WORLD TRADE
ORGANIZATIONS/WPGR/W/39
12 July 2002
(02-3883)
Working Party on GATS Rules Original:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITIES
AND THEIR MEMBER STATES
Government Procurement of Services
The following communication has been received from the European Communities and their
Member States with the request that it be circulated to the Working Party on GATS Rules.
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I. INTRODUCTION
1. Within the framework of the negotiations under the mandate given by GATS Article XIII:2,
the European Communities and their Member States (hereafter “the EC”) hereby submits a
contribution with proposals on a framework for rules for government procurement of services that
could be developed, and on the benefits that could be drawn from them.
II. SIZE OF GOVERNMENT PROCUREMENT MARKETS
2. The OECD1 estimated the size of total procurement for all levels of government at
US$ 5550.6 billion in 1998, roughly equivalent to 82.3%  of world exports.  Services represent a
substantial part of government procurement (est. 60%).  The world value of government procurement
of goods and services, excluding defence-related expenditure and compensation of employees, was
estimated at US$ 2083 billion, equivalent to 7.1% of world GDP or 30.1% of world exports.  Of this
figure, OECD countries account for 86.1%.  Non- OECD countries represent a mere 13.9 %, i.e.
US$ 287.7 billion.  The largest opportunities therefore arise in the industrialised countries.Developing countries could thus particularly benefit from the opening up of government procurement
of services and gain access to these large markets.
III. BENEFITS OF INCREASED COMPETITION IN GOVERNMENT PROCUREMENT
3. Improved conditions for import competition in government procurement play a crucial role in
enabling public authorities to purchase services at the lowest cost, giving taxpayers value for money,improving the quality of government services and permitting better allocation of resources.  Opening
up competition to foreign services providers can al so stimulate domestic industry, promote innovation
and contribute to good governance.  Conversely, policies to favour national or local services and/or
services providers over those which are foreign have effects similar to other protectionist measures,
introduce distortions that limit choice, increase prices and discourage economic efficiency.  Onbalance, preferential price policies shift profits to domestic firms, but these benefits are ultimately
offset by increasing procurement costs.
                                                     
1 The Size of Government Procurement Markets , Offprint from OECD Journal on Budgeting Vol.1,
No.4, March 2002, ISBN 9264196307S/WPGR/W/39
Page 2
4. On the export side, whereas GPA signatories have access to a significant part of world
government procurement markets, countries that are not GPA parties – mainly developing countries -
have no guaranteed access to these markets.  Companies from non GPA countries thus suffer from
their lack of access to procurement covered by the GPA.2
5. In some sectors, government procurement accounts for a small share of total domestic
demand and preferential practices in procurement have therefore a limited impact on overall trade in
services of these sectors.  For certain sectors however, in which government procurement represents
an important part of the market, the scope and effectiveness of market access granted under GATS
commitments is greatly impaired by the existence of preferential practices in procurement (see the
example of the construction services sector in Annex).
IV. RECOMMENDATIONS FOR A FRAMEWORK FOR GOVERNMENT
PROCUREMENT OF SERVICES UNDER GATS
6. GATS Article XIII:1 exempts laws, regulations and requirements governing government
procurement of services from the disciplines contained in GATS Articles II (Most-Favoured-Nation
Treatment), XVI (Market Access) and XVII (National Treatment).  GATS Article XIII:2 gives WTO
Members a broad mandate to negotiate multilaterally on government procurement of services, under
the GATS Agreement, which addresse s international trade in services.
7. MFN and national treatment requirements are not sufficient to ensure equal treatment and
non-discrimination in the area of government procur ement.  The experiences of the EC Single Market
and of the GPA have shown that in order to ensure effective market opening, domestic procedural
principles have to be developed.
8. The rules to be worked out for government procurement of services would therefore have to
be complete enough to ensure competition, but they could at the same time offer flexibility to be
acceptable to all and let developing countries implement national policies aimed at the development
of certain services sectors, including the possibility to apply preferential prices policies.
9. With this objective in view, the EC proposes a framework that includes:
A. GENERAL RULES
10. GATS Article III general transparency obligations apply to government procurement of
services, since the Articles of the GATS that do not currently apply to laws, regulations or
requirements concerning government procurement, pursuant to GATS Article XIII:1, are GATS
Articles II (MFN), XVI (Market Access) and XVII (National Treatment).
11. The EC suggests to examine which principles should be laid down as regards:
(a) Transparency (e.g. public accessibility of domestic legislation, transparency of
procurement methods and tendering procedures, bid periods, publication of calls fortenders, decisions on pre-qualification and contract awards, challenge procedures,
protection of confidential information and language, limited tendering, negotiation
periods and conditions).  Consistency with the work under way in the Transparency
                                                     
2 The WTO Agreement on Government Procurement (GPA) sets forth rules for open and transparent
bidding for services and construction work.  It guarantees non-discrimination between foreign and domesticfirms. The GPA is however a plurilateral agreement and applies only to Members that have specifically adopted
it, mainly developed countries.  Lack of flexibility of the GPA has been cited as a major reason for developing
countries’ choice not to join this plurilateral Agreement.  The GATS could offer to these countries a much moreflexible framework, enabling them to benefit from increased competition whilst keeping the possibility toimplement national policies with domestic preferences.S/WPGR/W/39
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Group should be ensured, through regular contacts and exchange of information
about work in progress between this Group and the Working Party on GATS Rules.
(b) the criteria for assessing bids and awarding contracts (how to achieve "best value for
money" in government procurement?);
(c) the application of the Most Favoured Nation treatment;
(d) notification and statistical reporting requirements;
(e) appropriate flexibility for individual developing countries in line with the principles
set out in GATS Articles IV and XIX:2.
12. Guarantees regarding the challenge procedures, as stipulated in GATS Article VI (which
applies to government procurement pursuant to GATS Article XIII:1), are essential to ensure effective
enforcement of agreed rules.  Members are invited to reflect on whether additional provisions,specific to challenge procedures regarding decisions linked to government procurement, are necessary
and should be discussed in this framework.
B. S
ECTOR -SPECIFIC RULES
13. Some services sectors may present peculiarities that would justify specific rules or principles
on, say, registration obligations, (pre-)qualification requirements / professional qualifications /
technical capability, selection and award.  The EC therefore suggests to carry out a sector by sector
analysis, focusing first on those sectors where government procurement is significant and where WTOMembers would have interests.  Sectors that could be looked at, depending on Members interests,
could include, for instance , computer and related services, construction services, engineering and
architectural services, environmental services, catering services, building-cleaning services and travel
agencies.
C. C
OMMITMENTS AS REGARDS ACCESS TO , AND NATIONAL TREATMENT IN RESPECT OF ,
GOVERNMENT PROCUREMENT OF SERVICES
14. As a further step, the EC suggests that each WTO Member should, besides the set of
principles agreed, make commitments as regards access to, and national treatment in respect of,
government procurement of services, with the possibility to choose which sectors to open, with –
where necessary – limited restrictions on national treatment (e.g. price preferences), within the model
of the current system of GATS schedules of commitments.  This is not possible under the GPA where
a sector either is not listed or has to follow GPA rules.
15. This would offer WTO Members, in particular developing countries, maximum flexibility to
modulate the level of openness and liberalisation of their government procurement markets to their
development needs and their national policy objectives.  The possibility to open up government
procurement markets progressively would allow time for WTO Members to establish the relevant
regulatory framework where necessary.  This would also mean that a Member taking no commitment
as regards access to, and national treatment in re spect of, government procurement markets, would
have actually no additional obligation in these regards as compared to the present situation.S/WPGR/W/39
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ANNEX
The example of the construction services sector
This annex is provided purely as an illustrative case.  The Construction Services sector has been
chosen as an example since government procuremen t has an important impact on this sector, but a
similar case could be made for other services sectors.
1. The UNCTAD X Plan of Action3 states that UNCTAD should help developing countries in
identifying the priority services sectors where liberalisation should take place and the main tradebarriers that developing countries face in those sectors, especially those which limit developing
country ability to export their services.  Under this Plan of Action, the UNCTAD Secretariat produced
a note on the “regulation and liberalisation of the construction services sector and its contribution to
the development of developing countries"
4, with a view to prepare the experts meeting of
23-25 October 20005 devoted to that subject.
2. The outcome of these discussions underlines that the construction services sector in
developing countries is a fundamental economic activity which permeates all sectors, draws on a large
part of capital formation and provides the essential support for developing a national economy.
Construction services are an important tool for deve lopment because of their role in building social
and industrial infrastructure.  They are an instrument for employment creation, a key infrastructureservice and a tool for upgrading welfare.  Companies from developing countries have increasingly
entered into ad-hoc co-operation agreements with companies of developed countries, focused around
specific projects.  This provides opportunities for acquisition of experience and access to technology
for developing country firms.  Representatives of developing countries at the October 2000 UNCTAD
experts meeting observed that in order to support the development of developing country firms'capacities, fair competition in the international markets for construction services should be ensured.
3. The above-mentioned UNCTAD papers also note that some developing countries have been
exporting construction services successfully and have attained a certain competitive advantage,
although they have had limited success in penetrating the markets of developed countries.  Tightening
credit conditions and accumulated debt are forcing companies, as in developed countries, to look for
opportunities outside their domestic market, often through subcontracting.  Representatives of
developing countries at the October 2000 UNCTAD experts meeting underlined that governmentprocurement practices are limiting exports of construction services from developing countries.
4. Construction services procured by government at all levels are indeed estimated to account
for as much as half of the total demand for constr uction services.  GATS Art.  XIII:1 provisions thus
exclude much of the trade in this sector from GATS disciplines.  Government procurement practices,
which discriminate in favour of domestic suppliers, have therefore a significant impact on trade in thissector.
5. Developing countries have not wished to participate in the GPA.  This is based on the general
perception that by opening their government procurement to international tendering they will permit
foreign firms to capture a significant part of their domestic business, whilst it should be considered
that the construction services so obtained would be provided at more competitive prices, thus
                                                     
3 TD/386
4 TD/B/COM.1/EM.12/2, 1 August 2000
5 Report published on 18 December 2000 by UNCTAD under ref. TD/B/COM.1/32-
TD/B/COM.1/EM.12/3S/WPGR/W/39
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stimulating development and growth elsewhere in the economy, and that on other markets, export
opportunities would be provided to their domestic construction industry.
6. UNCTAD thus recommends6 that specific commitments in the construction sector could be
complemented by pro-competitive provisions addressed to measures either peculiar to the
construction sector, or which were judged to have a negative impact on trade within the sector, suchas transparency in government procurement policies.  UNCTAD concludes that given the significance
of government procurement in influencing trade in construction services, a sector-specific approach to
this issue could be considered.
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6 TD/B/COM.1/EM.12/2