Article
Reference
For the sake of market access: Comparing EU and US approaches to liberalize public procurement in Brazil, India and China
KRIZIC, Ivo
KRIZIC, Ivo. For the sake of market access: Comparing EU and US approaches to liberalize public procurement in Brazil, India and China. European Foreign Affairs Review, 2017, vol.
22, no. 2/1, p. 77-94
Available at:
http://archive-ouverte.unige.ch/unige:120945
Disclaimer: layout of this document may differ from the published version.
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For the Sake of Market Access: Comparing EU and US Approaches to Liberalize Public
Procurement in Brazil, India and China
Ivo KRIZIC*
The article investigates the mechanisms and effectiveness of EU and US attempts to liberalize public procurement in Brazil, India and China. These emerging countries have been reluctant to fully embrace the EU- and US-induced international procurement regime, which is underpinned by the plurilateral WTO Government Procurement Agreement (GPA). Relying on the Special Issue’s ‘supply-and-demand model’ of regulatory power, the article finds that the EU has developed a more assertive bargaining approach over time compared to the US, and can hereby rely on support from business groups and the centralization of competences at EU-level. In terms of effectiveness, EU and US strategies depend on emerging countries’demand for external input, with Chinese authorities being most involved in exchanges with EU and US counterparts.
Finally, the persistence of domestic preference schemes in the US and low market penetration in the EU undermine their efforts to gain market access abroad, and – worse– inspire emerging countries to introduce not only ‘best’ practices of transparent procurement procedures, but also
‘bad’ practices of protectionism against foreign companies.
1 INTRODUCTION
For decades, the European Union (EU) and the United States (US) have been the most important‘suppliers’of global trading rules. This widely shared understanding also applies to the regulation of government procurement, which sets out under what conditions public authorities purchase goods, works or services. Longstanding EU and US efforts at the global liberalization of this sector culminated in the creation of the WTO Government Procurement Agreement (GPA) in the mid- 1990s. The GPA entails specific market access (non-discrimination) commitments by member parties, as well as minimum procedural requirements for their domestic procurement systems in order to enhance transparency and reduce the risk of
‘hidden protectionism’.1 Meanwhile, EU and US efforts to widen the plurilateral GPA appear to hit a wall when it comes to developing and emerging economies such as Brazil, India and China (BIC), which have been reluctant to embrace the
Krizic, Ivo. ‘For the Sake of Market Access: Comparing EU and US Approaches to Liberalize Public Procurement in Brazil, India and China’.European Foreign Affairs Review22, special issue (2017): 77–94.
© 2017 Kluwer Law International BV, The Netherlands
* Doctoral Researcher, Université de Genève, Switzerland. Email: ivo.krizic@unige.ch.
1 Seefor instance, S. Arrowsmith,Government Procurement in the WTO(Kluwer Law International 2003).
agreement. The BIC’s resistance is all the more disturbing from an EU and US perspective given that the size and the growth rates of their public markets make them major targets for liberalization.
Against this background, the article scrutinizes how the EU and the US have attempted over the past two decades to assert their preferences vis-à-vis the BIC, and to what extent these efforts have been conducive in shaping the demand for liberal procurement policies in the three emerging countries. In doing so, the article relies on the Special Issue’s ‘supply-and-demand model’ of regulatory power,2 by looking at the EU’s and US’s recourse to hierarchical (coercive) and horizontal (socialization-based) instruments of rule transfer, as well as emerging countries’ domestic setting including government commitment, regulatory capa- city and interest group dynamics. It builds on field research conducted in the EU, US, Brazil, India and China as well as on relevant primary and secondary literature.
The article is set up as follows: The next section develops expectations for EU and US approaches based on historical dynamics in the international procurement regime. The third part offers a comparative assessment of EU and US approaches vis- à-vis the BIC, while the fourth part scrutinizes the effectiveness of these attempts by analysing the positioning of the BIC, taking full account of their domestic political setting. The conclusion wraps up and provides an outlook on the way ahead in light of the challenges facing the international trading order today.
2 THE EU AND THE US IN THE INTERNATIONALIZATION OF PUBLIC PROCUREMENT–LESSONS FROM HISTORY
Public procurement represents a significant share of the global economy, accounting for 10%–25% of gross domestic product (GDP) and 1000 billion euro per year in trade flows around the world.3 In most countries, an important part of public purchasing takes place in sectors where EU and US industries have traditionally held a competitive position, such as transportation, telecommunication services and electrical equipment. It is therefore not surprising that European and American policy-makers have sought to increase opportunities for their businesses to compete for such contracts worldwide and on equal terms. For many decades, these efforts involved first and foremost intense bargaining between the US and the EC/EU about reciprocal market access on each side of the Atlantic. A first binding agreement was reached in the context of the General Agreement on Tariffs and Trade (GATT) in 1979–the Tokyo Round Code on Government Procurement. The latter’s scope
2 S. Lavenex, I. Krizic & O. Serrano,EU and US Regulatory Power Under Strain? Emerging Countries and the Limits of External Governance, 22 Eur. Foreign Affairs Rev. 1–18 (Special Issue 2017).
3 European Commission, Public Procurement, http://ec.europa.eu/trade/policy/accessing-markets/pub lic-procurement/ (accessed 8 Feb. 2017).
of commitments was however limited to central-level procurement, and remained below some of the US and EC/EU priorities, such as the US’s industry-driven demand to include the heavy electrical equipment sector.4 The 1980s yielded recurrent conflicts between the EC/EU and US regarding the expansion of cover- age, with threats of sanctions and retaliatory measures peaking in the early 1990s, especially regarding the electricity and telecommunications sectors.5Eventually, the two sides reached a bilateral agreement in 1993, which paved the way for the conclusion of the revised GPA as a plurilateral treaty under the WTO.6
The historic prevalence of reciprocity-based bargaining between the EU and the US is likely to persist in their efforts to integrate the BIC into the GPA. An emphasis on such hierarchical instruments by the former trade hegemons is all the more likely as the three emerging markets stand out with respect to the size and growth trends of their public markets, which increased between 2005 and 2010 at an annual rate of 23.7% for Brazil, 23.5% for China and 14.1% for India according to EU estimations.7In addition, these countries heavily rely on public purchases in sectors where EU and US industries have entrenched interests, such as railway equipment and power generation.8 Industry associations are therefore likely to lobby strongly for a rigorous EU/US approach against procurement discrimination in the BIC. Given these market access incentives for their domestic business groups, both the EU and the US can be expected to resort to hierarchical, conditionality-based forms of engagement toward the BIC.
While coercive instruments should accordingly play a role on both sides of the Atlantic, institutional variation may cause divergence in EU and US approaches.
On the EU side, the de jure institutional framework governing public procure- ment is characterized by strong market integration, openness to foreign bidders and exclusive EU competence in international negotiations. Centralization of national procurement markets under EU authority in the 1990s has prevented Member States from introducing discriminatory procurement policies against EU bidders at all levels of government,9 which has usually benefited non-EU bidders as well. At the supranational level, the EU has – with exceptions in the utilities sectors – refrained from introducing EU-wide discriminatory policies against non-EU
4 M. Pomeranz,Toward a New International Order in Government Procurement, 11 L. & Pol’y Int’l Bus.
1263, 1270 (1979).
5 S. Woolcock,Market Access Issues in EC-EU Relations–Trading Partners or Trading Blows?85–90 (Pinter Publishers 1991).
6 G. Marceau & A. Blank, History of the Government Procurement Negotiations Since 1945, 4 Pub.
Procurement L. Rev. 77 (1996).
7 European Union,Public Procurement in India(unpublished factsheet on file with the author).
8 European Commission,Impact Assessment, SWD (2012) 57 final, 8 (2012).
9 L. Hoffmann,Land of the Free, Home of the (Un)Regulated: A Look at Market-Building and Liberalization in the EU and the US(University of Oregon 2011).
bidders. This implies that the EU’s public market is open to the outside world beyond what the EU has explicitly committed in international agreements such as the GPA. With exclusive competence over the common commercial policy, the EU is yet entitled to introduce such discriminatory schemes and to conclude binding agreements on procurement liberalization for the entire Single Market.
Given the concentration of decision-making competences at the EU level and the status quo of EU openness, the European Commission is expected to push hard for reciprocal opening up in emerging countries.
In contrast, the US procurement system is less centralized with the US federal states retaining much leeway to follow their own imperatives.10This has facilitated the introduction of discriminatory measures at the state level, which are only lifted for international procurement agreements if the respective US states explicitly give their approval.11 Moreover, the US system also suffers from entrenched discriminatory policies at thecentrallevel, from the famous Buy American Act of 1933 to more recent discriminatory provisions in the ‘American Recovery and Reinvestment Act’
(ARRA) of 2009.12These sticky institutions make it difficult for US trade represen- tatives to push for market access concessions from third countries, because they can hardly offer counter-commitments, constrained by domestic opposition to the waiv- ing of existing preference schemes. This weak position raises the expectation of a softer US approach vis-à-vis trading partners compared to the EU.
In the next part, the article looks comparatively at EU/US efforts to push public procurement liberalization over the past two decades, in particular vis-à-vis the BIC.
It seeks to identify the intensity that each side has invested in this issue area, and hereby draws on the Special Issue’s distinction of two power resources that the EU and US can yield: hierarchical power or coercion based on material superiority; and horizontal power through technocratic co-option that relies on regulatory capacity.
3 ANALYSING EU AND US APPROACHES TOWARD BRAZIL, INDIA AND CHINA
3.1 THE EU APPROACH – A QUEST FOR LEVERAGE
Over the past twenty years, the EU has raised its profile as the most ardent promoter of international procurement liberalization. In light of the GPA’s entry into force in 1996 and most developing countries’ resistance to enter into this
10 See A. Mehra, Federalism and International Trade: The Intersection of the World Trade Organization’s Government Procurement Act and State‘Buy Local’Legislation, 4 B.Y.U. Int’l & Mgmt. Rev. 179 (2008).
11 S. Woolcock & J. H. Grier, Public Procurement in the Transatlantic Trade and Investment Partnership Negotiations, inRule-Makers or Rule-Takers? Exploring the Transatlantic Trade and Investment Partnership 325 (D. Hamilton & J. Pelkmans eds, CEPS 2015).
12 Ibid., at 318–319.
agreement, the EU (joined by the US) was instrumental in placing the narrower issue of transparency in government procurement on the WTO agenda as part of the so-called Singapore issues. A working group was set up in 1997, which from an EU perspective was meant to prepare binding ‘transparency’ obligations for national procurement systems in order to facilitate participation of foreign com- panies in public tenders.13 However, the contentious issue of market access loomed behind the scenes and developing countries – led by vocal voices such as India’s– blocked attempts to advance binding WTO disciplines in this area. This deadlock contributed to the removal of government procurement from the Doha Round negotiations in 2004.
Against this background, and the broader impasse at the WTO, the EU hardened its approach by focusing on the conclusion of comprehensive bilateral trade agreements and the use of unilateral instruments to extract concessions from trading partners. The European Commission’s 2006 Global Europe strategy paper, which has marked this turn to coercion in EU trade policy,14 identified public procurement as one of several new areas of growth where the EU should reach market opening abroad and stricter international rules.
One prominent proposal linked to the Global Europe program is the so-called
‘International Procurement Instrument’ (IPI) – a unilateral initiative designed to open procurement markets abroad by relying on the leverage of the internal market. The Commission tabled a first draft regulation in 2012 backed by interest groups such as Business Europe, which called it ‘imperative to adopt proactive market access initiatives’for the procurement sector.15The proposal got however stuck in the Council of Ministers,16which led the Commission to present a revised (and to some extent softer17) proposal in 2016. This current legislative proposal lays out under which conditions the Commission could investigate, upon stakeholder request or on its own initiative, the existence of restrictive procurement practices in third countries.18In such cases, the Commission would invite the third country to enter into consultations with the aim of reaching an agreement that would
13 European Commission, Elements for an Agreement on Transparency in Government Procurement – Communication from the European Communities, W26 Working Group on Transparency in Government Procurement (5 Nov. 1999).
14 Seefor instance, M. Elsig,The EU’s Choice of Regulatory Venues for Trade Negotiations: A Tale of Agency Power?, 45(4) J. Com. Mkt. Stud. 927 (2007).
15 Business Europe, https://www.businesseurope.eu/sites/buseur/files/media/imported/2011-01473-E.
pdf (accessed 8 Feb. 2017).
16 Southern Member States such as France and Italy were supportive of the initiative, while Northern countries led by the United Kingdom (UK) opposed it (Interview with an official from the European Commission (DG Trade), Brussels, Nov. 2013).
17 In particular, the 2012 initiative envisioned theexclusionof third-country companies from bidding on EU public contracts, while the 2016 version limits the restrictive measures to price penalties.
18 European Commission,Amended Proposal for a Regulation of the European Parliament and of the Council on the Access of Third-Country Goods and Services to the Union’s Internal Market in Public Procurement and
provide European companies with equal access in the respective foreign market. If no agreement was reached, the Commission would be entitled to introduce price penalties–so called‘price adjustment measures’ –against those bidders originating or extensively relying on input factors from the respective third country. China, Brazil and India are explicitly singled out in the explanatory memorandum as
‘important economic players’that are not yet members to the GPA. The initiative could unfold its full potential against these emerging countries as they are not GPA members or bound by a bilateral procurement agreement with the EU. They thus appear as major targets of the initiative.19
Apart from this unilateral instrument, the EU has sought to promote procure- ment liberalization in the BIC through bilateral relations, as summarized below.
3.1[a] EU-India Relations
India has been mainly approached through the bilateral negotiations on a free trade agreement (FTA) that started in 2007. Government procurement has been a major issue in these talks given that the EU’s demands went far beyond India’s previous concessions in any trade agreements.20 The 2006 report of the EU-India High Level Trade Group advocated a pragmatic approach which ‘shall interalia include better understanding of each party’s procurement practices, examine measures to enhance transparency, as well as examine ways to possible improvements in market access opportunities’.21 According to Indian interlocutors, the EU pursued such a balanced approach focused on the promotion of transparency rules in the begin- ning of the FTA negotiations, but this changed in 2008–2009, when the EU hardened its approach towards reaching market access commitments.22 The EU among others attempted to use its unilateral reciprocity initiative as a bargaining chip during the negotiations. Given the Indian side’s indifference about this threat, EU negotiators cautioned that the initiative would limit the ability of Indian companies invested in Europe to bid for public contracts, which was rejected by the Indian counterpart.23In sum–to paraphrase one interviewee–, the EU sold it
Procedures Supporting Negotiations on Access of Union Goods and Services to the Public Procurement Markets of Third Countries(Brussels 2016).
19 See also EurActiv, EU to Confront China with‘Reciprocity’in Public Contracts (2012), https://www.
euractiv.com/section/trade-society/news/eu-to-confront-china-with-reciprocity-in-public-con tracts/ (accessed 8 Feb. 2017).
20 R. Sengupta, Government Procurement in the EU-India FTA: Dangers for India, 47(28) Econ. & Pol.
Wkly. (2012).
21 EU-India High-Level Trade Group,Report of the EU-India High Level Trade Group to The EU-India Summit8 (2006).
22 Interview with an Indian trade expert and government advisor (New Delhi, Jan. 2014).
23 Interview with an official from the Indian Department of Commerce (New Delhi, Jan. 2014).
wrong: Instead of saying procurement rules are important for your economic development, the EU framed it in terms of market access.24
Also, this mode has not been complemented by network-based exchange or technical assistance from the EU side, which would hint to socialization efforts. In fact, unlike in other countries (e.g. China, see below), government procurement has played a minor role in the EU’s capacity building efforts in India. The EU- India joint action plan of 2005 contained the idea to create a dialogue on public procurement,25 but according to EU sources the Indian side later dismissed this idea arguing that the issue was already discussed in the FTA framework.26 However, public procurement has also played a minor role in the ‘Capacity Building Initiative for Trade Development’ (CBTD) program that has been launched in 2013.27
3.1[b] EU-Brazil Relations
For the Brazilian case, government procurement was mainly approached through the EU-Mercosur negotiations on an association agreement that were actively conducted between 2000 and 2004, and reinvigorated in 2010 after several years of break. Public procurement figured high on the EU side, and was one of the most intricate issues during negotiations. According to an EU official, there was on Mercosur’s side a‘lack of offer in the area of government procurement–this issue turned out to be the most problematic at the end of negotiations’.28 While the Brazilian side was open to offering the EU preferential treatment, this ‘EU pre- ference’ was thought to apply only after a preference margin for domestic and Mercosur partner countries was evaluated.29 Similarly, after 2010 the EU insisted on non-discriminatory market access in government procurement, whereas Brazilian counterparts suggested that domestic and Mercosur partners should receive preferential treatment before the EU preference margin would apply.30
Similar to India, this coercion-based bargaining setting was hardly comple- mented by institutionalized exchange at the level of regulators. Indeed, while a wide range of sector dialogues have been set up between the EU and Brazil, public
24 Interview with an Indian trade expert (New Delhi, Jan. 2014).
25 Council of the European Union,The India-EU Strategic Partnership–Joint Action Plan(2005).
26 Interview with an official from the European Commission (DG Trade) (Brussels, Nov. 2013).
27 Interview with an Indian trade expert (New Delhi, Jan. 2014).
28 R. Tomazini,Understanding the Association Agreement Between the EU and Mercosur: Its Structure, Course of Negotiations and the Involvement of the Business Sector, Mercosur European Union Dialogue, 13 (2013).
29 Mercosur – EU Government Procurement– Brazilian Offer, http://www.sice.oas.org/TPD/MER_EU/
negotiations/MA_offers/MER_Brazil_e.doc (accessed 4 Feb. 2017).
30 Interview with an official from the Brazilian Ministry of Foreign Affairs (Itamaraty) (Brasilia, July 2014).
procurement does not figure as a distinct topic in the EU-Brazil Sector Dialogues Support Facility and only a few procurement-related activities have taken place under the scheme since its inception in 2008. This being said, the Dialogue on Small and Medium Enterprises (SME) hosts as of 2016 a project to establish a
‘Public Procurement Observatory’, whose aim is to improve Brazilian SME’s access to international procurement markets by learning from EU experiences.31 In this context the opportunities of international procurement agreements for Brazilian SMEs have also been addressed.32
3.1[c] EU-China Relations
The EU’s efforts to engage China have to be situated in the overall framework of China’s WTO accession in 2001. In the WTO Working Party on China’s accession, China committed under the urging of the EU and other WTO mem- bers to table a GPA offer ‘as soon as possible’.33 The EU also used the leverage from China’s WTO membership bid to secure concessions in purely bilateral EU- China negotiations, ensuring ‘that the interests of European industries and firms were fully represented’.34 Regarding procurement issues in particular, a summary briefing of the EU-China agreement notes that one of the ‘commitments which were secured explicitly by the European Union’(as compared to China’s commit- ments in a prior US-China agreement) was that‘China has agreed to full transpar- ency and non-discrimination (MFN) in government purchases’,35 applying ‘not only to central and provincial government agencies, but also to all state-owned enterprises, unless they are engaged in exclusively commercial activities’.36 The EU thus clearly used China’s WTO membership aspiration as a conditionality- based tool to secure the country’s alignment with the transparency principles of the GPA and its future accession to the GPA.
China tabled its first GPA offer in 2007–six years after WTO accession–and submitted five further offers in subsequent years. Although China improved its coverage offer in this process, GPA members have recurrently expressed their
31 SeeEU-Brazil Sector Dialogues,Small and Medium Enterprises, 8th Call, http://sectordialogues.org/en/
acoes-apoiadas-convocatoria/4496?page=1 (accessed 8 Feb. 2017).
32 EU-Brazil Sector Dialogues, Ministry of Planning Discusses International Public Procurement, http://
sectordialogues.org/en/noticia/ministry-planning-discusses-international-public-procurement (accessed 8 Feb. 2017).
33 WTO,Report of the Working Party on the Accession of China65 (1 Oct. 2001).
34 European Commission,European Commission Overview of the Terms of China’s Accession to WTO (2000), inThe European Union and China, 1949–2008–Basic documents and Commentary1069 (F. Snyder ed., Hart Publishing 2009).
35 European Commission,The Sino-EU Agreement on China’s Accession to the WTO: Results of the Bilateral Negotiations (2000), in Snyder (ed.),supran. 34, at 1064.
36 Ibid., at 1076.
disappointment with the slow progress of negotiations. The EU as other GPA members called on China to accelerate the accession process in order to integrate China into the GPA’s rule-based system. In a similar vein, EU officials deplored at numerous occasions discrimination in China’s procurement market and called on China to enhance market access opportunities for EU companies, for instance during EU-China summits, in strategy papers on the EU-China relationship and in public speeches.37 These efforts were backed by EU business associations, which regularly called for action to curb Chinese protectionism in the procurement sector. For instance, the EU-China Chamber of Commerce (EUCCC) – whose regular reports have been a point of reference for the Commission’s trade strategy vis-à-vis China38 – published a detailed assessment on discriminatory practices in China’s procurement system in 2011, followed by several updates in subsequent years.39
Apart from such constant admonitions, the EU has sought to foster reform of the Chinese procurement regime at the level of procurement regulators. In 2006, the EU-China dialogue on government procurement was launched in Beijing. In his inaugural speech, then EU Commissioner for Internal Market Charlie McCreevy reflected on the EU’s experience in creating a competitive procure- ment regime and offered his Chinese colleague to share ‘the lessons we have learned from that experience’.40 The dialogue scheme was nurtured by common projects established via the EU-China Trade Project (EUCTP).41 During the lifespan of EUCTP I (2004–2009), various technical assistance activities were conducted such as workshops, advisory studies on EU procurement practices and study trips to the EU.42 These efforts have been carried on during EUCTP II (2010–2015), which has yielded further study reports and workshop activities for the‘harmonisation of China’s regulatory framework with international practices’.43 In sum, this institutionalized framework illustrates the tenacity and endurance of
37 See for instance, European Commission,Communication from the Commission to the Council and the European Parliament: EU-China: Closer Partners, Growing Responsibilities (Brussels 24 Oct. 2006);
Council of the European Union, Towards a Stronger EU-China Comprehensive Strategic Partnership.
Joint Press Communiqué, 15th EU-China Summit (Brussels 20 Sept. 2012); K. de Gucht, Made in China: What Next for EU Firms?(Brussels 20 Sept. 2011).
38 Interview with an official from the European Commission (DG Trade) (Brussels, May 2013).
39 EU-China Chamber of Commerce, Public Procurement in China: European Business Experiences Competing for Public Contracts in China(2011).
40 C. McCreevy,Opening Speech at the EU-China Conference on Government Procurement(Beijing 16 May 2006).
41 EUCTP I was active from 2004 and 2009 with an overall budget of EUR 20.6 million, out of which a not specified portion was allocated to activities related to public procurement cooperation. The successor program, EUCTP II (2010–2015) had an overall budget of roughly EUR 24 million, and again procurement was part of one focus area.
42 EUCTP,The EU-China Trade Project: An Important Contribution to China’s Integration into the World Trading System–Results and Achievements Report(2009).
43 Ibid.
the EU’s attempt to socialize Chinese representatives with the virtues of an EU- like and GPA-conform procurement system.
3.2 THE US APPROACH – LESS COERCIVE, EXCEPT FOR CHINA
In contrast to the EU, the US has early on relied on unilateral instruments for exerting leverage over trading partners, in particular under section 301 of the Trade Act of 1974. Section 301 authorizes the US President to impose retaliatory measures against third countries for violation of trade agreements or the use of discriminatory practices affecting US businesses. The Office of the US Trade Representative (USTR) is in charge of investigating discriminatory procurement practices in third countries and to take retaliatory action if necessary, such as import restrictions or withdrawing benefits from preferential trade agreements.
While the Trade Act leaves it largely at the discretion of the USTR to take action, the framework was tightened in 1988 with the enactment of the Omnibus Trade and Competitiveness Act. Title VII of the Omnibus Act required the president to submit an annual report to Congress on foreign discrimination in government procurement and in particular to ‘identify’offending countries. These third coun- tries would receive a request for consultations and incur US sanctions if the discriminatory practices did not disappear within sixty days after their official
‘identification’.44 Six reports were submitted between 1991 and 1996, when Title VII legislation initially expired, before being extended by executive order for the period 1999 to 2001.45The provisions of Title VII were particularly in use in the disputes with the EU and its Member States during the formation process of the GPA in the first half of the 1990s. The BIC were never ‘identified’ as target countries, but in several reports concerns were raised with respect to specific practices in China and Brazil.46
While the Title VII unilateral approach has been on hold after 2001, the US– specifically the US Trade and Development Agency (USTDA) – has started pursuing a more horizontal approach by developing the so called ‘Global Procurement Initiative’(GPI). The project was set up in 2013 based on the insight that in many developing countries, contracts are awarded on a lowest-cost basis, implying that the bidder offering the lowest price would win the contract. Besides downside effects on the quality of products and services, this procedure makes it
44 US Congress,Overview and Compilation of U.S Trade Statues Part I of II233 (US Government Printing Office 2010).
45 See United States Trade Representative, Annual Report on Discrimination in Foreign Government Procurement(2001).
46 US Congress,Overview and Compilation of U.S Trade Statues Part I of II191–194 (US Government Printing Office 2001).
difficult for US companies to win any public contracts abroad due to abundance of low-cost (and supposedly low quality) competitors from emerging markets. The GPI therefore aims ‘to educate public procurement officials in emerging markets about how to establish procurement practices and policies that integrate life-cycle cost analysis and best-value determination in a fair, transparent manner’.47 This would increase the quality of procured products and services, while at the same time ‘level the playing field for U.S. firms in international tenders’.48 The tool is open to all developing/emerging countries showing commitment to best-value considerations and ‘fair and transparent international competition’.49The GPI can be seen as a new, socialization-based US effort at the level of procurement professionals with the aim to export a specific procurement norm to emerging markets. So far, however, it has not been embraced by the BIC countries. Indeed, China and Brazil are not mentioned at all, whereas India is listed as a ‘potential new partner’,50but no specific activities appear to have taken place so far.
3.2[a] US-India Relations
In terms of specific procurement-related interactions, the US engaged India through the venue of the WTO. In particular, the US side launched a WTO complaint against India’s ‘Jawaharlal Nehru National Solar Mission (JNNSM)’
which has a procurement component.51 The US has furthermore called on India to start GPA accession negotiations, for instance during India’s Trade Policy Reviews at the WTO. In trying to pull the Indian side in this direction, the US appears to have been more welcoming with India compared to the EU. Indeed, one US interviewee pointed out that – given similar difficulties in India and the US to bring their constituent states/regions ‘on board’ –the US suggested India should offer coverage for as many states as possible and the rest would be left out.
The interviewee further reflected that this was probably not a suggestion the EU would give, but‘it is real world’.52Apart from that, US-Indian exchange on public procurement regulation rather takes place on a decentralized level such as through university partnership programs.53
47 U.S. Trade and Development Agency,Global Procurement Initiative, https://www.ustda.gov/program/
global-procurement-initiative-0 (accessed 22 Jan. 2016).
48 Ibid.
49 Ibid.
50 USTDA,Overview Brief–Promoting Value-Based Procurement as a Tool for Economic Growth(2017).
51 See Eco-Business, WTO Rules Against India’s Domestic Content Requirements in Solar Power, http://
www.eco-business.com/news/wto-rules-against-indias-domestic-content-requirements-in-solar- power/, (accessed 4 Feb. 2017).
52 Interview with former US trade negotiator (Washington, D.C., Mar. 2014).
53 SeeGWlawschool,GW Law and India: An Expanding Relationship, https://www.gwu.edu/~magazine/
archive/2009_law_winter/feature_india.html (accessed 8 Feb. 2017).
3.2[b] US-Brazil Relations
Regarding US-Brazil relations, government procurement liberalization formed part of negotiations in the early 2000s to conclude the Free Trade Area of the Americas (FTAA). In those times, the former Brazilian government was open to discuss the issue; especially talks on procurement rules went quite smoothly, while market access was more problematic.54But since the Brazilian government chan- ged in 2003 and the FTAA negotiations broke down in 2005, there appear to have been no official discussions on government procurement between the two sides.
Though US trade representatives deplore Brazil’s rejection of the GPA framework on dedicated occasions such as during Brazil’s Trade Policy Reviews at the WTO, there are no notable results from such attempts.
3.2[c] US-China Relations
The US-China relationship diverges from the other two cases as the US has invested more resources to impose its preferences on China. Indeed, the US government has repeatedly put strong pressure on China to advance towards GPA membership and to refrain from discriminatory policies. This has mainly happened through high-level bilateral fora, namely the Joint Commission on Commerce and Trade (JCCT) and the Strategic and Economic Dialogue (S&ED). It is thus no coincidence that China’s submission of revised GPA offers repeatedly followed such bilateral meetings, where the Chinese side committed to specific deadlines. For instance, regarding its first offer, China conceded during the 2006 US-China JCCT meeting to table a GPA coverage offer no later than in December 2007, which it eventually did.55 In subsequent years, China submitted five revised offers, usually following deadlines agreed during prior JCCT and/or S&ED meetings, which were complemented by several bilateral negotiation rounds at technical level.56 In a similar vein, it is notable that the US– during a bilateral meeting between Presidents Barack Obama and Hu Jintao–was successful in dissuading China from linking government procurement to its ‘indigenous innovation’ policy, which was widely contested as a protectionist program going against China’s GPA accession pledges.57 Apart from these bilateral negotiation fora, there are no institutionalized cooperation platforms for bringing US procure- ment regulation closer to Chinese counterparts. Diffusion of best practices in this
54 Interview with former US trade negotiator (Washington, D.C., Mar. 2014).
55 USTR,2016 Report to Congress on China’s WTO Compliance95 (2017).
56 Ibid., at 95–96.
57 SeeChina Daily,‘Discriminatory’Govt Procurement Rules Scrapped, http://en.people.cn/90001/90776/
90883/7426226.html (accessed 16 Feb. 2017).
area seems rather based on personal engagement of individual experts, for instance a formerly China-based US procurement academic who advised Chinese inter- locutors during the drafting of China’s Government Procurement Law (GPL).58
Like in the case of the EU, the US pressure approach on China has been underpinned by demands from US businesses. As put in the annual USTR reports on China’s WTO compliance, ‘U.S. firms have made clear that China’s timely GPA accession is a top priority for them. As a result, shortly after China became an observer to the WTO Committee on Government Procurement in February 2002, the United States began pressing China both bilaterally and in WTO meet- ings to move as quickly as possible toward GPA accession.’59 Demands from interest groups are also reflected in hearings and position papers from US business associations,60 which have also provided pertinent information on the ground to underpin their demands. The US-China Business Council, for instance, published in 2015 a comprehensive list of discriminatory and liberalizing provisions in procurement regulations of Chinese regions.61
To sum up, the overview of EU and US external procurement policies over the past two decades suggests a more active and coercive approach on the EU side via bilateral trade negotiations and the unilateral IPI initiative. While the US has also exerted some pressure – especially toward China –, it appears to put less emphasis on the issue of government procurement.
4 TURNING TO THE‘DEMAND SIDE’ OF THE BIC’S PROCUREMENT POLICIES
How effective have the EU and the US been in their attempts to increase their companies’ access to public contracts in the BIC? For answering this question, it should be kept in mind that market opening in public procurement hinges on two elements: On the one hand, it requires that foreign bidders have de jure equal access to participate in public tenders, in other words ‘non-discrimination’ has to be the rule. On the other hand, de jure non-discrimination needs to be comple- mented by transparent regulatory frameworks that de facto enable foreign (and domestic) companies to bid on equal terms for public contracts.
With regard to domestic regulation, all three emerging countries have made huge strides in advancing their procurement systems in line with international best
58 D. J. Mitterhoff,The Four into One Platform: New Reform Initiatives Compound China’s Dissected Public Procurement Governance, University of Maryland Legal Studies Research Paper No. 2012-43 (2012).
59 USTR,supran. 55, at 95;see alsoUSTR,2007 Report to Congress On China’s WTO Compliance58–59 (2007).
60 See for instance,Business Groups Raise New, Old Complaints at Interagency China Hearing, Inside U.S.
Trade (7 Oct. 2016).
61 The US-China Business Council,Update: China’s Innovation and Government Procurement Policies(2015).
practice. Brazil introduced a bidding law back in 1993, China’s GPL entered into force in 2003, and India is in the process of developing the so-called Public Procurement Bill (relying in the meantime on specific manuals and guidelines).
While these laws, as well as their amendments and implementing regulations, leave room for improvement, they share the basic essence of modern procurement systems, including for instance provisions on eligible procurement methods, adver- tising rules, contract award procedures and bid challenge mechanisms. A recent World Bank project on benchmarking public procurement systems offers thus a rather positive rating for the BIC’s regulatory procurement frameworks, as their scores keep up with those of most European and American jurisdictions.62
The EU and the US played less of a direct role in the formation of the BIC’s domestic procurement systems. As presented further above, there have been few channels for exchange between procurement regulators from the mature EU and US jurisdictions and their counterparts in Brazil and India. China represents a partial exception where the EU developed an institutionalized approach and also from the US some outreach at expert-level occurred.63While the direct impact of these EU and US efforts vis-à-vis China are difficult to assess, the willingness of Chinese reformers to ‘shop around’ for best practices appears crucial in terms of how external influences ‘reach the ground’. Indeed, also India and to a minor extent Brazil have actively drawn on international soft law sources when develop- ing their domestic regimes, such as OECD benchmarking tools, World Bank guidelines and the Model Law on Procurement developed under the United Nations Commission on International Trade Law (UNCITRAL). As these inter- national soft law instruments have been heavily influenced by EU and US pro- curement practices, one can assert an indirect influence stemming from the two established regulatory powers.
The drivers behind this ‘shopping around’ from emerging counties are however situated at the domestic level rather than being a response to EU and US demands.64 In India, the reform process starting a decade ago was triggered by public outcry against large corruption scandals such as those surrounding the 2007 Commonwealth Games, on which reform-oriented policy-makers and public officials could build to initiate new legislation. In Brazil, reforms in the 1990s were induced in a similar manner by corruption scandals and government commitment to reform, which were also major drivers in China’s pursuit of procurement law as part of the process of economic renewal since 1979. In this context, the turn of emerging markets towards international templates as a source
62 See World Bank,Benchmarking Public Procurement, http://bpp.worldbank.org/data/exploreindicators/
procurement-life-cycle (accessed 4 Feb. 2017).
63 USTR,supran. 55, at 95.
64 I. Krizic,Public Procurement Regulation in Brazil, India and China(forthcoming).
for inspiration appears as a reasonable move to increase regulatory capacity on procurement law, which needs time to develop and hinges on experience in managing such systems.
At the same time, the BIC did not give in to EU and US demands to join the GPA and to refrain from statutory procurement discrimination. Indeed, while striving for‘sound’domestic procurement regimes to curb corruption and increase efficiency, all three emerging countries have kept and even reinforced formalized discriminatory policies in this area. While India has become a GPA observer in 2010 to keep up with developments in this forum, it has introduced since then new preference schemes favouring, for instance, domestically manufactured elec- tronic and telecom products in public procurement.65Brazil has resisted any EU/
US calls to join the GPA and has introduced over the past years extensive domestic preferences in a wide range of sectors66 – apparently inspired by US ‘Buy American’legislation.67In China, the GPL of 2003, as amended in 2014, provides in Article 10 that, exceptions aside, ‘government shall procure domestic goods, construction and services’ (emphasis added). Here again, the US ‘Buy American’
policies appear to serve as an example,68 which suggests that instead of a force for open markets, the US has become an export model of discriminatory procurement policy.
Meanwhile, China has taken important steps towards GPA accession including offers of non-discriminatory treatment for an increasing share of its procurement sector. This partly reflects success of EU and especially US pressure on China within the JCCT and S&ED frameworks. At the same time, the pressure to join the GPA has arguably been used by parts of the Chinese bureaucracy to break domestic administrative resistance and to induce procurement reforms in the realm of the corruption-prone but influential Chinese state-owned enterprises (SOE).69 This mechanism of exploiting external pressure for locking-in domestic reforms however hinges on the commitment from the Chinese leadership, which until recently seems to have neglected the issue of GPA accession.70
65 Seefor instance, A. Shingal,Internationalisation of government procurement regulation: The case of India, 86 EUI Working Paper RSCAS 1, 13 (2015).
66 For an overview,seeGlobal Trade Alert, http://www.globaltradealert.org/ (accessed 8 Feb. 2017).
67 Interview with an official from the Brazilian Ministry of Development, Industry and Foreign Trade (MDIC) (Brasilia, July 2014);see alsoD. Jurubeba,Procurement Preferences Favoring Domestic Firms and Industries: A Comparison Between American and Brazilian Policies 34 (George Washington University 2014).
68 X. Tu,China’s GPA Negotiations: What Are They Really About?, inFrom Rule Takers to Rule Makers:
The Growing Role of Chinese in Global Governance42 (S. Kennedy & S. Cheng eds, Research Center for Chinese Politics & Business 2012).
69 Insights from conference participation and discussions in Florence and Geneva in Dec. 2014 and Sept.
2015.
70 X. Tu, Organizational Aspects of China’s GPA Accession Negotiation and Their Implications(Research Center for Chinese Politics & Business 2011).
Overall, it appears that coercive threats of market closure do not yield the expected benefits of accommodation by emerging countries. As an illustrative case, none of the BIC undertook serious steps to address the EU’s unilateral procure- ment initiative. When the proposal came out a Chinese Ministry of Commerce official stated that the measure ‘won’t scare China into making concessions over the government procurement agreement proposal, as they expect’. One reason given by the official was that the EU’s contestable EUR 352 billion procurement market is‘not a big number compared with what China could provide’, adding the second reason that anyway ‘Chinese companies always find it hard to bid for the deals, since the standards are much too high.’71 The latter is a recurrent argument explaining why other emerging countries did not seriously raise the issue.72 Brazilian interviewees suggested that the measure was not perceived as threatening and there were no significant concerns raised about it by Brazilian businesses.73In a similar vein, Indian interviewees confirmed that the initiative was not seen as worrisome, given that Indian companies anyway do not hold a mentionable share in the EU public procurement market.74While this has partly to do with a lack of competitiveness of Indian companies, several Indian sources asserted that only a tiny share of EU public contracts were won by third-country companies, bemoan- ing the lack of market openness in the EU due to over-specification of requirements.75The economic significance of the EU’s procurement market thus appears to lack leverage capacity due to a priori low levels of market penetration and hence lacking incentives for export industries and policy-makers in emerging countries.
5 CONCLUSION AND OUTLOOK
The study has comparatively assessed the EU’s and US’s mechanisms and effec- tiveness in exporting their preferences in public procurement to emerging coun- tries, namely to the BIC. It has been supposed that export interests drive both the EU and the US to exert pressure on emerging countries to open up their public markets, while the more centralized competences at EU-level would lead the EU to push stronger for its offensive interests than the US.
The comparison of EU and US approaches over the past two decades suggests indeed that the EU follows a more coercive approach than the US. In particular,
71 China Daily, China Unlikely to Join WTO Agreement: Official, http://english.peopledaily.com.cn/
90883/7764065.html (accessed 8 Feb. 2017).
72 Interview with officials from the European Commission (DG Trade) (Brussels, Nov. 2013).
73 Interview with an official from the Ministry of Foreign Affairs (Itamaraty) (July 2014).
74 Interview with an official from the Indian Department of Commerce (New Delhi, Jan. 2014).
75 See alsoA. Das,Public Procurement: Indian Perspective(New Delhi 2012).
the EU has attempted to increase market access in government procurement by assigning high priority to the issue in preferential trade negotiations with India and Brazil (via Mercosur). In addition, the European Commission has sought to increase its leverage on trading partners on a unilateral basis by introducing the so-called IPI, a policy initiative that would impede third-country access to the EU procurement market in case of non-reciprocity. The US, on the other side, has also exerted pressure on emerging markets in bilateral diplomatic consultations – especially with China –, but overall it has given less priority to the issue of public procurement. The study furthermore emphasizes that success of EU and US efforts hinges on domestic support for procurement reform among policy makers, reg- ulators, businesses and citizens in emerging markets. A sole focus on condition- ality-based measures appears not sufficient to induce change and may benefit from an extension of technical-level interaction between regulators.
In terms of future outlook, the Union’s ambitious external procurement policy faces a major challenge – but also an unexpected opportunity – in the UK’s departure from the EU. The UK has been an economic heavyweight in the EU’s common market, and accordingly in the EU’s public procurement sector.
‘Brexit’ thus tremendously curtails the EU’s market power, which is the corner- stone of the EU’s increasingly aggressive bargaining approach. At the policy level,
‘Brexit’ may yet provide an opportunity to finally agree on the EU’s reciprocity- based procurement initiative, which for many years has been held back by opposi- tion in the Council led by the UK. While the effectiveness of such a market restrictive measure is debatable, it would eventually provide the EU with a comprehensive external procurement policy, which Member States struggled to build since the early days of public market integration in the EC/EU.76
The current (but still open-ended) trade policy turn in the US will have further implications for the EU and the world trade regime more broadly. With regard to bilateral EU-US relations, negotiations on the Transatlantic Trade and Investment Partnership (TTIP) are on hold and unlikely to be completed in the foreseeable future, not the least because of the two sides’ diametrically opposed views on public procurement liberalization. Ever since the TTIP negotiations started, the procurement chapter has been a stumbling block, with the EU pushing for an ambitious market access deal and the US being unable to provide a substantial offer including sub-central coverage. The Trump administration’s ongoing attempts to strengthen ‘Buy American’ policies77 increase the gap
76 See P. Eeckhout,The European Internal Market and International Trade–A Legal Analysis(Clarendon Press 1994).
77 R.F. Fefer & I.F. Fergusson, Trade Implications of the President’s Buy American Executive Order (Congressional Research Service 2017).
between the two sides and make an agreement unlikely, even if the TTIP negotiations were to be relaunched.
The protectionist signals coming from the White House may at the same time open new opportunities for the EU, as emerging countries need to reconsider their trade relationships. Indeed, at the World Economic Forum in Davos in January 2017, China’s President Xi Jinping – with a hint to US discourse under Donald Trump–has sharply criticized protectionist trends and has been emphatic about his country’s determination to be a driving force of the liberal trade order. While China’s own trade policy has encountered criticism from the EU and others in the past, the aspired frontrunner role may spur the EU-China relationship and induce the Chinese leadership to accept procurement liberalization as an essential element of a twenty-first century liberal trade regime. Indeed, China’s recent re-engage- ment with the GPA accession process may be a step in this direction.78 Similar dynamics may stimulate EU relations with India, which under the liberal-leaning government of Narendra Modi repeatedly showed interest to revive FTA talks with the EU.79 Finally, Brazil’s trade policy orientation seems at a turning point after Dilma Rousseff’s impeachment brought to an end the 13-year reign of the Workers’ Party. The new government is under pressure from society and law enforcement institutions to pursue reform and to clear up a massive corruption scandal in the procurement sector, which involves the public oil company Petrobras as well as dozens of high-level politicians and business figures.80 Against this backdrop, conditions in Brazil appear propitious for change – and the EU may assist in this process.
78 China to Submit Revised Offer to Join Procurement Agreement at WTO, Inside U.S. Trade (28 Feb. 2017).
79 G. Nataraj,Can the EU-India Free Trade Agreement Be Revived?, http://bruegel.org/2016/06/can-the- eu-india-free-trade-agreement-be-revived/ (accessed 8 Feb. 2017).
80 Krizic,supran. 64.
