Public procurement markets: Where are we?2012-09-10
Analysis by: Patrick A Messerlin, Sébastien Miroudot
'Public spending on large-scale projects is often a way of sneaking in protectionism through the back door and there are many cases of outright corruption. With the EU and US pushing hard for more open public procurement elsewhere in the world, this column asks just how open these markets are, particularly in the EU, which claims to have the most open market in the world.
'Recently, the EU and US have pushed very hard for opening public procurement markets, as illustrated by the EU and US pressures on Japan and China, respectively. In particular, the EU claims that it is by far the most open market in the world. In March 2012, this belief has induced the European Commission to request from member states a mandate for closing EU public procurement markets to firms originating from countries using 'restrictive practices' in this domain - the so-called 'reciprocity' approach.
'In such a conflicting context, the first thing to do is to test the claims. This requires a robust standard for measuring openness in public procurement markets. Existing claims rely on (quite opaque) information on commitments under the existing Government Procurement Agreement (GPA). This approach is flawed for two reasons.
- During the negotiations on an improved Government Procurement Agreement (December 2011) all the countries - including the EU and the US - have agreed that existing data on Government Procurement Agreement commitments are so bad that they require a huge effort to improve them (Anderson 2012). Indeed, they are in such a pitiful state that it is impossible to reconcile them (Anderson et al. 2011).
- More deeply, a measure of openness based on GPA commitments does not make sense. It is equivalent to measuring openness in goods by focusing exclusively on the tariff cuts which have been subjected to a negotiation while ignoring the rest of the tariff schedules left untouched by the deal. Rather, openness in trade in goods is routinely assessed by the whole range of products described exhaustively in the common tariff nomenclature (harmonised system). However, building a common nomenclature for public procurement is a task beyond reach because GPA commitments are defined not only in terms of economic activities (products and services) but also in terms of thresholds for bids and of an endlessly wide range of public entities included in the 'commitments.
'There is thus a need to find an encompassing and robust definition of public demand that covers every cent spent by a public administration or an entity considered as a public agency - including utility sector bodies - on domestic and foreign goods and services. Foreign public procurement corresponds then to imports of goods and services absorbed by such public demand. National Accounts provide this framework to calculate public demand and imports (for details, see Messerlin and Miroudot 2012).'
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