INCREMENTALISM: ERODING THE IMPEDIMENTS TO A GLOBAL PUBLIC PROCUREMENT MARKET

Georgetown Journal of International Law, Spring 2007 by Yukins, Christopher R, Schooner, Steven L

ABSTRACT

Following decades of international negotiations and agreements, the world's multi-trillion-dollar public procurement market appears to be maturing into a free, open international market. To reach that point, nations must lower a broad array of barriers to trade in procurement. As the U.S. experience demonstrates, purchasing agencies, laboring under the constraints of domestic preferences, may effectively seek to promote free trade. At the same time, a variety of international organizations, from the World Trade Organization to Transparency International, have developed took and instruments-including model codes and explicit nondiscrimination agreements-that ease barriers to trade in procurement. To accelerate the erosion of these barriers, this Article suggests assessing progress in four potentially overlapping steps: nondiscrimination, a political decision; harmonization, an effort to coordinate the international instruments; rationalization, an effort to enhance the efficiency of regimes launched under the international instruments; and, institutionalization, an integration of the evolving international procurement norms into the legal fabric of the nations entering the international free market in procurement.

INTRODUCTION

After centuries of isolationism, the world's public procurement markets are emerging as a progressively integrated, open market. This trend accelerates as nations agree-by treaty, agreement, and practice-to open their respective procurement markets to outside competition. Trade liberalization in this sphere remains controversial,1 as many states, particularly developing nations,2 fear that opening their markets will expose domestic industries to crushing competition. Experience suggests, however, that by opening their procurement markets, nations serve their own procurement systems and domestic economies by gaining access to a richer and more diverse pool of goods and services, often at more competitive prices. Concomitantly, these states benefit as foreign markets open to their own producers. Opening an increasing number of public procurement markets may be the most important development in procurement today. Although it is an encouraging trend, the process likely will require at least a generation to mature.

As this process unfolds, individual states must identify the barriers to foreign contractor entry posed by domestic procurement rules. Public procurement law-especially the legal regimes that govern public contract formation3-often erects a dense, twisted web of rules, which may impede (and frequently intimidates) potential foreign entrants. As international instruments focused on public procurement emerged over the past few decades, most were intended, at least in part, to ease those artificial barriers to entry.

At a broad, conceptual level, this market-opening initiative appears to proceed in four somewhat irregular phases. First, and perhaps most controversially, states must embrace nondiscrimination as a policy that will, on balance, benefit those nations that adopt it. This is a highly political calculation, and it may take decades for some nations to acknowledge and accept it. Second, to facilitate market-opening, the instruments for international cooperation on procurement should be harmonized. This nascent process appears to be gaining momentum through various international agreements and structures. Harmonization itself reduces barriers to trade because it reduces transaction costs for vendors crossing borders. Simultaneously, harmonization eases the transition to a common procurement market, based on common instruments. Third, as states harmonize their public procurement instruments, rather than using the lowest common denominator (typically, corruption control) as a baseline, these instruments should be rationalized to ensure optimal procurement functions. Doing so will pay dividends through enhanced efficiency and, at a political level, will lend the rationalized instruments more legitimacy as a tool for development.4 Fourth, the regulatory regimes shaped by the instruments should be institutionalized, to integrate the new rules into the fabric of each nation's existing procurement law.

Our aim here is not mere advocacy for open procurement markets, although we favor such a result. The case for open public markets, ultimately, is a simple one for economists, agency procurement officials, and elected officials to make. Rather, our modest goal is to describe the critical legal and practical milestones as the historically chaotic and balkanized collection of protectionist public procurement regimes5 evolves toward a unified, open, and ultimately global market.

Accordingly, we begin, in Part I, by opining that, despite the neverending succession of acquisition reform initiatives in the United States and abroad, the most significant development in public procurement today may be the incremental opening of an increasing number of public procurement markets across the globe. Although this nascent trend necessarily will span decades, and no doubt will proceed in fits and starts, we are heartened by what we perceive as increasing momentum. For the trend to accelerate, states must not only identify, but overcome, longstanding and often instinctively erected barriers to entry. Part II discusses the identification of individual states' procurement rules that both explicitly and implicitly serve as barriers to foreign firms' entry into those states' domestic procurement markets. Part III traces the role that certain legal and policy instruments may play in opening world procurement markets. We discuss three types of instruments that, intentionally or fortuitously, may liberalize international procurement markets: (1) model procurement codes or model statements of principle; (2) procurement guidelines imposed by central financial institutions; and (3) binding international agreements or directives that require nondiscrimination. Finally, in Part IV, we offer a rubric or four-stage process through which we expect the global procurement market to pass in order to fully achieve openness. These potentially overlapping stages include: (1) acceptance of nondiscrimination (in lieu of protectionism) as a norm; (2) harmonization of the fundamental aspects of public procurement regimes; (3) rationalization of procurement practices in the pursuit of commonly accepted aspirations for successful procurement regimes, such as achieving value for money, efficiency, and customer satisfaction (rather than, in contrast, wealth distribution) ; and (4) institutionalization or the incorporation of harmonized, rationalized agreements into the legal fabric of the states that adopt these procurement practices. We optimistically conclude that liberalized procurement markets will enhance the value of money states expend procuring goods and services and, as a result, will provide better service to the constituencies those states ultimately serve.