On 30 March the member states of the World Trade Organization (WTO) Government Procurement Agreement (GPA or “Agreement”) formally adopted a new revised text of the Agreement and announced a significant expansion of its scope to cover numerous additional government entities.
This marks the culmination of a long process to modernize the GPA, which was originally adopted in 1994. The original GPA came to be seen as too inflexible in certain respects, and of course was not adapted to the electronic procurement tools that later emerged. The parties substantially agreed upon a revised text in 2006 but were unable to complete the negotiations until December 2011. On 16 December, the WTO Committee on Government Procurement, comprising all parties to the Agreement, stated that the parties undertook the revision “in furtherance of [their] common objectives to modernize the Agreement, expand access to government procurement markets, promote good governance and deter corruption, and facilitate the effective management of public resources, particularly in the present economic environment.” See Ministerial-level Meeting of the Committee on Government Procurement; Decision on the Outcomes of the Negotiations Under Article XXIV:7 of the Agreement on Government Procurement (16 December 2011).
Although the spirit and basic framework of the 1994 agreement remain, the revision is a wholesale rewrite designed to clarify and modernize the text, which includes more open procurement opportunities, easier accession for developing countries, and increased transparency. Parallel to negotiation of changes in the text, the parties expanded its scope by negotiating the addition of government entities and the removal or reduction of certain limitations on coverage. The WTO calculates that the expanded market access represents US$80 to US$100 billion in public purchases per year. An EU statement estimated the impact at about €100 billion (US$130 billion). Furthermore, some of the changes in the text are designed to encourage new states ― particularly developing countries ― to join, which will further expand the scope.
Expansion of GPA coverage
When a party joins the GPA, it negotiates the government entities that will be required to conduct procurements in accordance with the Agreement. These entities are listed in GPA Annexes. For example, the United States agreed that the Department of Homeland Security would be subject to the GPA, but excluded the Transportation Security Administration.
- The revised GPA will give companies in member states, including the United States and all EU states, access to more than 150 additional central government entities in the European Union. Previously excluded central government entities in several non-EU states have also been added.
- Coverage of sub-central governments is another major area of expansion. Most notably, Canadian provinces are now covered for the first time. Since 2010, U.S. companies have had access to provincial procurements under a bilateral agreement that also expanded Canadian access to projects funded by the American Recovery and Reinvestment Act. Canada’s GPA concession now expands guaranteed access to about 50 additional countries. Japan, Korea, and Israel have also added sub-central agencies to their coverage. No additions were made to U.S. sub-central coverage, which already included 37 states.
- Finally, the types of covered procurements have also been enlarged. There is expanded coverage of services, and construction services contracts are covered fully for the first time. See The Renegotiation of the Agreement on Government Procurement. Some parties agreed to cover “Build-Operate-Transfer” contracts and/or lowered the monetary thresholds for covered contracts.
Easier accession for developing countries
- The revised GPA states that “in negotiations on accession to, and in the implementation and administration of [the GPA], the Parties shall give special consideration to the development, financial, and trade needs and circumstances of developing countries and least-developed countries. . . .” Article V.1 of revised GPA.
- The revision adds language requiring each party, upon accession of a developing country, “to provide immediately to the goods, services, and suppliers of that country the most favourable coverage that the Party provides under its annexes to Appendix I to any other Party to this Agreement. . . .”
- Perhaps most importantly, the revision seeks to make accession more attractive to developing nations by providing for the negotiation of “transitional measures” to ease the burden for an interim period. Such measures could include temporary allowance of certain price preferences for domestic offers, offsets (requirements that imports be balanced with a specified amount of local sourcing), phased-in addition of government entities, and temporarily higher monetary thresholds.
Increased transparency and flexibility
- The revision modernizes the GPA to incorporate current business practices with particular emphasis on electronic procurement notices. The revised GPA now allows required procurement notices to be published electronically in lieu of using print media, provided they are readily accessible to potential bidders. Article VII.1 of revised GPA. Central government entities (such as Federal Agencies in the United States) must publish such notices electronically via a free-of-charge, single point of access site.
- The revision allows parties greater flexibility when purchasing commercial items, in particular reducing the notice time as long as the notice is posted electronically. Article XI.7 of revised GPA.
- The revised GPA requires greater transparency regarding award information. Parties must publish award notices in the appropriate paper or electronic medium as listed in Appendix III, and maintain documentation for three years. Article XVI of revised GPA.
Other efforts to increase GPA participation
As reported in a recent Hogan Lovells' client alert (The EU's international procurement initiative: opening foreign markets or acting as a new EU trade barrier?, 26 March 2012) the European Commission recently promulgated a new directive requiring member states to implement a mechanism by which they could exclude from procurements companies from states that do not offer reciprocal equal access to EU companies. The stated goal of this initiative is to increase the incentive for non-members to join the GPA or a similar procurement agreement with the European Union. The thrust of this initiative is similar to that of the U.S. Trade Agreements Act, which generally prohibits the acquisition of products from countries that are neither GPA members nor parties to a bilateral U.S. trade agreement. It will be interesting to observe whether the “carrot” represented by the revised GPA and the “stick” represented by the directive will bring any noticeable acceleration in GPA accessions.
Countries that currently have observer status in the WTO Government Procurement Committee, as a potential prelude to eventual membership, are Albania, Argentina, Australia, Bahrain, Cameroon, Chile, China, Colombia, Croatia, Georgia, India, Jordan, Kyrgyz Republic, Moldova, Mongolia, New Zealand, Oman, Panama, Saudi Arabia, Sri Lanka, Turkey, and Ukraine. By far the most important in terms of market size is China. Negotiations with China have been underway for several years and are still far from conclusion. China has revised its original offer twice, each time expanding coverage but still falling short of the coverage sought by current GPA members. Major points of contention include the extent of coverage of state-owned enterprises and sub-central governments.