Policies promoting competitive bidding for supplies to public bodies often have objectives other than cost minimization. These include encouragement of domestic technology and industry, promotion of smaller enterprises and national security considerations. Such procurement practices may not only impose their own welfare costs, but also often discriminate against foreign suppliers. Recognition that widespread use of such ‘buy national’ policies is likely to be globally welfare-reducing led to the 1979 GATT Government Procurement Agreement (GPA) (since twice extended). Despite increased pressure from some major trading nations, GPA membership remains very limited, suggesting that perceived membership benefits are small.

In Discussion Paper No. 1502, Bernard Hoekman uses data for 1983-92, reported by GPA members to assess the agreement from a developing country perspective and to ask what might be done to make multilateral procurement rules more attractive. The data suggest that the GPA-induced changes in sourcing patterns and national procurement practices are largely consistent with theoretical expectations, in that large countries have made few changes, whereas smaller countries have become more open to foreign suppliers. Although he acknowledges that the costs and benefits of GPA membership are still uncertain, Hoekman argues that, since most developing countries are (economically) relatively small, the results suggest that they stand to make substantial welfare gains from accession to the agreement. He also suggests that external pressure for accession could be fruitfully employed to increase developing country leverage for more justifiable and transparent divergences from GPA rules, while simultaneously counteracting domestic political reluctance to adopt sound policies and reducing the scope for rent-seeking and corruption in public purchasing.

Multilateral Disciplines on Government Procurement: What’s in it for Developing Countries?
Bernard Hoekman