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UN FLAGS CONCERNS PANDEMIC MAY AGGRAVATE CORRUPTION

GROWING PROBLEM PUTS SPOTLIGHT ON WTO ANTI-CORRUPTION ACCORD


By John Zarocostas - The Geneva Observer @jzarocostas


December 18, 2020


Analysis



"The COVID-19 crisis creates additional opportunities for corruption. Governments are spending rapidly to get economies back on track, provide emergency support, and procure medical supplies. Oversight may be weaker. And the development of vaccines and treatments adds to the risk of bribery and profiteering," remarked UN Secretary-General, António Guterres on December 9, Anti-corruption Day, adding "it undermines trust in institutions, exacerbates the vast inequalities exposed by the virus ... We cannot allow stimulus funds and vital emergency resources to be diverted."






The figures are staggering. “Various studies suggest that an average of 10-25 percent of a public contract’s value may be lost to corruption,” according to the UN Office for Drugs and Crime (UNODC). "Corruption in public procurement has an enormous negative impact on government spending. These costs arise in particular because corruption in public procurement undermines competition in the market and impedes economic development,” it states.


A recent World Bank study on "Procurement for Development," concluded, "Public procurement is a crucial component of democratic governance, poverty reduction, and sustainable development." It also highlighted that governments worldwide "spend an estimated US$ 9.5 trillion in public contracts every year,” amounting to 25% of some countries’ GDPs.


"The GPA is the only international standard for government procurement," noted an EU trade official and added these standards "support the rule of law and help reduce corruption."

Beyond the COVID-19 question, a large share of these public purchases, however, remain outside the purview of transparency and international competition rules for public tenders enshrined in the World Trade Organization's (WTO) plurilateral Government Procurement Agreement (GPA) as only 48 of the WTO's 164 members are full parties and 36 are observers. The GPA is referred to by some trade diplomats as the WTO's anti-corruption agreement. When used, its effects are noticeable in ensuring the rule of law applies in procurement matters.


Overall, the WTO estimates that as a result of several rounds of talks, GPA members have opened public procurement activities worth about US$ 1.7 trillion to suppliers from GPA members offering goods, services, and construction services. WTO’s hope is to develop mutually open government procurement markets for entities at the Federal and sub-federal levels to international competition under reciprocal terms.


"The GPA is the only international standard for government procurement," noted an EU trade official and added these standards "support the rule of law and help reduce corruption."


Indeed, a key clause of GPA stipulates a procuring entity shall conduct covered procurement in a transparent and impartial manner, namely using methods such as open tendering, avoiding conflicts of interest and preventing corrupt practices.


Many developing countries have, nevertheless, been reluctant to join the GPA because membership would, as one ambassador put it, "limit policy space" for national development. Others, more simply, balk at the requirements.


As some key PGA members are raising their outlays to tackle the pandemic and to stimulate their struggling national economies while other governments do not commit to the GPA, the issue of public procurement could be a source of new trade tensions.


In late November, the US submitted a proposed modification that would remove procurement coverage of any goods deemed necessary for responding to public health emergencies, including COVID-19, as part of implementing an executive order on essential medicines, medical countermeasures, and critical inputs. Members have 45 days to contest the proposed withdrawal.


The “buy national” initiative has raised concerns among GPA members such as the European Union, and Brussels is considering filing an objection.


"The intended withdrawal could negatively affect a substantial amount of EU exports to the US ... Furthermore, this sets a negative precedent contrary to the rationale of the GPA,” an EU official told The G|O.


Concerns over “buy national” provisions, trade diplomats say, is likely to become an even bigger issue of discord, experts given the incoming US Biden administration's hard stance on procurement policies.




During the presidential campaign, Biden made a repeated call to buy American purchases and underlined their central importance when he gave a keynote address on November 16 on his economic recovery plan.


"From autos to stockpiles, we're going to buy American. No government contract will be given to companies that don't make their product here in America," he declared.


A WTO trade lawyer said his impression was Biden's buy American remarks are " illegal," under WTO, while another trade law expert said: "It would be a violation of the WTO," but added, "I think it's rhetoric."


Others, however, are less sure.


"I think procurement will probably be the new irritant and the new problem," said a former senior WTO diplomat.


"My guess is the GPA is going to go through a bit of a hard time ... because everybody coming out of this COVID-19 pandemic is going to be looking to buy American because they're going to be upping government programmes in all kind of areas ...There's going to be a lot of political pressures—certainly in the US—but I don't think only in the US, to buy national (with) restrictions in there," said a Washington-based trade expert, who spoke on condition of anonymity.


Another politically sensitive aspect of the GPA is China's 13-year bid to join the GPA. Its political adversary Taiwan joined already back in 2009 with the tacit approval of Beijing. When China joined the WTO back in 2001, it was also arm-twisted to commit that it would also join the plurilateral GPA.


But current, and former, western negotiators admit in private that not extracting a fixed phased-in date for China to join the PGA when they had the leverage was in hindsight a major blunder.


"They were blinded by the potential bonanza for goods and could not see the trillions of dollars in China's procurement sector," summed up a former US official. "They had the chance, and they missed it. This was the big ticket."


Western negotiators reckon China's GPA market access offer is still limited in coverage of entities."The government in Beijing has put so much store on developing what it sees as strategic sectors that this is almost certainly incompatible with joining the GPA. Accession obligation or not, the window of China joining the GPA has closed," Simon Evenett, Professor of International Trade and Development at The University of St-Gallen, told the G|O.




Concerns over China's State-Owned Enterprises (SOEs) which are major players in the public procurement sector in China, and abroad, and issues of transparency are also sighted as problem areas.


John Weekes, a former Canadian ambassador to the WTO told The G|O, China's bid “is now all wrapped up in the behavior of SOEs. This is something that is not going to be settled quickly."


A recent paper by the World Bank on Government Procurement in the Belt and Road Initiative (BRI)—which spans 71 countries—notes that Chinese firms engaged in infrastructure projects "have become very competitive globally." It also outlines that Chinese suppliers/contractors "win the majority" of BRI projects.