
Article XXIV: 5 (a) of the Agreement provides that each acceding party shall ensure the conformity of its laws, regulations and administrative procedures and the rules, procedures and practices applied by the entities contained in its list annexed hereto, with the provisions of this Agreement[11]. Interestingly, most of the obligations are already mandated in the Indian Laws and Legislations. But, somewhere lack of single implementation system creates problems. It is considered that if India accedes to the GPA, then the problem can be resolved through the application of the uniform law for the same matter.
The general perspective with regard to the rules & regulations for GPA is that there is no uniform legal law exclusively for public procurement of goods/services in India[12]; though there are certain federal regulatory frameworks do exist for the same, such as, (i) the General Financial Rules (GFR), (ii) the Delegation of Financial Powers Rules (DFPR), (iii) the Manual on Policies and Procedures for Purchase of Goods issued by the Ministry of Finance (Manual), (iv) the Government order regarding price and purchase preference or other facilities to seller in the handloom sector, cottage, and small scale industries and to central public undertakings etc., (v) the Central Vigilance Commission to increase transparency and objectivity in public procurement[13].
Rule 137 of the GFR 2005 lays down the basic principles of the regime and provides that every authority delegated with the financial powers of procuring goods in the public interest shall have the responsibility and accountability to bring to bring efficiency and economy and transparency in matters relating to procurement and for fair and equitable treatment of suppliers and promotion of competition in public procurement[14]. Rule 11 of the Manual for Policy and Procedure for Purchase of Goods provides for tender’s right to question the purchaser on improper procedure or rejection of tender[15]. Most importantly, the assistance of judiciary can be taken by way of writ jurisdiction under Articles 32 and 226 of the Constitution in the case of violation of fundamental rights. Article 299 of the same provides that contracts are legally binding on the Government have to be in writing by officers specifically authorized to do so. India has also adopted Integrity Pact, which is a tool designed by Transparency International, to fight corruption in public procurement.
As per the UN Convention against Bribery and Corruption and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transaction, corruption is one of the key issues in procurement. For that matter, India has initiated with the Prevention of Corruption Act 1988 (amended in 2008), which penalizes bribery, extortion and abuse of offices by government servants, besides this, we have certain additional legislations such as Prevention of money Laundering Act 2002, Right to Information Act 2005, which also aims to reduce corruption by way of providing access to information for all, which ultimately leads to transparency and obligate the government officials to furnish the information asked by the public within the prescribed time. Public Interest Disclosure Bill 2010 is also tabled by Central Vigilance Commission to register complaint corrupt public officials[16]. There are certain other rules and legislations also, but the meaning is to say that we have an ample number of regulations to curb the corruption, though we are reluctant to access WTO GPA because this is not the only problem we have in the way towards procurement arena.
Whether we need the GPA: Pros and Cons
India should consider the following points while deciding on GP-
- India’s ability to compete with other member countries;
- The willingness of other countries to make their procurement, market available to Indian firms.
As per Keynesian macroeconomics orthodoxy, national economy can be expanded by way of reducing government expenditure on imports[17]; we can infer on important principle through this theory i.e. reduction in government expenditure by way of strengthening local market can be proved as a positive sign for the country’s economy. For that matter, our local market should be capable enough, and it might be helpful to eradicate unemployment, to promote & support SMEs, to promote specific industries, and to generate healthy competition in the market etc[18]. Moreover, it is analyzed that greater domestic competition on government procurement market and more and more transparency will improve the economic policy in the country[19]. On the other side of the argument, as India is one of the premier importers in the defence sector, GPA can hamper better opportunities for Indian defense sector because allowing foreign bidders would enhance the choices and competition among the bidders also and ultimately would cause benefit to our domestic economy only. In the same way, the Agreement can be proved beneficial for the Government’s Make in India Campaign, at the one go, it seems it would suppress the domestic traders by way of allowing foreign traders to enter into the Indian Market, but at the same time, it will also provide them the opportunities to market themselves in other member states for procuring contract. But again, in the trend of Regional Trade Agreements and Bilateral Trade Agreement, the attractiveness of the GPA is getting diminished as those agreements provide for the same benefits without many complexities and mandates.
There are certain internal weaknesses also i.e. as most of the procurement framework is being decentralized with full power provided to the ministries i.e. defense, finance, railway, etc. somewhere, lack of uniformity and different implementation at different level i.e. state level and central level lead to inconsistency in the procurement framework[20]. Moreover, India’s trade and industry is surrounded by several socio-economic aspects such as protection of minority, labourers, equal treatment etc. requires differentiated treatment, which bars the uniformity. Above all, India’s dispute settlement mechanism is not that strong as it is needed i.e. strong bid dispute settlement mechanism. If India wants to join the GPA, it would have to comply with all the WTO GPA rules and dispute settlement, which would be further requiring compliance with the transaction cost i.e. negotiation, implementation, and adjustment cost[21]. It would also have to comply with the transparency and legal review commitment. So, it is clear that an immediate or urgent move towards joining the WTO GPA would incur a massive cost, which is not feasible for our Indian economic perspective.
On the other hand, joining WTO GPA could open the new door towards lower cost & effective mechanism and provide greater opportunities to the Indian firms at the global procurement level[22]. It would also lead to harmonization and uniformization in the domestic procurement regulations[23].
It is a threat to the India domestic market that due to the inclusion of the developed countries in the domestic market through GPA, they would not be able to compete with the foreign suppliers due to their lack of stringent policy framework, financial strength & quality[24]. As we have earlier discussed, India’s trade and industrial policy is strongly attached with the socio-economic strata of the society; joining WTO GPA would mean that India might have to reduce the connectivity with those policies and would have to undermine the policy support towards the Small and Medium Enterprises (SMEs). Article 39 (b) and (c) of the Indian Constitution mandates directing policy towards ensuring that the ‘ownership and control of material resources are distributed as best to serve the common good’ and that the ‘operation of the economic system do not result in the concentration of wealth and mean of production to the common detriment’.[25] It is also one of the arguments as to why developing countries like India does not want to accede to the WTO GPA, though not that strong, that they would lose their bargaining power[26].
Conclusion
It is now clear that India, as a developing country, has sufficient laws to come par with the WTO GPA obligations, but what we don’t have is the uniformity and transparent mechanism. Besides, the uniformity and transparency, we also need certain effective anti-corruption measures to curb anti-competitive interruptions. And what we need, ultimately, is the willingness, which India does not have right now. India will have to decide sooner on this matter, but national security and operational safety should be properly looked into.
[1] Agreement on Government Procurement, Marrakesh Agreement establishing WTO, Annex 4, (April 15, 1994) (hereinafter the GPA).
[2] Sangeeta Khorana, Potential accession to the WTO Government Procurement Agreement: A case study in India, Journal of International Economic Law,10.1093/ijel/jg008, pp. 1-23, Oxford University Press, 2012, https://www.academia.edu/1929889/POTENTIAL_ACCESSION_TO_THE_WTO_GOVERNMENT_PROCUREMENT_AGREEMENT_A_CASE-STUDY_ON_INDIA, accessed on March 26, 2016.
[3]General Overview of WTO work on government procurement, https://www.wto.org/english/tratop_e/gproc_e/overview_e.htm, accessed on March 25, 2016.
[4]Article XX, Government Procurement Agreement (hereinafter the GPA), Annex 4, Marrakesh Treaty establishing WTO.
[5] Government Procurement Law and Policy, the Law Library of Congress, Global Legal Research Centre, March 2010, https://www.loc.gov/law/help/govt-procurement-law/government-procurement.pdf, accessed on March 26, 2016.
[6] Amit Sengupta, Do not trade away with our life, Indian Journal of Medical Ethics, Vol. 9, No. 2 (2012), http://www.issuesinmedicalethics.org/index.php/ijme/article/view/88/1047, accessed on March 26, 2016.
[7] Government Procurement in India: Domestic Regulations & Trade Prospects, at p. 26, CUTS International: 2012, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/186988/GovtProcurementinIndiaDomesticRegulations-1.pdf, accessed on March 24, 2016.
[8]Pratyush Sinha, CVC, Enhancing value in public procurement, Conference on Competition, Public Policy and the Common Man, 16th November 2009. Available at: http://www.cci.gov.in/menu/speechesbypratyushsinhacvc.pdf retrieved on 26th March 2016.
[9] Government Procurement in India: Domestic Regulations and Trade Prospects (CUTS International, 2012), available at: http://www.cuts-citee.org/pdf/Government-Procurement-in-India_Domestic-Regulations-Trade-Prospects.pdf, retrieved 26th March 2016.
[10] The contrary view is supported by proponents of the theory of Fair and Equitable Treatment in Government Procurement. CfRoland Klager, ‘Fair and Equitable Treatment’ in International Investment Law(Cambridge University Press, 2011) p. 188
[11] Supra Note 4; GPA, Article XXIV:5 (a).
[12] The WTO Regime on Government Procurement: Challenge and Reform, Sue Arrowsmith and Robert D. Anderson (eds.), Cambridge University Press: 2011, https://books.google.co.in/books?id=XNtfY7zbvYQC&pg=PA117&lpg=PA117&dq=bilateral+trade+agreement+and+GPA+in+India+WTO&source=bl&ots=Nrm0HfxcAj&sig=AEXkOkt_R-U-TlTCronAOyAZnQg&hl=en&sa=X&ved=0ahUKEwjx_cH4497LAhVBTI4KHYvWD80Q6AEILTAD#v=onepage&q=bilateral%20trade%20agreement%20and%20GPA%20in%20India%20WTO&f=false, accessed on March 26, 2016.
[13] A. Kapur & V. Sudarsan, ‘India’ in Global Legal Group, International Comparative Legal Guide to Public Procurement 2010, Ch. 20.
[14] General Financial Rules 2005, Government of India: Ministry of Finance, July 1st,2005, http://finmin.nic.in/the_ministry/dept_expenditure/gfrs/GFR2005.pdf, accessed on March 25, 2016.
[15] The Government of India: Manual for Policy and Procedure for Purchase of Goods 2006, http://www.finmin.nic.in/the_ministry/dept_expenditure/gfrs/mpproc4progod.pdf, accessed on March 26, 2016.
[16] Central Vigilance Commission, Government of India Resolution on Public Interest Disclosures and Protection of Informers, Office Order No. 33/5/2004.
[17] Simon Evenett, Multilateral Discipline and Government Procurement, (Bernard Hoekman, et al., eds.), Development, trade and WTO, (World Bank, Washington D.C.: 2002), p. 417.
[18] Simon Evenett & Bernard Hoekman, Government Procurement, market access, transparency and multilateral trade rules, (2004), World Bank Policy Working Paper, 3195, http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2004/04/19/000009486_20040419110851/Rendered/PDF/wps3195govtprocurement.pdf, accessed on March 26, 2016.
[19] Sangeeta Khorana & Sujitha Subramaniam, Potential Accession to the WTO Government Procurement Agreement: A Case Study in India, Journal of International Economic Law, 1-23, 10.1093/jiel/jgs008, https://www.academia.edu/1929889/POTENTIAL_ACCESSION_TO_THE_WTO_GOVERNMENT_PROCUREMENT_AGREEMENT_A_CASE-STUDY_ON_INDIA, accessed on March 25, 2016.
[20] WTO: India Trade Policy Review, WT/TRP/S/182/Rev. 1, 2007, at p. 56.
[21] Supra Note 15.
[22] Robert Anderson and William Kovacic, Competition Policy and International Trade Liberalization: Essential Complements to Ensure Good Performance in Public Procurement Market, 18 (2), Public Procurement Law Review, 67 (2009).
[23] Sue Arrowsmith, Towards a Multilateral Agreement on Transparency in Government Procurement, 47, International and Comparative Law 793 (1997).
[24] Vivek Srivastava, India’s Accession to the Government Procurement Agreement: Identifying Costs and Benefits (New Delhi: NCAER, 1990).
[25] A. Bhattacharjee, The Constitutional Dilemma: Liberal and Socialist Economy, The Hindu Business Line (New Delhi, 25th January, 2002).
[26] Supra Note 9.
