1. 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 2014 1

2. 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. 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. 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”).

5. 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 20-30 %, 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

6. 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

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

8. 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

9. 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 2014. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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: http://www.ebrd.com/downloads/research/news/lit102.pdf.  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