It has not been adequately recognized how crucially the potential benefits of the GPA are dependent on the prevailing trade regimes for goods and services. Article III.3 of the GPA states that "the provisions of paragraphs 1 and 2 [forbidding discrimination against, and between, foreign products, services and suppliers] shall not apply to customs duties and charges of any kind imposed on or in connection with importation, the method of levying such duties and charges, other import regulations and formalities, and measure affecting trade in services other than laws, regulations, procedures and practices regarding government procurement covered by this Agreement."
This provision makes it clear that the GPA contains rules only on the government purchase per se of goods and services, and does not deal with other measures affecting market access and competitive conditions. These measures remain subject to other multilateral trade rules. Before the GPA, foreign bidders were faced with discrimination both at the border (in terms of tariffs, etc.) and in government procurement (in terms of preference margins, etc.).20 After the GPA they need only confront the former in areas covered by the Agreement and not the latter. Hence, even though the GPA has limited the ability of governments to discriminate against foreign suppliers as far as government procurement is concerned, it has excluded from its domain tariffs and other trade measures.21
Thus, the benefit that may be gained from any concession on goods in the context of the GPA is subject to the tariffs and any other trade restrictions consistent with the Multilateral Agreements on Trade in Goods, and on services is subject to the commitments on market access and national treatment under the General Agreement on Trade in Services (GATS). Foreign suppliers can only effectively contest the market for government procurement if they are not unduly handicapped by restrictive trade measures. In the case of goods,
(Kim (1994) shows that in certain circumstances price-preference polices and tariff policies are equivalent both in terms of the government's expected procurement costs and the domestic and foreign bidders' expected profits. The crucial assumption is that the government considers the foreign firm's bid price inclusive of the tariff payment. Thus the tariff exerts the same downward pressure on foreign bids as does the preference margin. If, as in certain developing countries, governments consider foreign bids exclusive of tariff payments, then of course a tariff is not discriminatory. See also Herander (1982).
(Kim (1994) draws the conclusion that "The analysis in this paper has an important policy implication for government procurement as the Agreement on Government Procurement of 1979 has replaced non-tariff barriers with tariffs... However, the equivalence between price-preferences and tariffs shows that ironically enough, in equilibrium the Agreement is institutionally identical to the Buy American Act." The GPA has not and, under the current institutional arrangements, cannot replace non-tariff barriers with tariffs. Of course, if countries were to increase their tariffs by the same amount that they reduced procurement preferences, the equilibrium outcome with respect to procurement would be similar. But tariff increases have been generally precluded by the widening of tariff bindings, and, in any case, tariffs have steadily declined since the Tokyo Round when the GPA was first negotiated. In no way is the GPA institutionally identical to the Buy American Act or any other form of preferential procurement.