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TWN Info Service on WTO Issues (July03/3)

Third World Network

4 July 2003

Dear friends and colleagues

REPORT ON FINAL PRE-CANCUN MEETING OF WTO WORKING GROUP ON TRANSPARENCY IN GOVERNMENT PROCUREMENT:  DEEP DIVISIONS REMAIN

Transparency in government procurement is one of the four Singapore issues.  The developed countries are eager to begin negotiations on a new agreement on this subject, and will be looking for a decision to launch negotiations in Cancun.

However, according to the Doha mandate, negotiations can begin only on the basis of a decision on explicit consensus on the modalities.

The last pre-Cancun meeting of the Working Group on this issue was held on 18 June 2003.  It was clear that differences of view were still prevalent on many of the important issues.

Whist the EC, among the developed countries, was keen to conclude that the WTO members are “on the verge of a decision on modalities for negotiations”, many develooping countries thought otherwise and spoke of their misgivings about starting negotiations when there was no agreement on so many key issues.

Below is a TWN report of the meeting.

Please check our website www.twnside.org.sg for previous reports in this series.

With best wishes

Martin Khor

Third World Network

 

 

DEEP DIVISIONS REMAIN ON TRANSPARENCY IN GOVERNMENT PROCUREMENT

TWN Report by Martin Khor

Geneva 23 June 2003

 

At the final meeting of the Working Group on Transparency in Government Procurement before the WTO’s Cancun Ministerial Conference, WTO members remained deeply divided on many basic issues, and there was no agreement on whether the time was ripe to move on to another stage of discussions.

At the meeting on 18 June, the European Communities presented a paper that was prefaced with the claim that “Members are on the verge of a decision on modalities for these negotiations.”

This sparked responses from diplomats from several developing countries, which stated that there was no convergence of views in the Working Group on many issues, and that they were not yet prepared to discuss modalities of negotiations nor to begin negotiations.

The meeting ended without a conclusion on the substance of the issues.  The Working Group chairman, Ambassador Ronald Saborio of Costa Rica, said that a report of the Working Group on its work would be submitted to the General Council in the first week of July.  A draft would be submitted before that to members for their consideration.

Although the Working Group has concluded its pre-Cancun work, the issue can be expected to be an even more intense subject of consultations in the weeks ahead.  At an informal heads-of-delegation (HOD) meeting earlier this month, the General Council chairman, Ambassador Carlos Perez del Castillo of Uruguay, had announced that the chairpersons of the working groups on the four Singapore issues would help him conduct consultations on these issues, as “Friends of the Chair.”

It is not clear how these consultations are to be conducted.  It can however be expected that at least some of the “Friends of the Chair” will seek views of some of the parties on whether there can be a consensus on “modalities” for negotiations on these issues.

At the meeting of the Working Group, Mr. Saborio did not refer to this “Friends of the Chair” process, or how he intends to carry out consultations, now that the Working Group will no longer meet.

At the meeting of 18 June, the EC presented a paper on  “Positive effects of transparency in government procurement (TGP) and its implementation.” Since 1996, WTO parties have discussed in detail all elements on TGP capable of being included in a future WTO agreement, said the paper.  As Members are “on the verge of a decision on modalities for these negotiations,” the EC would like to emphasise the aims of the negotiations and the cost that the absence of WTO rules in TGP implies especially for developing countries.

According to the EC, the benefits of a multilateral agreement on TGP include more efficiency and innovation as public procurement is applied transparently with a clear set of rules which allow tendering companies from developed and developing countries to foster enhanced competition.

There would also be better value for money as transparent tendering leads to effective competition, and opening tenders to foreign bidders regularly brings prices down and reduces budget expenditure, said the EC.  Transparency would also increase investment and partnership as foreign bidders would usually set up joint ventures with local suppliers to increase the chances of success.

An agreement would also reduce corruption or bribery to officials and politicians during the tendering process, said the EC paper.   Publishing calls for tenders, notifying contract awards and making award criteria more accountable are principles of transparency that directly affect corruption practices, and TGP will reduce corruption.

The paper added that many developing countries already apply rules on TGP, so the cost for them in introducing WTO rules on TGP would be minimal.  For other developing countries, the savings obtained by introducing competition will more than offset administrative costs.

The EC also argued that new WTO rules would not place institutional constraints on developing countries, as it is not the case where the new rules will open developing countries’ procurement markets to suppliers from developed countries or limit preferences to local suppliers.  This debate had closed since Doha, since the scope of TGP was clearly limited to transparency only, without reducing countries’ options to give preference to domestic suppliers.

The EC said it was in favour of making the rules applicable only above a given threshold, which could be higher for developing countries, to minimize the impact of TGP on small entities in developing countries.  The EC will also assist developing countries (for example, in information technology) by explaining the future rules, putting in new legislation and new methods and infrastructure to respond to future obligations.

It concluded that a future agreement would not open up new markets.   It should apply to all procurement, whether national or international, and indicate to international bidders when a tender is limited to nationals.  The paper also implies that the EC’s proposed new rules would cover all levels of government, as it says that they will involve procuring officials not only in central government entities, but also in regions, provinces and municipalities.

Also speaking up in favour of commencing negotiations (and generally supporting the EC paper) were Canada, Switzerland, Japan, South Korea and some countries from Eastern Europe.

The US called for the talks on TGP to move on to the next phase (i.e.  negotiations), as there was already convergence of views, and if the discussion remained at the present phase, it would only involve circular arguments.  It said that the proposed agreement should contain core elements in transparency.

However, several developing countries contradicted the developed countries’ view that there was sufficient convergence of views to begin negotiations, or that multilateral rules were required.

The delegate from India said that in her country a transparent system of procurement had already been established, and this had been done by India without any external prompting, and thus India did not see the need for a multilateral route to be followed to achieve transparency.

India also did not agree with the EC that “we are on the verge of a decision on modalities”.  Indeed, she said, “we are far from that.”  On the most crucial issues, there is still no common understanding.  Since we still do not know what the issues mean in this context, we cannot go ahead with something in which we do not know what we are in for, she said.

Regarding the EC reference to having the agreement cover federal, sub-federal and municipal levels of government, India said it had sensitivities about such coverage below the federal level.

India also supported an earlier statement by Brazil opposing bringing the issue of corruption into the discussion on TGP.  It pointed out a double standard practised by the proponents:  in the discussions on customs valuation, India and other countries had asked for international measures such as information sharing to prevent fraud, but this was objected to by the developed countries, and yet they wanted to introduce the corruption issues in TGP.

Malaysia also objected to the EC statement that the WTO was on the verge of a decision on modalities.  This was not true, as we are not on the verge of such a decision, said the Malaysian delegate.  He added that there is no convergence of views among members on many elements that had been discussed.  The lack of convergence involved such critical elements as the definition of transparency itself, the scope or what should be covered, whether there should be a threshold value, and whether there should be a link to the WTO’s dispute settlement system.

Since there is no consensus on such key elements, it is not possible to talk about agreeing on modalities, not at this stage anyway, said Malaysia.  It added that it was dangerous for developing countries to go into the realm of the unknown if they were unclear as to what an agreement entails, as they may end up on a slippery slope with a dangerous destination.

The Malaysian delegate gave the analogy of the TRIPS Agreement, the negotiations for which had started as something innocuous but ended up with a monster. Are we willing to live with another monster, he asked, adding that his delegation was not willing to do so.

He noted that the EC had accepted the concept of having a threshold value and hoped that other developed countries would also accept it.  On the coverage of rules to extend to the sub-federal level, Malaysia said it could not accept that as the obligations would be too onerous.

Brazil also indicated there was no convincing argument for moving into a negotiating phase on TGP.  Since there is no agreement among members on the issues, how was it possible to argue that we can move into negotiations, asked Brazil.

The same developed countries that were  proponents in TGP had in fact used the opposite argument in the discussions  on the TRIMS agreement, where their position was that since there was no agreement (that the TRIMS agreement should be revised as proposed by Brazil, India and other developing countries to take into account development concerns), then we should move into the next phase of closing the issue!

The Cuban delegate said that his country gave great importance to the subject of transparency in general.  Nevertheless, it considered that the discussions on the elements of TGP had not yet been sufficiently clarified to demonstrate the necessity of a Multilateral Agreement on TGP.  Cuba wished to express three concerns.

First was the cost of implementation of any Agreement on Transparency.  “Although the EC had asserted it is low compared with the benefits, this is something that we still do not know clearly and on the contrary, we think that the cost could be very high, and even surpass the possibility that we can meet it with our national budget,” said Cuba.

“Depending on the content of the Agreement and its obligations, it could require the work of much more staff, as well as governmental departments and agencies, and also additional equipment.  It would be appropriate to be able to do some estimation on some real data of implementation costs and other elements for a comparative analysis.”

Secondly, regarding the publication of information on national legislation and procedures, Cuba considered that the publication of the regulations of each one of the contracting parties represents a very expensive administrative procedure, and therefore more work on this issue was needed.

Thirdly, on the issue of the fight against corruption, Cuba shared the view of other developing countries that this is outside the scope of the WTO and it should be solved by each member through national measures.

 


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