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 (Image Courtesy: Dedicated Freight Corridor Corporation of India)
 
When United States Government Accountability Office (GAO) issues a report to tighten enforcement of Buy America Act (BAA) of 1933, it is time to turn eyes on Government procurements (GPs) across the nations.
They are akin to Aladdin’s Magic Lamp containing elixir for free & fair global trade.  On the other hand, if a Government’s right to spend is considered as a no-go terrain for globalists, then complete opening up of GPs to imports can be viewed as allowing anyone entry into one’s bedroom. 
GPs, coupled with offsets, impact fiscal space at both ends – tax revenue inflows and expenditure efficiency. Offsets, the popular variant of counter-trade, are invariably invoked by developing countries in big-ticket import in defence and aero-space sectors.
Offsets facilitate transfer of technology and local development of components in the importing country. The arms and aircraft exporters are required be to purchase such components under offset contracts.     
GP plus offsets (GP+OS) perhaps constitute the most pervasive and tolerable form of protectionism. No wonder such protectionism didn’t get mention in the recently held G20 Summit declaration.
Moreover, global hue and cry over rise in tariff and the usual non-tariff barriers has overshadowed the growth of GP+OS. Major institutions should undertake comprehensive studies at both the national and global levels to assess the impact of GP+OS on national GDP, jobs market and global trade.
Do preferential purchases from local businesses outweigh disadvantages in the form of expenditure inefficiency? Do GP+OS facilitate good growth of excise/VAT & income tax (non-customs revenue) by shifting potential business from foreign suppliers of goods and services to local ones? Are they worth their value as they create or protect jobs?  
Before discussing further GP metrics, turn to GAO report on BBA released on 18th December 2018. As put by the Report, “GAO was asked to review implementation of the Buy American Act. This report assesses the extent to which (1) the federal government procures foreign products through Buy American Act exceptions and waivers; and (2) selected agencies provide training and guidance to implement the Act”.
Though BBA is the main law stipulating local purchases by federal agencies, certain other enactments that goad federal agencies into make preferences for domestically produced goods. 
GAO has made certain recommendations to four different departments. These primarily relate to initiatives required to remove ambiguities in procedure, improve training of staff and data recording and monitoring. 
Federal government obligates hundreds of billions of dollars to procure goods and services—reporting $508 billion in fiscal year 2017 alone, the report says.
It is here pertinent to recollect President Donald Trump’s “Buy American and Hire American” Order issued on 18th April 2017. 
The Order not just dealt with BBA but with all “Buy American Laws”. These include all statutes, regulations, rules, and Executive Orders relating to Federal procurement or Federal grants that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods.
President Trump sought report from the Administration within 220 days of issue of the Order to recommend steps to strengthen execution of all Buy American Laws (BALs). Certain news stories have hinted at move to extend ambit of BALs to hitherto uncovered domains. 
Like the US, other countries too are strengthening their web of regulations that mandate or facilitate domestic preferences.  India, for instance, notified Public Procurement (Preference to Make in India) Order In May 2017 to give a leg-up to its ‘Make In India’ initiative. The Order has been issued under the Government’s General Financial Rules 2017
In addition to this, India has several other statutory or administrative orders that either mandate or promote domestic purchase preferences. Certain production incentives in few sectors are linked to phased ramp-up of use of locally made components. 
The Central Government, which considered enacting Buy Indian Act in 2003, has, however, no plan now to frame an overarching law on pattern of BAA.
Apart from India, several other G20 countries have taken new initiatives to promote local preferences after the 2008 global meltdown. Domestic purchase obligations exist in different forms and in varying degrees in almost all countries.
Government spending is after all a powerful tool to achieve political objectives of the regimes of the day to promote and distribute wealth in different sections of the society. 
This perhaps explains why majority of countries have not yet joined World Trade Organisation’s (WTO’s) Government Procurement Agreement (GPA). Revised GPA came into force on 6th April 2014. It has 19 parties, comprising 47 WTO member countries. Another 32 WTO Members participate as observers in the WTO’s GP Committee.
It makes sure that a signatory doesn’t discriminate against entry of other signatories’ products and services its GP segment opened up to foreign competition. 
Revised GPA provides for phased opening up of GP markets by developing countries under transitional arrangements. It also allows developing countries to provide local purchase preferences in specified manner during the transition.
As for offsets, it defines Offset as “any condition or undertaking that encourages local development or improves a Party’s balance-of-payments accounts, such as the use of domestic content, the licensing of technology, investment, counter‑trade and similar action or requirement”.
Revised GPA prohibits resort to offsets. It says: “With regard to covered procurement, a Party, including its procuring entities, shall not seek, take account of, impose or enforce any offset”. It, however, allows developing countries to rely on offsets during the transition period.
As revised GPA’s implementation is in its infancy, one can’t judge at present how much of the opened-up GP market has actually been liberalized and whether it has contributed to global trade and economic growth.  The possibility of signatories creating new web for domestic preferences has also to be studied. 
According to European Commission’s paper titled Government Procurement: Data, Trends and Protectionist Tendencies issued in September 2018, the United States, Brazil and Russia have more often made use of harmful interventions in public procurement.  Others nations such as China maintain a closed regime.
The Paper observes: “there has been a constant rise in the stock of harmful public procurement measures over the years 2009-2017 peaking at about 500 interventions by end 2017”.
It adds:  “the presence of local preferences, or the so-called home bias, distorts international specialisation and resource allocation and hereby affects prices, trade flows and national income. Furthermore, theoretical literature suggests that home bias is particularly distortive if there are barriers to competition in domestic markets preventing firms from entering”.
The Organisation for Economic Co-operation and Development (OECD) is working on a project to delineate elements of GP to facilitate recording of apt data on size of GP market and its functioning.
OECD paper captioned ‘Emerging Policy Issues: Taxonomy of Measures Affecting Trade in Government Procurement Processes’ released during February 2017, notes: “There is therefore, uncertainty about the degree to which governments actually discriminate in their own markets. Finally, uncertainty about the scale of home-bias procurement creates difficulty in assessing the effectiveness of international agreements in reducing that home bias. One of the goals of the taxonomy project is to set up a framework to generate data in the future that can be used for direct estimates of openness in GP”.
OECD paper points out that GPA does not refer expressly to built-operate-transfer (BOTs) and other forms of private-public-partnerships (PPPs).
Lack of comprehensive and credible data on unclearly defined GP market can thus distort any hasty conclusion about GPs’ impact on global growth and trade. 
A working paper (WP) released last year by United Nations Industrial Development Organization (UNIDO) has articulated this issue well. 
Caption ‘The role of Public Procurement Policy in Driving Industrial Development’, WP says: “there is a dearth of information and data on the costs and benefits of using government procurement to promote specific industrial strategies, even in developed countries with comprehensive preference systems.  This is a non-trivial issue, for it is impossible to identify firm recommendations or conclusions about the impact of any particular intervention through procurement contracts, if no data on such procurements exist. It is also a challenge to isolate the effect of any single policy instrument on a given target”.
A  2015 study on G20 Protectionism from European Union found that  “A number of countries (e.g. Brazil, Indonesia, Russia, South Korea and the US) have enhanced their recourse to ‘local preference’ for public procurement, investment regulation of strategic sectors, export support, and other areas”.
It here pertinent to refer to WTO Monitoring Report on G20 Trade Measures. The report dated 22 November 2018 says: “The proliferation of trade restrictive actions and the uncertainty created by such actions could place economic recovery in jeopardy. Further escalation would carry potentially large risks for global trade, with knock-on effects for economic growth, jobs and consumer prices around the world. G20 economies must use all means at their disposal to de-escalate the situation”.
It notes that the estimated trade coverage of the import-restrictive measures (USD 481 billion) during mid-May to mid-October 2018 was more than six times larger than that recorded in the previous period and is the largest since it was first calculated in 2012. The Report, however, does not specify what percentage of restrictions fall in GP domain. 
Local preferences-driven GP are puzzling not only policy makers and analysts but also auditors. It is apt to quote Western Australian Auditor General’s Report on Local Content in Government Procurement.
Published in December 2017, the report observes that the Government wants to support local and regional companies and the jobs they provide. “But it also has a duty to taxpayers to secure best value for money, and has to comply with broader trade agreements and procurement rules,” it says.
The Report continues: “Attempting to ensure that government procurement provides local content is complicated. This complexity is reflected in the Buy Local Policy. The way the Policy interacts with other legislation and rules can render it ineffective exactly when it might appear most relevant. The Policy is very difficult for agencies to apply and enforce, and a lack of information makes it hard to demonstrate if it is making a difference”.
                                                      
Published by taxindiaonline.com on 1st January 2018
 
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