Public Procurement in a Globalizing World

Sangeeta Khorana
Sangeeta Khorana

Sangeeta Khorana and William Kerr discusses their article, Transforming Vietnam: a quest for improved efficiency and transparency in central government procurement, written with Nishikant Mishra (all from Aberystwyth University) in the latest issue of Policy & Politics

As the world becomes increasingly globalized and trade barriers to both goods and services decline through preferential trade agreements, one major aspect of economic activity remains closed, to a considerable degree, in most countries – government procurement. The continued isolation of government procurement processes is important because of the size and importance of government economic activity in national economic life. In most modern market economies, the proportion of gross domestic product comprised of government activity exceeds 30 percent and may range up to 50 percent. In some developing countries, the proportion attributable to government may be even higher. Excluding such large portions of economic activity from the benefits of trade liberalization may considerably inhibit economic growth and impede economic development.

There are many reasons why government procurement remains closed to international competition. It is often difficult for politicians to justify government expenditures on foreign products to taxpayers – even if those taxpayers are happy to purchase imports themselves. The question is also often asked by local suppliers to the government who are also taxpayers – “I pay taxes and you use that money to buy foreign products that compete with my products.” Politicians may also see procurement as a means to use public money to reward political supporters and as a means to buy votes. In the case of some goods and services, there may be a fear of losing local control or being dependent on foreign suppliers. Government procurement contracts can also offer considerable opportunities for garnering corruption income. Opening procurement contracts to foreign bidders often requires a higher level of transparency in the bidding process that makes it much more difficult for rent seekers to extract income through corrupt practices. As a result, the goods and services procured by governments are often the last major area of economic activity subjected to the pressure of foreign competition.

Widespread reservations about opening government procurement processes to foreign competition has also meant that arriving at an international agreement to liberalize government procurement has proved much more difficult that negotiating international trade agreements such as the World Trade Organization’s (WTO) General Agreement on Tariffs and Trade (GATT) or General Agreement on Trade in Services (GATS) – each with more than 150 signatory countries.

As a result, there is only a plurilateral international agreement on the liberalization of government procurement where countries can choose not to belong. The plurilateral agreement is the WTO’s Government Procurement Agreement (GPA) which has not attracted a wide membership from the international community. Only 42 countries have chosen to join the GPA. Developing countries are conspicuous by their absence – only 6 have chosen to join.

In our article, Transforming Vietnam: a quest for improved efficiency and transparency in central government procurement, we use a cost benefit approach to discuss some of these issues. Vietnam joined the WTO in 2007 and was allowed observer status to the WTO GPA in December 2012. As a major and rapidly growing developing country considering joining the GPA, it would be a major coup for the liberalization of procurement as Vietnam might be an example to spur other developing countries to join. The decision to join the GPA, or not, has been a difficult one for Vietnam and its struggles with the question provides a fascinating case study that sheds considerable light on the questions that governments in developing countries face in considering membership to the WTO GPA.

Transforming Vietnam: a quest for improved efficiency and transparency in central government procurement is part of the Policy & Politics January 14 issue (volume 42, number 1) and is available on Ingenta.

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