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THE GOVERNMENT PROCUREMENT AGREEMENT:

IMPLICATIONS OF ECONOMIC THEORY

The new Agreement on Government Procurement (GPA), to which there are 22 signatories, entered into force on 1 January 1996.1  Its objective, stated in the preamble, is to contribute to the liberalization and expansion of world trade.  This is to be achieved by eliminating discrimination against, and between, foreign products, services and suppliers, by enhancing transparency of laws and practices, and by ensuring fair, prompt and effective enforcement of international provisions on government procurement.  This paper examines the GPA from the point of view of economic theory and attempts a normative analysis of its provisions.  

Section I provides a brief description of how the GPA has changed since it was originally negotiated, and of how it may be expected to change in the future.  Section II of the paper deals with the GPA's fundamental principles of non-discrimination.  These are based on the general presumption that discriminatory procurement adversely affects trade and that the prohibition of preferences in procurement creates welfare benefits analogous to those arising from trade liberalization.  This view has, however, been challenged by two rather striking results of economic theory.  First, it has been shown that under certain conditions it may simply not matter if governments discriminate in their procurement - output and trade are unlikely to be affected.   Secondly, it has been demonstrated that in so far as preferential procurement does have real effects, it may enhance the welfare of the procuring country.  If these propositions were generally true, then the GPA would at best be irrelevant in the context of international trade, and at worst prevent countries from maximising their national welfare.  The paper attempts to reconcile the non-discriminatory provisions of the GPA with the results of economic theory and argues that, despite certain qualifications, the provisions constitute sensible policy.  Nevertheless, there may be a need to compromise on their strictness if membership of the Agreement is to be widened in a world where the desire to protect persists - regardless of economic merits.

Section III examines the relationship between procurement and other trade policies,

    (The new Agreement on Government Procurement was negotiated simultaneously with the Uruguay Round negotiations.  The signatories to the Agreement are Canada, the 15 Member States of the European Union, Israel, Japan, Korea, Norway, Switzerland and the United States.

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