The complementary roles of international trade rules and competition policy: public procurement Robert Anderson Counsellor, WTO Secretariat (Team leader for government procurement and competition policy) CUTS Policy Roundtable on "Competition Issues in Public Procurement UNCTAD Room XXII Geneva, 5 December

Matters to be addressed Collusive tendering - why should we care? What can we do about collusive tendering? The role of international trade opening in preventing collusive practices Transparency and its impact on competition 2

3 What is collusive tendering? o Cartelization in regard to public procurement processes. Also known as “bid rigging”. o Essence of the offense is an agreement between competitors (e.g., to bid high, to not bid, to submit “cover” bids, etc.) o Competitor may agree not to bid in return for promise of a sub-contract o Often also involves side payments to competitors who “lose” and/or rotation of who wins o As with other cartels, normally carried on in secret

4 Suspicious signs o The same group of suppliers always submit bids and each wins in a regular pattern. o All bids are consistently higher than the procuring entity’s internal estimate. o A company always bids high and then gets a sub- contract from the wining bidder. o A competitor submits its own and another competitor’s bid or the competitor’s bid looks the same but with a few specific changes. o A company official states that he does not expect his firm to win or that a bid (“is only a courtesy”).

Why should we care about collusive tendering and what can we do about it? o Collusive tendering imposes heavy costs on public treasuries and therefore on taxpayers (can raise the costs of goods and services procured by %, sometimes more) o Undermines confidence in governments o Particularly detrimental due to the economic importance and essential role public procurement plays: o A large proportion of Gross Domestic Product (15-20 % in most countries, more in some cases) o Supports essential functions of government, vital for development and social policy purposes: o Provision of transportation and other vital infrastructure (airports, highways, ports) o Public health (hospitals, medicines, water and sewer systems) o Schools and universities 5

Tools for deterring collusive tendering The obvious: o Effective competition law enforcement, reinforced by tools such as leniency measures for cartel breakers. o Education of the supplier community: certificates of independent bid preparation/similar measures. o Education of procurement officials (suspicious signs, internal estimates), o Inter-agency collaboration And the perhaps not-so-obvious: o Pro-active measures to expand the pool of potential competitors and introduce enhanced supplier diversity, e.g. through competition advocacy and trade liberalization 6

Implementing procurement policies that maximize competition: opening up to international trade International Trade Enhanced competition Less collusion, lower prices 7

The WTO Agreement on Government Procurement (GPA) as a competition enabler o Agreement covers 43 WTO Member jurisdictions (soon to be 45): ensures non-discriminatory conditions of competition in procurements “covered by the Agreement”. o Procedural and institutional requirements to reinforce competition on the merits (e.g. technical standards to be based on objective and (where possible) international standards; independent bid challenge procedures). o Main limitation as a competition enabler: gaps in the Agreement’s coverage. o But: prospects for deepening/broadening of coverage over time. 8

Factors currently enhancing the significance of the GPA (1): increasing membership of the Agreement worldwide o Currently, the GPA covers 43 WTO Members including the EU and its 28 member States; most other developed countries (i.e. US, Canada, Japan; Liechtenstein, Iceland, Norway and Switzerland); plus Hong Kong, China; Israel; Korea; Singapore; Chinese Taipei; Aruba and Armenia. o Two more Members (Moldova and New Zealand) approved to join in October o Eight more WTO Members currently seeking accession (Albania, China, Georgia, Jordan, the Kyrgyz Republic, Moldova, Oman, and Ukraine). o Five additional WTO Members have commitments eventually to seek GPA accession : the former Yugoslav Republic of Macedonia, Mongolia, the Russian Federation, Saudi Arabia and Tajikistan. 9

Factors currently enhancing the significance of the GPA (2): the policy context o Enhanced importance of the procurement sector in light of: (i) the global economic crisis; and (ii) emerging economies’ infrastructure needs. o Also greater emphasis on procurement and good governance as an underpinning of development. o Increased pressures for policies potentially limiting access to important procurement markets. o GPA and/or bilateral/regional agreements embodying similar disciplines are the main tool of exporting economies to preserve market access rights in this crucial sector. 10

The potential role of “buy local” requirements as a factor facilitating collusion o US: Erie County v. Morton Salt (6 th Circuit; 2012). o Canada: Quebec infrastructure markets. o The Swiss experience. o OECD Global Forum on Competition (February 2013): relevance of buy local requirements AND confluence of collusion and corruption concerns in specific cases. 11

Some remarks on transparency and competition (1) o Necessity of minimum transparency measures in light of: o Public accountability and good governance (anti-corruption) concerns; o Sheer need to generate responsive tenders and good results (customer satisfaction) -- only possible if we share (some) information on desired characteristics of the goods/services being sought. o Also, some transparency measures (e.g. basic requirement to advertise; availability of information on how to be listed, etc.) are fundamentally pro-competitive: o they facilitate participation by suppliers from “outside the club”  Generally, transparency reinforces and is complementary to competition-enhancing measures. 12

Some remarks on transparency and competition (2) o Word of caution: too much transparency can facilitate collusion under certain circumstances (!), e.g. o information on mid- to longer term procurement planning (may facilitate agreements, bid rotation), o public bid opening, post-award publications (may facilitate policing, cartel stability). o Balancing of interests needed. o Need for agency vigilance/public education. 13

Concluding remarks o The duality of trade and competition concerns in regard to public procurement. o Growing importance of the GPA in the present global environment. o Significance of collusive tendering for GPA objectives, and vice versa. o Complementary roles and interests of international trade rules, national competition policies and procurement officials. 14

For further information:  Anderson, Robert D. (2010). "The WTO Agreement on Government Procurement (GPA): An Emerging Tool of Global Integration and Good Governance," Law in Transition, Autumn 2010, pp. 1-8 to 8-8; available at:  Anderson, Robert D., Philippe Pelletier, Kodjo Osei-Lah and Anna Caroline Müller (2011). “Assessing the Value of Future Accessions to the WTO Agreement on Government Procurement (GPA): some New Data Sources, Provisional Estimates, Suggested Approaches and Related Observations” (Working Paper).  Anderson, Robert D., William E. Kovacic and Anna Caroline Müller, “Ensuring integrity and competition in public procurement markets: a dual challenge for good governance,” in Arrowsmith and Anderson, eds. (2011).  Arrowsmith, Sue and Robert D. Anderson, eds. (2011). The WTO Regime on Government Procurement: Challenge and Reform (Cambridge University Press: 2011). 15