REGIME WITH SPECIFIC FOCUS ON THE INDIAN EXPERIENCE POST-ACCESSION TO THE GPA INTERNATIONAL TRADE LAW
Submitted by: L. ASHISH KUMAR 201108 SEMESTER VI
DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY VISAKHAPATNAM MARCH 2014 2 | P a g e
ACKNOWLEDGEMENT I would like to express my special thanks to our Vice Chancellor Prof. R.G.B. Bhagvath Kumar, Registrar Prof. A. Sudhakar and especially gratitude my Teacher Dr. Aparup Phakira who gave me the opportunity to do this wonderful project on the topic Government Procurement Under The WTO Regime With Specific Focus On The Indian Experience Post-Accession To The GPA which also helped me in doing a lot of research. I am really thankful to them all. Secondly I would also like to thank my parents and friends who helped me a lot in finishing this project.
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CONTENT ABBREVIATIONS ................................................................................................................... 4 INTRODUCTION ..................................................................................................................... 5 RESEARCH SCHEME ............................................................................................................. 6 RESEARCH PROPOSAL ......................................................................................................... 6 RESEARCH QUESTIONS ....................................................................................................... 6 HYPOTHESIS ........................................................................................................................... 6 RESEARCH METHODOLOGY............................................................................................... 6 OBJECTIVES OF THE GPA .................................................................................................... 7 REVISED AGREEMENT ON GOVERNMENT PROCUREMENT ...................................... 8 INDIA AND GOVERNMENT PROCUREMENT AGREEMENT ....................................... 10 PROS AND CONS OF GPA ACCESSION BY INDIA ......................................................... 13 CONCLUSION ........................................................................................................................ 14 BIBLIOGRAPHY .................................................................................................................... 15
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ABBREVIATIONS 1. Art. Article 2. G.P.A. - Government Procurement Agreement. 3. G.D.P. - Gross Domestic Product. 4. W.T.O. - World Trade Organisation. 5. G.F.R. - General Financial Rules 6. D.F.P.R. - Delegation of Financial Powers Rules 7. D.G.S.D. -Directorate General of Supplies and Disposal 8. UNCITRAL-United Nations Commission on International Trade Law.
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INTRODUCTION Government procurement can be defined as the procurement activities undertaken by a public authority using public funds to obtain goods, services and technologies essential for it to carry out its business. Government procurement often accounts for a large proportion of a governments total expenditure, estimated at an average of 1015 per cent of GDP, which represents a substantial purchasing power on domestic markets. 1
The initial effort to bring government procurement under internationally agreed trade rules was made at the Tokyo Round of Trade Negotiations, which lead to the signing, in 1979, of the first Agreement on government procurement. The Tokyo Round Agreement set out the principle of national treatment in terms of laws and regulations on government procurement. This obligation was clearly limited to those Parties that negotiated and adhered to this plurilateral agreement. For the purpose of expanding the scope and coverage, the Tokyo Round Agreement was renegotiated, parallel to the negotiations held during the Uruguay Round. These negotiations led to the signing, on 15 April 1994, of the Government Procurement Agreement (GPA). The new Agreement entered into force on 1 January 1996. The GPA is one of the "plurilateral" Agreements included in Annex 4 to the Agreement Establishing the WTO, signifying that not all WTO Members are bound by it. 2
Currently there are 43 parties to the Agreement. Most Parties have been bound by the Agreement since its entry into force on 1 January 1996. For some, it entered into force at a later date. Some Parties have joined the Agreement by way of accession. 27 countries have obtained the observer status to the Agreement including India. India obtained the observer status on 10 th February, 2010. 3
1 http://www.govopps.co.uk/guidance_db_files/guidances/guid_01.pdf (accessed on 15-03-2014). 2 Ibid., 3 http://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm#parties (accessed on 15-03-2014) 6 | P a g e
RESEARCH SCHEME RESEARCH PROPOSAL To study the Government Procurement under the WTO Regime with Specific Focus on the Indian Experience Post-Accession to the GPA. RESEARCH QUESTIONS What are the objectives of GPA? What is Public Procurement Bill, 2012? What are the Pros and Cons of GPA Accession by India? HYPOTHESIS In India, there is no specific law that deals with the procurement aspects. There is a bill regarding public procurement which has some features alike with WTO GPA. India may access to GPA in keeping view of costs and benefits. RESEARCH METHODOLOGY The doctrinal method of research has been followed throughout the research and different books and articles are referred as secondary source. The objective of the research is to study the concept of Government Procurement under the WTO Regime with Specific Focus on the Indian Experience Post-Accession to the GPA. Many sources have been referred to and such reference is footnoted for convenience. The research includes gathering the data from the existing information like referring the books related to the topic, articles, journals and the documents relating to the topic available online.
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OBJECTIVES OF THE GPA The GPA defines a framework of rights and obligations to which Parties must adjust their national laws, regulations, procedures and practices regarding government procurement. The scope of the GPA is broader than that of the original Agreement under the Tokyo Round, not only by virtue of the matters it governs, but also because it attempts to address government procurement in broader terms than its predecessor. The following objectives, listed in the preamble, are expressed subsequently in the text of the Agreement: Non-discrimination: Recognizing that laws, regulations, procedures and practices regarding government procurement should not be prepared, adopted or applied to foreign or domestic products and services and to foreign or domestic suppliers so as to afford protection to domestic products or services or domestic suppliers and should not discriminate among foreign products or services or among foreign suppliers. 4
Transparency: Recognizing that it is desirable to provide transparency of laws, regulations, procedures and practices regarding government procurement. 5
Dispute Settlement: Recognizing the need to establish international procedures on notification, consultation, surveillance and dispute settlement with a view to ensuring a fair, prompt and effective enforcement of the international provisions on government procurement and to maintain the balance of rights and obligations at the highest possible level. 6
Recognizing the need to take into account the development, financial and trade needs of developing countries, in particular the least-developed countries. 7
These objectives are expressed in several articles of the GPA. Specifically, the scope and coverage of the Agreement is set out in Articles I and II. Article III covers the principles of national treatment and non-discrimination. The obligations derived from these principles are specified in the requirements governing tendering procedures under Articles VII to XV. The principle of transparency is reflected in the provisions of Article XVII. Provisions relating to dispute settlement are set forth in Article XXII, and those concerning special and differential treatment for developing and least developed countries are found in Article V of the Agreement.
4 Para 3, Preamble, Government Procurement Agreement, 1996. 5 Para 4, Preamble, Government Procurement Agreement, 1996. 6 Para 5, Preamble, Government Procurement Agreement, 1996. 7 Para 6, Preamble, Government Procurement Agreement, 1996. 8 | P a g e
REVISED AGREEMENT ON GOVERNMENT PROCUREMENT The revised WTO Agreement on Government Procurement (GPA) will come into force on 6 April 2014, effectively two years from the date on which the Protocol amending the Agreement was adopted in March 2012. The Chairman of the WTO Committee on Government Procurement, Bruce Christie of Canada, confirmed that the threshold of acceptances by two-thirds of the Parties, which is required for the revised Agreement to come into force, had been met, with Israel accepting the Protocol on 7 March. The revised Agreement streamlines and modernizes the Agreements text, for example by taking proper account of the widespread use of electronic procurement tools. It provides gains in market access for the Parties businesses that have been estimated as in the range of $80- 100 billion annually. This results from the addition, to the Agreements scope of application, of numerous government entities (ministries and agencies) and the coverage of new services and other areas of the public procurement activities. The revision also incorporates improved transitional measures that are intended to facilitate accession to the Agreement by developing and least-developed economies. The ten Parties that have, to date, accepted the Protocol to amend the Agreement are, in the order in which they have accepted it, Liechtenstein; Norway; Canada; Chinese Taipei; the United States; Hong Kong, China; the European Union; Iceland; Singapore and Israel. The Chairman, Mr. Christie, said that the prompt bringing into force of the revised agreement shows the Parties firm commitment to the Agreement and augurs well for its future as an increasingly important element of the framework for global trade. The entry into force of the GPA is in keeping with Ministers undertaking at Bali to work hard to achieve this goal by the two year anniversary of the adoption of the GPA revision. Once again, Members can celebrate a successful outcome. The Director General of the WTO, Roberto Azevdo, said This is a very welcome achievement. The revised WTO Agreement on Government Procurement will open markets and promote good governance in the participating Member economies. The fact this has been achieved so quickly shows the importance that the Parties attach to the GPA and is further evidence, after the successful Bali Package that the WTO is back in business. The 9 | P a g e
modernized text of the revised GPA and the expanded commitment to market access should prompt other WTO Members to consider the potential advantages of joining. In addition to the 43 WTO Members that already participate in the GPA, ten other WTO Members, including China, Moldova, Montenegro, New Zealand and Ukraine, are in the process of negotiating accession to it. 8
The GPA updates tender rules and market access commitments and includes a significant extension of related market access commitments. It was adopted in 2012 and commits countries to core disciplines over transparency, competition and good governance in procurement. 9
The revised GPA states that in negotiations on accession to, and in the implementation and administration of the GPA, the Parties shall give special consideration to the development, financial, and trade needs and circumstances of developing countries and least-developed countries. (Art. V. 1 of the revised Agreement). 10
8 http://www.wto.org/english/news_e/news14_e/gpro_11mar14_e.htm (accessed on 15-03-2014). 9 http://www.supplymanagement.com/news/2014/wtos-revised-government-procurement-agreement-comes-into- force-in-april (accessed on 17-03-2014). 10 http://www.lexology.com/library/detail.aspx?g=b1c446b2-c7aa-447a-9673-6c0f69668055 (accessed on 17- 03-2014). 10 | P a g e
INDIA AND GOVERNMENT PROCUREMENT AGREEMENT In India, government procurement constitutes 25 to 30 percent of its gross domestic product. At present, it is governed by rules and instructions contained in the General Financial Rules (GFR) and the Delegation of Financial Powers Rules (DFPR), apart from ministry/department specific purchase procedures for the Ministries of Defence, Railways, Public Works and the Directorate General of Supplies and Disposal (DGS&D). 11
In February, 2010, India became an observer of the Government Procurement Agreement. Indias decision to be a GPA observer comes at a time when interest in the GPA appears to be growing and signals that major developing countries such as India are assessing their interests in relation to GPA accession. 12 The observer status gives India an insight into how governments of developed countries place multi-billion procurement orders with the industry. 13
Indian procurement policy has traditionally followed a hierarchy of preferences to buy, first, good wholly produced in India; second, goods manufactured goods manufactured in India from imported materials; third, goods from foreign manufacturers in India from imported materials; and last, imported products received for supply through agents or Indian agents or India-based establishments. Government procurement policy has therefore been discriminatory, at least to a degree, although participation by foreign firms has also been welcomed in particular sectors. Purchasing entities have been accorded the discretion to give price preference to domestically produced products over imported ones and also to articles produced by cottage and small scale industry over those manufactured by larger ones. The rationale for price preferences in India is social responsibility. Small firms, cottage industries and womens employment schemes operate in economically backward regions and procurement can provide employment to these sectors of the population. The Indian Government has used procurement contracts to direct employment towards marginalized groups such as scheduled castes etc. The procurement of some pharmaceuticals has also been restricted to some PSUs for similar social welfare arguments. 14
11 http://sps.iitd.ac.in/PDF/SGP.pdf (accessed on 17-03-2014). 12 Sue Arrowsmith, Robert D. Anderson: The WTO Regime on Government Procurement: Challenge and Reform, 1 st Edition, 2011, P.no: 117. 13 http://articles.economictimes.indiatimes.com/2012-07-13/news/32663968_1_wto-members-wto-rules-india- access (accessed on 17-03-2014). 14 Supra note 12, p.no: 119. 11 | P a g e
Public Procurement Bill 2012 The Public Procurement Bill, 2012 is based on the recommendations Committee on Public Procurement 2011 and also draws a number of features from United Nations Commission on International Trade Laws model procurement law (UNCITRAL Law) and the World Trade Organizations Agreement on Government Procurement (GPA). Salient features of the bill are: Applicability Institutions: All central government ministries, departments, central PSUs, constitutional and statutory bodies and other organizations owned, controlled, or substantially funded by the central government. Procurements: All procurement by the above agencies except for procurements with value less than Rs 50 lakh; emergency procurement for disaster management; and procurements for national security or strategic purposes. The Bill has provision for exemption of procurements made under foreign aid programmes and also a provision that allows the government to exempt any procurement/ class of procurements/procuring entities from the provisions of the Bill through a notification. Basic Principles As per the Bill, the procuring agencies are required to adhere to the following norms: Efficiency, Economy & Transparency Fair and Equitable treatment to bidders; Competition; Prevention of corruption Reasonable price and quality consistent with bid price. Procurement process The Bill allows the following methods of procurement: Open competitive bidding Limited competitive bidding Two-stage bidding Single source procurement Electronic reverse auctions Request for quotations 12 | P a g e
Spot purchase Any other method notified by the Central Government in line with principles laid out in the bill. The Bill specifies Open Competitive Bidding as the preferred method of procurement and lays down the conditions in which other methods are to be chosen. Institutional Mechanism Transparency Mechanism: The Bill mandates the establishment of a Central Public Procurement Portal, containing information on prequalification, registration and bidding documents, clarifications and modifications, details of participating, excluded and successful bidders and, decisions on grievance redressal. Moreover, records of procurement proceedings and communications will required to be maintained by the procuring agency in conformity with the RTI Act, 2005. Grievance Redressal: The Bill requires the Central Government to constitute one or more independent Procurement Redressal Committees (PRCs) for a group of procuring entities or for different subject matters of procurement or for different geographical areas. An aggrieved bidder/prospective bidder is allowed to ask the procuring entity for a review of the decision and may further approach the concerned PRC in case of delay in review/ disagreement with the reviews outcome. Professionalism: As per the Bill, Central Government may prescribe professional standards to be achieved by procurement officials and specify suitable training and certification requirements. Penalties The Bill lays down different penalties for offences such as taking gratification in respect of procurement, interference with the process, making vexation, frivolous or malicious complaints, and abetment of offences. For instance, the bill penalizes acceptance of a bribe by a public servant in procurement process with imprisonment between six months and five years and a fine, penalizes bribing or undue influencing by suppliers with imprisonment up to five years and a fine up to 10% of the value of procurement. The Bill by aiming at a single legislation governing public procurement in the country is a welcome step. This Bill seeks to make public procurement transparent and corruption free. 15
15 http://therohithake.blogspot.in/2012/11/public-procurement-bill-2012-meaning.html (accessed on 17-03- 2014). 13 | P a g e
PROS AND CONS OF GPA ACCESSION BY INDIA Pros Accession to the GPA is likely to secure better value for the money spent by the government on its procurement. This is a consequence of the increased level of competition, transparency and discipline mandated by the GPA. By providing fair and clear procedures, the GPA provisions increase efficiency within procurement agencies. This checks overt corruption, again saving finances by increasing efficiency of resource allocation. The GPA incorporates important provisions limiting discrimination in awarding tenders. This brings about general benefits of greater competition, lower prices, better quality and more efficient firms. The GPA provides a transparent framework of laws, regulations, procedures and practices regarding government procurement. This encourages transparency in the 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. A government that implements this agreement is therefore likely to reduce rent-seeking tendencies and corruption. Small and medium sized enterprises, which the Indian Government has historically sought to protect, appear particularly responsive to increase in procurement-related transparency. As a Party to the GPA, India would have legally guaranteed access to the procurement markets of other GPA parties. Cons The Indian State Governments and PSUs may not have the capacity to adhere to the commitments under the GPA. As noted in the World Bank Report, most urban local bodies face problems due to lack of capacity, improper staffing patterns and lack of standardization. Weak provincial state laws allow for the exploitation of procurement regimes. Including provincial state within the ambit of the GPA and the definition of government procurement would therefore pose an immediate problem. There will be financial costs in implementing the requirements of the GPA associated with its transparency and procedural requirements. It is important to acknowledge the resource costs not only in terms of setting up new bodies and training staff, but also the 14 | P a g e
costs associated with publishing changes in procurement practices and publishing statistics on procurement decisions. 16
CONCLUSION The generic definition of government procurement relates to the process by which a state agency procures a product or service for its own use. The principle objective of keeping open and non-discriminatory government procurement regimes is to allow for competition between potential suppliers, and hence to ensure that best value for money is obtained. In India there is a general consensus that the public procurement system needs revamping. Not only should the procurement system be transparent per se, it should also be seen to be transparent. The role of government procurement in stimulating the domestic economy is being recognized in India and also globally. The 2012 revised text of the WTO GPA, embodying new obligations to eschew conflict of interest, corruption, etc in the procurement process offers further new dimensions which would be attractive for government procurement systems across the world, including India. There is no doubt that Indias Public Procurement Bill, 2012 also embraces these good governance principles. Indias joining the WTO GPA is likely to send a credible signal regarding its commitment in addressing good governance issues. Accession to the WTO GPA would help India in benchmarking its laws and procedures against global good practices in public procurement. It would provide predictability to international suppliers and a measure against protectionism and thereby increase Indias market access substantially.
16 Supra Note 12, p.no: 124-130. 15 | P a g e
BIBLIOGRAPHY LIST OF STATUTES: WTO Government Procurement Agreement, 1996. Public Procurement Bill, 2012.
BOOKS: Sue Arrowsmith and Robert D. Anderson: The WTO Regime on Government Procurement: Challenge and Reform, 1 st Edition, 2011, Cambridge University Press, New York, USA. Archana Jatkar Et al.: Government Procurement in India Domestic Regulations & Trade Prospects, 1 st Published in 2012, CUTS International, Jaipur, India. WEBSITES: http://www.govopps.co.uk/ http://www.wto.org/ http://www.supplymanagement.com/ http://www.lexology.com/ http://sps.iitd.ac.in/ http://articles.economictimes.indiatimes.com/ http://therohithake.blogspot.in/