WRITTEN QUESTION E-2662/99

by Glenys Kinnock (PSE) to the Commission

(12 January 2000)

Subject: Impact of procurement liberalisation on developing countries

Has the Commission produced any studies that illustrate the impact of procurement liberalisation on developing countries? If not, does it intend to do so?

Joint answer to Written Questions E-2661/99, E-2662/99 and E-2663/99 given by Mr Lamy on behalf of the Commission

(8 February 2000)

Money spent on government procurement (not including defence purchasing) accounts for at least 10-15 % of gross domestic product (GDP) in most countries. The fact that there are no multilateral rules governing how this money is spent means that governments are able to maintain procurement policies and practices which are discriminatory and trade distortive.

Opaque and/or discriminatory procurement procedures adversely affect the longer term development objectives of countries because they are subsidising uncompetitive industries and creating an environment conducive to corruption and bribery. This is backed up by empirical research which has been carried out by other countries and organisations. In addition, the trade liberalising effect achieved by the World trade

organisation (WTO) and its predecessor, the General agreement on tariffs and trade (GATT), is reduced because a substantial proportion of potential trade falls outside the scope of WTO rules.

An open procurement market means achieving best value for taxpayers' money. Significant cost savings occur as a result. This is money that can be used to pursue developmental and other objectives. For that reason, the Community supports efforts within the United Nations and other international organisations to persuade countries to use procurement best practices and to make purchases on a best value for money basis.

The Community's long-standing goal for the WTO of achieving procurement liberalisation on a multilateral basis should be seen as complementary to these other initiatives, as well as the commitment contained in Article 178 (ex Article 130r) of the EC Treaty not to undermine efforts to assist developing countries. The Community fully recognises that building the necessary substantive framework of rules in the WTO will take time and require a pragmatic approach. If the objective is to be achieved, it must be done on a step-by-step basis.

Transparency is a basic building block of a stable and predictable procurement environment and the Community's approach in the run-up to the Seattle ministerial conference was therefore to seek to complete the multilateral work already underway in this area, and subsequently and incrementally build on it.

The principal difficulty which the WTO faces is political. Countries and not just developing countries need to be persuaded to stop using procurement as a means to pursue other objectives. Doing this requires the existence of credible alternative means to pursue those objectives. This is one of the big challenges currently facing the advocates of open procurement policies.

Several specific country studies have been carried out in the context of bilateral work, and as indicated above work is also underway in other international organisations such as the UN and the Organisation for economic cooperation and development (OECD). Up to now, the Commission does not see the benefit of carrying out additional studies on the benefits of procurement liberalisation for developing countries either individually or in general, but it is willing to reconsider whether some additional efforts would be appropriate in order to persuade developing countries of their interest in opening up their procurement markets.

The difficulties facing developing, particularly least developed countries, in participating in the Geneva process go beyond the procurement issue. In the specific procurement context, the Community proposed an initiative, which is currently under consideration by government procurement agreement (GPA) members, to grant GPA benefits to least developed countries. On a more technical level, the GPA foresees technical assistance to developing countries and similar provisions have been proposed in the transparency work mentioned to above. Indeed, the Community has participated in and co-organised a number of seminars and conferences, both for individual and groups of countries. A number of Member States are also active in this area. However, whilst this technical work is of importance, it does not address the fundamental political difficulties referred to above.

Looking at the issue more widely, the Commission has set up an integrated programme aimed at supporting the integration of the African, Caribbean and Pacific (ACP) states into the world trading system under the WTO. This programme foresees financial support for technical assistance, training, negotiating skills and capacity building. As a first step, the Commission is supporting increased co-ordination in Geneva between ACP countries through the ACP general secretariat. The Commission has also co-operated in the past with the WTO Secretariat in funding and providing human resources for meetings and seminars aimed at a better knowledge and understanding of WTO rules and opportunities under the multilateral trading system. The Commission is now exploring together with the WTO and ACP secretariats other actions in which it may co-operate for the benefit of developing countries.