I
The role of transitional measures in the accession of Colombia, Ecuador
and Peru to international agreements with provisions on government
procurement
Ivonne Estefanía Gordillo Pavón
LLM International and European Law: International Trade and
Investment Law
II
The author wishes to thank the aegis of her study program by the National Secretary of Education, Science and Technology of the government of the Republic of Ecuador
III
INDEX
I. Introduction 1
International Government Procurement: A historical background 3
II. Special and Differential Treatment 11
2.1. Brief historical overview 11
2.2. Types of SDT under the WTO 14
i. Transition periods for implementation 14
ii. Technical assistance and capacity building 15
2.3. SDT in the GPA 16
i. Flexibility for the application of any specific obligation in the GPA 17 ii. Technical cooperation and capacity building 19
III. Transitional Measures 19
3.1. Transitional Measures in the GPA 21
i. Price preference programs 21
ii. Offsets 23
iii. Phased-in addition of specific entities or sectors 24
iv. Thresholds 24
3.2. Transitional Measures in the Trade Agreement 26
3.3. The role of transitional measures 33
IV. Conclusions 37
1
I. Introduction
Government purchases of goods, services and works are an ascending figure in international trade. Consequently, the market opportunities arising from this activity of States continues to be very attractive for both local and foreign suppliers. Although these opportunities have been considered to be more advantageous in developed countries, the potential of procurement markets in emerging economies has become a focal point in international agreements sponsored either by international organizations, such as the WTO with its plurilateral Agreement on Government Procurement (hereinafter GPA); or by regional trade initiatives between the interested parties.
In addition to ensuring equal procurement opportunities to the products, services or suppliers of the parties to the agreement1, the GPA aims at fostering the accession of developing countries to the agreement through its new transitional measures feature, an absent element in its 1994 version2. These measures, at first blush, have been envisaged in order to allow for the protection of sensitive industries and sectors in the economy of developing countries during their accession to the agreement. Thus, maintaining or adopting more favourable treatment to local enterprises through the four transitional measures embedded in Article V GPA, is allowed during a transitional period of three and five years for developing and least developed countries (LDCs), respectively.
Despite constituting an evident form of Special and Differential Treatment (hereinafter SDT), these transitional measures do not seem to have attracted the attention of many developing countries in Latin America. This is especially the case with Colombia, Ecuador an Peru. These countries (hereinafter ‘the Andean countries3’ or the ‘Andean signatories’ in turn) have current policies that entail the development, through incentives, of sensitive sectors of their economies in the
1 World Trade Organization, Trade topics, Government Procurement, 2014 [online]
2 It is estimated that the portion of government procurement markets to be covered by the GPA as a result of
potential accessions, including those of developing countries, amounts to $US 380 to 970 billion annually (Anderson et al, Assessing the value of future accessions to the GPA, World Trade Organization, Staff Working Paper, 2011, p. 8 [online])
3 It should be borne in mind that these Andean countries should not be understood as the Andean Community,
since Bolivia, which in spite of being an Andean country as well, is not a signatory to the Trade Agreement with the EU.
2
realm of Government Procurement. Such sectors comprise Micro, Small and Medium-sized Entities (SMEs), which amounted to 96% in Colombia in 2011, 99.6% in Peru in 2013, and 99.5% in Ecuador in 2014, as will be described below.
Such a policy comprises granting more favorable treatment to this overwhelming majority of local enterprises than to other suppliers in public purchases. A policy conditionally and temporarily allowed under the GPA, since one of the cornerstones of this agreement is the principle of non-discrimination.
Outside the WTO regime, on the other hand, Regional Trade Agreements (hereinafter RTAs) progresively including provisions or chapters on government procurement, seem to provide more flexibility with regard to the development of these sectors. One such example involves the Trade Agreement concluded between the European Union and its Members on the one hand, and Colombia, Ecuador and Peru on the other (hereinafter the Trade Agreement)4. Nevertheless, as the GPA, this instrument also requests the liberalization of the procurement markets of the parties involved in a non-discriminatory fashion.
Why is it then that the implicated developing countries are not signatories to the GPA but rather to an RTA with a major global player as the EU? The following research suggests this owes to the fact that transitional measures under the GPA result detrimental for the current development policies enacted through public purchases in the referred countries, while the subject matter of those transitional measures is more beneficial in the way the Trade Agreement addresses it.
To elaborate on this statement, this paper adopts a descriptive and comparative analysis between both agreements with regard to transitional measures, and is divided into five sections. Section I introduces a historical background on international government procurement; section II addresses SDT within the GPA; section III focuses on transitional measures, both in the GPA and in the form they take under the Trade Agreement; Section IV addresses the role of transitional measures under the GPA and under the Trade agreement; and finally, Section V presents the respective conclusions.
4 For the purposes of this paper, the Trade Agreement has been considered in light of its joint application by
and to its signatory Andean countries. Nevertheless, the focus in aspects regarding domestic legislation as to the extent of the topics covered by this paper, circumscribes to that of the Republic of Ecuador.
3
International Government Procurement: A historical background
Negotiating the ITO Charter
Aware of the effects of discriminatory procurement procedures in both the national and international scenarios, several governments started discussions on government procurement in the forum provided by the Organization for Economic Cooperation and Development (OECD) in 1962.5 Nevertheless, the core of this discussions, namely the application of non-discrimination obligations to government procurement, initiated in 1946 with the establishment of the United Nations Economic and Social Council (ECOSOC).6 During its first meeting, the United States called for a ‘United Nations Conference on Trade and Employment’ with the aim of developing the Charter for an International Trade Organization, as well as negotiating reductions in import tariffs.7 Articles 8 and 9 of the mentioned Charter, which would serve as ground for the negotiations, dealt with the principles of Most Favored Nation and National Treatment in government procurement, respectively. Originally, the ‘Suggested Charter’ proposed the application of the MFN principle to all government procurement measures affecting products, including those awarded through procurement contracts, and national treatment to rules on government procurement of supplies, except that pertaining (the) military.8 However, the concerns of many countries with regard to the application of national treatment to procurement by governmental agencies of supplies for governmental use9, led to an agreement whereby ‘governmental contracts for public works’ was excluded from the text of Article 8, since it was agreed the provision only applied to supplies; and also from Article 9, as ‘Buy national’ procurement laws in force at the time of the negotiations , represented a difficult task for governments to repeal.10
5 Hoekman & Mavroidis, Law and Policy in Public Purchasing, 1997, p. 2 6
Blank & Marceau, Multilateral Negotiations on Procurement, in: Law and Policy in Public Purchasing, 1997, p. 31
7 Ibid.
8 Arrowsmith, Government Procurement, 2003, p. 31. 9
Blank & Marceau supra n. 6, p. 32
4
The demise of the ITO involved the evaporation of the expectations that an international institution would address the particular matters of ‘treatment of nationals’ in future agreements11, which had been excluded from the scope of the ITO Charter as mentioned above. Thus, the remainders of the negotiations would only contribute to the conclusion of the GATT 1947, which, pervaded with the ‘goods-oriented’ character of the negotiations, would also exclude government procurement from the national treatment obligation.
OECD
Further attempts to regulate government procurement were envisaged in the 1960s as a result of the work undertaken by the European Free Trade Association and within the then European Economic Community. However, the global impact of the work carried out by the Council for the Organization for Economic Cooperation and Development (OECD) in 1962, is of significant relevance. Its recommendation that ‘Members keep under review their administrative and technical regulations in order to eliminate those provisions which are not essential and which hamper trade’12 together with the increase in the domestic price preferences adopted by the United States, rose complaints by Belgium and the United Kingdom before the Trade Committee of the OECD, that would trigger a general examination on the issue of preferences in government procurement.13 Through a compilation of information on procedures for government purchasing of supplies by central governments gathered by the OECD in 1963, it was clear that virtually all countries held ‘preference’ policies in procurement that differed broadly. Based on that information, the OECD decided in 1964 to establish a working group entrusted with the elaboration of guidelines geared towards ensuring fair government procurement procedures, as well as eradicating discrimination against foreign suppliers. This draft was finalized in 1967. Nonetheless, the lengthy negotiations on formal and procedural discrimination in government procurement prolonged its concretion until 1975 when the Draft Instrument on Government Policies, Procedures and Practices, was concluded.
11 Blank & Marceau, supra n. 6, p. 34 12
Ibid, p. 37
5
The OECD provided an international arena to address issues on government procurement as such. Its conclusion that measures against non-discrimination in this field would do little to eliminate discriminatory practices in different countries, -which were not embedded in transparent regulations-, gave rise to the need of creating international rules that required adherence by States to determined minimum standards of transparency in their contract award procedures.14 This would contribute to the detection and monitoring of discriminatory practices.
Although the Draft Instrument under the aegis of the OECD was meant to provide the grounds for the preparation of an international agreement on government procurement, the lack of convergence as to the scope of the agreement with regard to covered entities and thresholds, as well as the Dispute Settlement and monitoring mechanisms15, truncated this plan and extended the negotiation process to the Tokyo Round of multilateral negotiations launched in 1976.
Tokyo Round Negotiations
Considering the issues of non-discrimination had not yet been addressed in previous attempts to regulate government procurement, an approach towards national treatment in this discipline emerged in the Tokyo Round negotiations. This was propelled by the adverse effects that absence of liberalization in procurement markets could entail for private suppliers.16 Thus, in observance of the reluctance of some members to apply the national treatment obligation, an ‘optional’ instrument was drafted as a plurilateral agreement, namely the Tokyo Round Agreement –or Code- on government procurement. It entered into force in July 1981 and had 15 signatories.
The scope of the Tokyo Agreement was, nevertheless, limited. Its coverage focused on central/federal governments as well as on supply contracts, and the thresholds of procurement subject to regulations was set at SDR17150,000. Moreover, it was agreed that the Code would only apply to covered procurement, which was subject to non-discrimination rules (MFN and National Treatment) and
14 Arrowsmith, supra n. 8, p. 32 15 Ibid, p. 34
16
Lester et al., World Trade Law, 2012, p. 698
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transparency in award procedures.18 Transparency, however, was used as a tool to monitor compliance with non-discriminatory practices instead of displaying the actual benefits it can supply to government procurement.19
Art. IX: 6 of the Tokyo Agreement provided that negotiations were to be held three years later after its entry into force with the view of extending its coverage. Thus, negotiations among its signatories were held, resulting mainly in the strengthening of non-discrimination principles by setting more stringent limits to facilitate foreign participation, as well as rules on award procedures.20 The inclusion of local suppliers with foreign ownership or affiliation was also included in its coverage. Nevertheless, the main substantial change was reducing the threshold from SDR 150.000 to SDR 130.000.21
Negotiations in the Uruguay Round
Government procurement was included among the topics for negotiations when the Uruguay Rounds were launched in 1986. However, the debate first focused on the ‘proper’ way to approach this discipline. As a result, government procurement had a simultaneous two-tiered approach. The multilateral approach addressed it in the ‘Negotiating Group on Multilateral Trade Negotiations Agreements and Arrangements’, which operated within the framework of the Uruguay Round Negotiating Group on Negotiations in Goods.22 The ‘private club’ approach, comprised by the signatories to the Tokyo Agreement, on the other hand, decided to keep the extension and improvement of the Code to the Committee on Government Procurement, which had been responsible for this work until that time.23 Thus, whereas in the former group negotiations on government procurement were open for all GATT members, only the parties to the Tokyo Agreement were
18 Arrowsmith, supra n. 8, p. 35
19 Arrowsmith, Regime on Government Procurement, 2011, p. 14.
According to Arrowsmith, there are four main aspects to the concept of transparency in government procurement: 1) ensuring adequate publicity for procurement opportunities; 2) ensuring public access to the rules governing award procedures; 3) limiting the discretionary power of the authority by providing a basis for a ruled-based procurement system; and 4) allowing interested parties to enforce and verify the rules have been followed. 20 Arrowsmith, supra n. 8, p. 36 21 Ibid. 22 Ibid, p. 37 23 Ibid, p. 38
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entrusted with this task in the latter. Consequently, two outcomes stemmed from this bifurcation. The negotiations under the WTO multilateral rules did not bear fruit since they failed to introduce a multilateral system of procurement regulation per se that convened ample international participation.24 Furthermore, the inability to apply the general non-discrimination principles to government measures under the GATT and the GATS would endure and make its way to the text of the GATT 1994. The GATS had a similar fate as these principles were expressly excluded from government procurement, although the latter did envisage the opportunity to further negotiate on the matter.25
Nevertheless, the negotiations under the Committee on Government Procurement were successful, inasmuch as a plurilateral Agreement was concluded, namely the Government Procurement Agreement. The Agreement enhanced the opening of government markets by extending the coverage of the Tokyo Code on government procurement to services, including construction, as well as to covered entities, among which local and regional entities, as well as public utilities, were included.26 Its limited membership, however, remained a constant and shared feature with the Tokyo Agreement, especially with regard to developing countries.27
The negotiations for the new GPA were completed on 13 December 1993, but were made to match with the final date of the agreement on the general Uruguay Round package.28 Notwithstanding, the Agreement came into effect for its parties in 1 January 1996, due to considerations of providing a proper implementation period, and continuing negotiations on the coverage that followed the conclusion of the GPA in 1994.29
Revisiting the GPA
The mandate in Article XXIV: 7 of the Uruguay Round GPA envisaged future negotiations to be held no later than the third year after the entry into force of the Agreement, with a view to clarifying and improving it, as well as to expanding 24 Ibid. 25 Ibid. 26 Ibid, p. 38-39
27 The original parties to the GPA were the EU and its (then) 12 member states, Austria, Canada, Finland,
Israel, Japan, Norway, the US and Switzerland. (See Arrowsmith, supra n. 9 at p.40)
28
Arrowsmith, supra n. 8, p. 39
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its coverage.30 Article XXIV: 7(c) of the 1994 GPA guided the anticipated negotiations by requiring parties to refrain from adopting or continuing discriminatory practices which distorted open procurement. The grounds underpinning this provision, according to Arrowsmith, entailed the acknowledgement that market-opening commitments under the GPA not always occurred under an MFN basis, but rather under a bilateral basis by which countries reciprocally conferred benefits to each other.31
By the end of the negotiations, a revised draft text was published in December 2006. Albeit its conclusion, the opening for acceptance of the revised GPA by its parties as well as its submission to their national parliaments, was delayed until the aspect of the extension of its coverage was concluded.32 In this endeavor, a Ministerial Decision of 15 December 2011 completed this element of the negotiations, which enabled the joint adoption of the results of the negotiations on 30 March 2012. 33
Two-thirds of the GPA parties had to submit instruments of acceptance, following the completion of domestic ratification procedures, in order for the revised Agreement to enter into force 30 days later.34 Such requirement was met on 7 February 2014 after the deposit of the instrument of acceptance by Israel, leading to the entry into force of the revised Agreement on 6 April 2014.35
A noteworthy modification in the revised GPA for the purposes of this paper comprises the embrace of more ‘spelled out’ transitional measures available for their accession.36
The limited membership to the GPA, especially that of developing countries, has been a manifest weakness of the GPA itself and its predecessors, from the beginning of the negotiations on government procurement. Therefore, the current text incentivizes broader participation of developing countries by means of four transitional measures envisaged in Article V of the Agreement: i) price
30 Lester et al., supra n. 16, p. 700 31
Arrowsmith, supra n. 19, p. 20
32
Ibid.
33 Ibid.
34 World Trade Organization, Trade topics, Government Procurement, Evolution of the GPA, 2015 [online] 35
Ibid.
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preference programs; ii) offsets; iii) phased-in addition of specific entities and sectors; and iv) thresholds that are higher than the permanent set threshold. These will be addressed in further detail in Chapter III of this paper.
Although the revised GPA does not entail dramatic changes to its previous text, five main elements are indentified by Arrowsmith as those reflecting the expansion and improvements of the 2006 GPA:
Objectives and principles
Whereas the principles of non-discrimination and transparency in the 1994 GPA seemed to contribute to avoid protectionism of domestic production -with the aim of achieving a non-discriminatory procurement system-, the revised Agreement considers transparency as a ‘more substantive’ objective.37 This is reflected in its preamble, in which issues such as the value for money, prevention of corrupt practices and conflicts of interests, are considered among its objectives for the first time.38
Textual Coverage
Although coverage is encompassed in the individual Annexes of the parties, which cover entities, types of procurement and thresholds, there are two provisions in the revised GPA that address issues of coverage.39
Article I of the Agreement refers to the fields fixed under the Agreement by defining commercial goods and services, as well as construction services contracts. Additionally, Article XIX provides for the derogations from Annex I, namely entities subject to covered procurement, and sets the criteria under which modifications of the annexes shall proceed. These modifications involve the removal of an entity from governmental control or influence, and must be notified to the Committee on Government Procurement.40
37 Arrowsmith, supra n. 19, p. 23 38 Ibid. 39 Ibid.
40 Article XIX GPA in relevant part, reads: “ A Party shall notify the Committee of any proposed rectification,
transfer of an entity from one annex to another, withdrawal of an entity or other modification of its annexes to Appendix I (any of which is hereinafter referred to as "modification")….”
10
Transparency and procedural rules
Related to the objective of fighting corruption and conflict of interests, procedural rules in contract award procedures as well as other transparency provisions were strengthened and clarified in the revised GPA. Hence, rules on conditions for participation, enhanced transparency rules in selective tendering and control over changes made to the contract, were some of the provisions that contributed to these purposes.41
Challenge procedures
Under the provisions of the revised text, namely Article XVIII: 1, challenge procedures are not only available for a breach of the Agreement, as also provided for in the 1994 GPA, but also for failure to comply with a Party's measures implementing the Agreement, in case a Party does not allow for direct challenge of a breach of the Agreement under its domestic law. Nonetheless, if these implementing measures did not exist, Parties could pursue an issue through an agreed intergovernmental dispute settlement mechanism.42
Special and Differential Treatment
This area is of significant relevance to the revised text as it is for the purposes of this paper as will be shown below. The limited membership to the GPA, especially that of developing countries, has been a manifest weakness of the GPA itself and its predecessors, from the beginning of the negotiations on government procurement. Therefore, the current text has undertaken the task of incentivizing broader participation of developing countries by setting more ‘spelled out’ transitional measures available for their accession.43 These are listed in Article V of the Agreement and entail: i) price preference programs; ii) offsets; iii) phased-in addition of specific entities and sectors; and iv) thresholds that are higher than the permanent set threshold, which will be addressed in further detail in Chapter III of this paper. 41Arrowsmith, supra n. 19, p. 30-31 42 Ibid., p. 32 43Ibid., p.23
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These measures are to assist Least Developed Countries (LDC) and developing countries while postponing compliance with certain substantial obligations under the GPA for up to 5 and 3 years, respectively.
Such kind of flexibilities embodied in the latest version of the GPA are a reflection of some of the types of SDT provisions in favor of developing countries (and LDCs) found in the WTO, which as described below, have rooted origins both under the multilateral and bilateral WTO trading system.
II. Special and Differential Treatment 2.1. Brief historical overview
The origins of SDT can be found in the predecessor of the GATT, namely the ITO Charter. This instrument embedded a provision which allowed for the use of protective measures with the purpose of establishing, developing or reconstructing particular industries or branches of the agriculture of a country, provided that all the parties to the GATT agreed to it.44 Nevertheless, with the demise of the ITO, the scenario in which the origin of SDT took place was provided by the GATT 1947. The debate at the time between developing countries and the United States as to which principle was to govern the instrument, namely formal equality -same obligations applied to all members despite the clear differences among them-, or real equality –same obligations applied in accordance with the particularities of each member-45, rose the first concerns of developing countries with regard to their place in international trade. Despite the insistence of the United States on the application of formal equality, the benefits that a ‘universalized’ system of trade offered, shifted the position of that and other developed countries towards supporting the need to create special provisions that favored developing countries.46
An attempt to do so was enabled by the Haberler Report, which confirmed the grievances of developing countries at the time, i.e. barriers held by developed
44 Michalopolous, The Role of Special and Differential Treatment for developing countries in GATT and the
World Trade Organization, World Bank 2000, p. 2 [online]
45
Lester et al., supra n. 16, p. 818
12
countries in their detriment, as well as the insufficient export earnings of the latter in order to contribute to development.47 With this report as a basis, GATT members created three Committees with the purpose of developing a Program of Action for the expansion of international trade, which promoted the elimination of the trade barriers imposed by developed countries towards developing countries, as well as that of duties on tropical and other primary products.48 Nevertheless, the Program was never implemented.
Despite this non-starter, developing countries continued to emphasize on their need to be treated differently. Thus, they required not to be asked to liberalize their trade, and to be extended preferential market access to developed country markets.49 This gave rise to the GATT declaration on the ‘Promotion of Trade of Less Developed Countries’ in 1961, based on which preferences for developing countries not covered by preference systems such as the Commonwealth system, or those in free trade areas or customs unions, were established. 50 This would constitute a precedent for the subsequent creation of the GSP.
As a response to the requests of developing countries, Part IV of the GATT was adopted in 1964. This section included Article XXXVI, providing favorable market access conditions for products of export interest to developing countries as well as the ‘less-than-full reciprocity’ principle; and Article XXXVIII on the elimination of restrictions which differentiate between primary and processed products. The downsides of these provisions, especially their lack of legal enforceability, motivated developing countries to conduct their efforts to the creation of an international organization which could effectively deal with the problems of trade and development they were facing. As an outcome, the UNCTAD was created in 1964 and the topics on its agenda, which would remain to be present in the 1960’s and 1970’s, encompassed the establishment of a system of preferences
47 Ibid. 48 Ibid. 49 Michalopolous, supra n. 44, p.4 50 Ibid, p. 5.
13
for the exports of manufactures of developing countries in developed country markets, and stabilization of commodity.51
It is noteworthy however, that despite the aforementioned weakness of the provisions created by the GATT in 1964, Art. XXXVI: 8 remains a cornerstone of SDT, due to its definition of the principle of non-reciprocity, which enabled developing countries to refrain from making contributions inconsistent with their individual development, financial and trade needs. This principle would be incorporated in to the creation of the Generalized System of Preferences (hereinafter GSP) by developing countries under the auspice of UNCTAD in 1968.
With the creation of the WTO, the ‘Single Undertaking’ embedded in it as a result of the conclusion of the Uruguay Round, implied acceptance of all the Agreements negotiated during that period by all WTO members. Thus, developing countries were expected to comply with new and different obligations from those they had agreed to in the past, in light of their limited institutional capacity and resources. Therefore, although some SDT provisions were maintained as they had previously existed, provisions entailing transitional time frames and technical assistance to developing countries were adopted, in order to facilitate the implementation of the new agreements for developing country members.52 The reason underlying these new elements owed to the acknowledgment that developing countries required assistance to comply with novel commitments and thus, challenging in nature inasmuch as they were being adopted by them for the first time.
Notwithstanding these efforts, developing countries faced significant hardship during the domestic implementation of those Agreements. High costs and lack of administrative elements and human capital to implement them, as well as constraints with substantive aspects of some provisions in the Agreements53 led them to require the reform of those provisions in a way that turned them more
51 Michalopolous, supra n. 44, p.6 52 Ibid, p.14
53
Keck, Low, Special and differential treatment in the WTO: Why, when and how?, WTO Staff Working Paper, No. ERSD-2004-03, p. 6 [online]
14
supportive of their development, or less restrictive with regard to the discretion conferred to them to adopt their own policies.54
These issues do not differ much from those stemming from the application by developing countries of the obligations under the GPA, which as will be discussed below, seem to have been acknowledged by that agreement and also translated into SDT provisions.
The Doha Ministerial Declaration has affirmed the will of strengthening SDT provisions, as well as making them more effective, precise and operational.55 However, the tangible work operationalizing that spirit is one to look forward to.
2.2. Types of SDT under the WTO
The classification of the WTO Secretariat for the existing SDT provisions across the different Multilateral Agreements56, involves six categories which embrace the kinds of flexibilities granted to developing countries as a way to assist them in complying with their commitments under WTO law. These categories comprise preferential market access, market protection, flexibility of commitments of action and use of policy instruments, specific assistance for LDCs, transition periods for implementation and technical assistance and capacity building. In light of its relevance for this paper, the next subsection will briefly describe these two last categories.
i. Transition periods for implementation
54 Ibid.
55 Paragraph 44 of the Doha Ministerial Declaration reads: “We reaffirm that provisions for special and
differential treatment are an integral part of the WTO Agreements. We note the concerns expressed regarding their operation in addressing specific constraints faced by developing countries, particularly least-developed countries. In that connection, we also note that some members have proposed a Framework Agreement on Special and Differential Treatment (WT/GC/W/442). We therefore agree that all special and differential treatment provisions shall be reviewed with a view to strengthening them and making them more precise, effective and operational. In this connection, we endorse the work programme on special and differential treatment set out in the Decision on Implementation-Related Issues and Concerns”.
56
According to Müller (Special and Differential Treatment, in: Regime on Government Procurement, 2011) they amount to roughly 145 provisions.
15
The benefit of this type of SDT entails a ‘leave’ for overall non-application of an Agreement, or non-application of ‘some obligations’ during the granted periods.57 Additionally, it can be argued that this extension constitutes ‘a mechanism for providing special and differential treatment within the context of reciprocal and multilateral commitments’.58
Although they might look similar, Müller points out that the difference between transitional periods and flexibilities lies in the former’s more general address of the lack of institutional capacity of developing countries to implement commitments immediately after the entry into force of the Agreements, rather than of a specific temporary situation of crisis.59 One such example can be found in the TRIPS Agreement60, which granted developing countries a transitional period of five years to implement certain obligations under it.
The key of this element lies on its capacity to objectively assess whether a granted transitional period reflects the reality of the particular needs and issues of a developing country or LDC with regard to a particular Agreement, rather than being ‘too optimistic’ about them.
ii. Technical assistance and capacity building
These constitute important elements of SDT given that they provide developing countries with tools in order for them to be able to implement agreements ‘without further action’.61 The Doha Ministerial Declaration on paragraph 38 addresses the relevance of technical assistance and capacity building by stating:
‘…that technical cooperation and capacity building are core elements of the development dimension of the multilateral trading system, and we welcome and endorse the New Strategy for WTO Technical Cooperation for Capacity Building, Growth and Integration. We instruct the Secretariat, in coordination with other relevant agencies, to support domestic efforts for
57 Müller, Special and Differential Treatment, in: Regime on Government Procurement, 2011, p. 347 58
Michalopolous, supra n. 44, p.16
59
Müller, supra n. 57
60 Article 65.2 TRIPS provides: ‘A developing country Member is entitled to delay for a further period of four
years the date of application, as defined in paragraph 1, of the provisions of this Agreement other than Articles 3, 4 and 5’.
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mainstreaming trade into national plans for economic development and strategies for poverty reduction. The delivery of WTO technical assistance shall be designed to assist developing and least-developed countries and low-income countries in transition to adjust to WTO rules and disciplines, implement obligations and exercise the rights of membership, including drawing on the benefits of an open, rules-based multilateral trading system. Priority shall also be accorded to small, vulnerable, and transition economies, as well as to members and observers without representation in Geneva...’.62
The main objective of providing this kind of assistance to developing countries and LDCs, is to strengthen their human and physical capacity in order to enable them to meet their obligations under the covered agreements, since it is believed that their lack of such capacities is what constrains them from integrating in the international trading system.63
2.3.SDT in the GPA
The presence of developing countries in the WTO continues to be significant to the present date. As observed throughout the previous section, the interest of making membership to the WTO more attractive for developing countries and LDCs, as well as the quest of the latter for economic growth and development, led to the creation and further development of SDT.
The efforts of GATT/WTO Members to enhance the ability of less developed countries to live up to the standards of the WTO, are reflected in multiple provisions throughout its multilateral trading system. Consequently, the terrain of SDT would seem to circumscribe to the commitments made by WTO members on a multilateral basis, in other words, under the Agreements that are legally binding upon all of them.
Nonetheless, the prevailing interest of extending WTO membership to more developing countries and LDCs has also pervaded agreements on the plurilateral sphere with the scent of SDT. The Agreement on Government Procurement (GPA) has thus also included SDT provisions in favor of developing countries in order for
62
WT/MIN (01)/ DEC/ 1 of 20 November 2001
17
them to join it. This is especially true considering the nature of the Agreement, since not binding all WTO members, it only applies for the future accession of developing countries to the revised instrument.64 This evidences a clear turn in the perspective of ‘accession’ in the context of the Agreement, since the GPA 1994 conceived it as a ‘possibility’ rather than a priority as the current text does.65 Nevertheless, as will be discussed below, SDT treatment in the GPA may also apply to developing countries after accession.
The revised text of the GPA, which entered into force in April 6 2014 for the ten parties that accepted the Protocol of Amendment66, identifies developing countries in general as subjects to SDT, rather than maintaining the traditional difference between developing countries and LDCs.67 Furthermore, it provides for more transitional measures to assist developing countries in their accession, than the GPA 1994, as well as more specific situations in which they apply.
Although SDT provisions in the GPA do not reveal market access provisions68, they mostly focus on transitional periods for developing countries to adopt or maintain measures that protect their domestic procurement market before acceding to the Agreement – which will be addressed in section III-, flexibility for the application of any specific obligation in the GPA, and technical cooperation and capacity building.
i. Flexibility for the application of any specific obligation in the GPA The types of flexibilities offered by the revised GPA are granted both, during the ‘pre-accession phase’ of a developing country to the GPA, and its post-accession. Those granted in the ‘pre-accession phase’ comprise the delayed application of any specific obligation in the Agreement, other than the MFN
64 Müller, supra n. 57, p. 351 65 Ibid.
66 These parties comprise Liechtenstein, Norway, Canada, Chinese Taipei, the United States, Hong Kong
(China), the European Union, Iceland, Singapore and Israel.
67 Article V of the revised GPA provides in its relevant part: ‘In negotiations on accession to, and in the
implementation and administration of, this Agreement, the Parties shall give special consideration to the development, financial and trade needs and circumstances of developing countries and least developed countries (collectively referred to hereinafter as "developing countries", unless specifically identified otherwise), recognizing that these may differ significantly from country to country…’. (Underlining added by
the author).
68
According to Müller (supra n. 57), there is rather a reaffirmation of the MFN principle and the observance of an appropriate balance of opportunities with developing countries.
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principle, while a developing country implements the obligation.69 Article V of the GPA grants developing countries an implementation period of three years, whereas LDCs are granted five years, both calculated after their accession to the Agreement.
A clear difference can be observed at this point with the text of the GPA 1994, considering the latter also excluded from ‘non-application’ the principle of national treatment and it did not provide a time limit to such exemptions, whereas the present text, although flexible when providing a broad scope of exemptions from substantive obligations, does require them to come to an end after a specific period of time.70
With regard to post-accession flexibilities, Müller points out that the text of the Agreement does not provide for specific measures after acceding the GPA per se, but it allows for a ‘re-negotiation’ by developing countries of the measures adopted to protect their domestic procurement markets.
Thus, Article V: 6 reads:
‘After this Agreement has entered into force for a developing country, the Committee, on request of the developing country, may: (a) extend the transition period for a measure adopted or maintained under paragraph 3 or any implementation period negotiated under paragraph 4; or (b) approve the adoption of a new transitional measure under paragraph 3, in special circumstances that were unforeseen during the accession process’.
It follows from the text of the aforementioned article that developing countries are given the opportunity to extend a transitional measure adopted at the beginning of their accession process, which, according to Müller, would imply that the initially negotiated transition period proved to be ‘unrealistic’. It must be borne in mind though, that such an extension depends on the agreement of the parties.
The second post-accession flexibility grants developing countries the attribution of adopting a new transitional measure, provided that special circumstances, unforeseen during the accession, take place.
69 Article V of the GPA reads: ‘In negotiations on accession to this Agreement, the Parties may agree to the
delayed application of any specific obligation in this Agreement, other than Article IV:1(b), by the acceding developing country while that country implements the obligation…’.
19
The wording of these provisions seems to reflect an awareness of the magnitude of the challenges a developing country might face when implementing the GPA domestically and liberalizing their procurement markets. However, the element of re-negotiation is the key to achieving those extensions from the GPA parties, which are in its majority, developed countries. Under these circumstances, could this truly be considered a ‘post-accession flexibility’? Is it favorable to developing countries that a caveat is subjected to an authorization? It could rather resemble a deadlock to furthering their adjustment process.
ii. Technical cooperation and capacity building
Article V: 8 of the GPA is broad in nature when requiring the Parties to consider ‘any request’ by a developing country for technical cooperation and capacity building.
Müller points out that under this provision, any developing country would be entitled to request the GPA Parties for technical assistance and/or capacity building.71 Nevertheless, the fact that the wording of the provision delimits the granting of this assistance ‘in relation to that country's accession to, or implementation of, this Agreement72’, circumscribes technical cooperation and capacity building to developing countries that are either Parties to the GPA or acceding to it, even when the text of the provision does not literally include an epithet of membership to the country.
III. Transitional Measures73
In light of the mandate embedded in Article V: 1 of the GPA, the Parties to the Agreement acknowledge four types of transitional measures in order to assist developing countries ‘In negotiations on accession to...’ the Agreement, in observance of their development, financial and trade needs and circumstances. 74
71 Müller, supra n. 44, p. 364 72
See Article V: 8 GPA
73 Article I (i) GPA defines the term measure as ‘any law, regulation, procedure, administrative guidance or
practice, or any action of a procuring entity relating to a covered procurement’; whereas Article 11 of the
Trade Agreement defines them as ‘…any act or omission of a Party, including laws, regulations, procedures,
decisions, administrative acts or practices, or any other form…’.
74
Article V: 1 GPA reads: ‘In negotiations on accession to, and in the implementation and administration of,
this Agreement, the Parties shall give special consideration to the development, financial and trade needs and circumstances of developing countries and least developed countries (collectively referred to hereinafter as
20
Therefore, Article V:3 GPA allows developing countries to adopt or maintain one or more of these transitional measures, provided that they are applied during a transition period, in accordance with a schedule, set out in its relevant annexes to Appendix I 75, and, in a manner that does not discriminate among the other Parties.
As stated above, these transitional measures entail price preference programs, offsets, the phased-in addition of entities, and higher thresholds than those usually set.
The origin of these measures is diverse. Price preferences and offsets can be said to stem from the text of the GPA 1994, namely Article V:4, which allowed developing countries to negotiate ‘mutually acceptable exclusions from the rules on national treatment with respect to certain entities, products, or services that are included in their lists of entities’, giving thus room for maintaining a price preference policy 76; and Article XVI, which in turn allowed developing countries, at the time of accession, to negotiate conditions for the use of offsets (e.g., domestic content requirements as will be explained below).
Thresholds, however, have evolved as an agreed criterion in practice to facilitate the delimitation of the coverage of procurement under the Agreement.
Despite the clear difference in their source, the measures provided for in the GPA 1994 as those established at length in the revised GPA in favor of developing countries, pursue a common goal: incentivizing and easing the accession of developing countries to the Agreement.
On the other hand, Regional Trade Agreements (hereinafter RTAs), although not insightfully, may also provide for measures with the view of assisting
"developing countries", unless specifically identified otherwise), recognizing that these may differ significantly from country to country. As provided for in this Article and on request, the Parties shall accord special and differential treatment to:
(a) least developed countries; and
(b) any other developing country, where and to the extent that this special and differential treatment meets its development needs’.
75
Appendix 1 is divided into five parts for each Party: Annex 1 contains central government entities; Annex 2 contains sub-central government entities; Annex 3 contains all other entities that procure in accordance with the provisions of the Agreement; Annex 4 details services; and Annex 5 specifies covered construction services.
76
Hoekman, Mavroidis, GPA Expanding disciplines, declining membership?, World Bank, 1995, p. 13 [online]
21
developing countries in the implementation of their commitments with regard to government procurement, a discipline that has become increasingly popular among trade agreements in recent years.
As will be discussed below, although RTAs might contain even express prohibitions to grant certain preferences to local suppliers, some flexibilities are envisaged in recognition of the asymmetry underlying the trade relationship embodied in agreements between developed and developing countries.
The following subsections thus describe the transitional measures embedded both in the GPA and in the Trade Agreement, which will subsequently enable an analysis between those measures under the two regimes. An especial and brief focus will take place with regard to pertinent Ecuadorian legislation.
Thereupon, an analysis of the role those measures are meant to fulfill in light of its SDT origin will be conducted. This will enable the author to determine which seem to be more favorable from a developing country perspective, in the form of the experience of the signatory Andean Countries.
3.1.Transitional Measures in the GPA
Article V:3 GPA establishes that a developing country may adopt or maintain one or more of the four transitional measures it entails, during a transition period.
These measures, as indicated previously, are required to be in accordance with a schedule, which is to be set out in the relevant annexes to Appendix I, and applied in a manner that does not discriminate among the other Parties.
In light of the ultimate purpose of these measures, Müller groups them into two different categories of ‘flexibilities’ allowed for developing countries during the mentioned transition period. Thus, price preference programs and offsets are considered to aim at the protection of sensitive industries and sectors, whereas the addittion of specific entities and sectors as well as thresholds are considered to constitute exclusions from coverage. These measures must therefore be addressed bearing in mind their underlying raison d´être.
22
This type of transitional measure entails supporting targeted domestic producers of goods or providers of services through a discount on their submitted price offer. This discount is assumed by the procuring entity in the award of a contract. However, if such discount were to lead to the award of a contract to a supplier who was a beneficiary of such price preference, the procuring entity will pay the full price of the offer.77
Kim explains the dynamics of this measure in the following example: A government requesting bids on a highway construction project announces a 10% price-preference. The project will be awarded to a domestic firm at the price of its bid tendered if it is not higher than 10% of the lowest bid of a foreign firm. As a result of the protective price-preference policy, the government may have to spend more public funds when the domestic is awarded the contract.78
In view of the above, price-preference programs clearly favor domestic suppliers over foreign by discriminating against the latter prior to the bidding competition.79
This support to domestic production is reaffirmed by subsection i) Article V:3 GPA, which allows for price-preference programs as long as such preferences are provided only for the part of the tender incorporating goods or services originating in the developing country applying the preference.
Moreover, the scope of addressees of this measure is broadened by the inclusion of goods or services originating in other developing countries in respect of which the developing country applying the preference has an obligation to provide national treatment under a preferential agreement.80
By subjecting the benefits from these preferences to the origin of the goods or services to be offered in a tender rather than to that of the suppliers, the Parties would not only be envisaging a derogation from Article IV: 2 of the Agreement81,
77 Müller, supra n. 57, p. 359
78 In-Gyu Kim, Price-preference vs. tariff policies, Economics Letters, 1994, p. 217 [online] 79Ibid, p. 221
80
Subsection i) of Article V:3 GPA requires that, if the other developing country receiving the preference is a Party to the Agreement, such treatment would be subject to any conditions set by the Committee.
81
Article IV:2 GPA on its relevant part reads: ‘With respect to any measure regarding covered procurement,
23
but also a means to assuring that developing countries are the exclusive recipients of this SDT provision.
As far as the requirements to maintain or adopt a price-preference program are concerned, -since it must be reminded that the GPA allows transitional measures to be kept or created during the granted transition period-, the GPA determines that the adoption of price preference-programs are allowed if they are transparent, and if its application in the procurement is clearly described in the notice of intended procurement.
ii. Offsets
Another transitional measure with the purpose of protecting sensitive sectors in the domestic scenario comprises additional requirements –and conditions- that can be included among required tender documentation. The nature of offsets can therefore be very diverse. It can vary from requiring the inclusion of domestic content in the procurement, to soliciting the employment of local workforce for the execution of a procurement contract.82 Therefore, offsets can be construed as covering contract-specific measures (locally manufactured products) and ‘more general measures’ (purchase of local inputs for products to be sold by the supplier to the private sector).83
Consequently, offsets can be seen as tools to improve local development, which would in principle resemble to the purpose of price-preference programs. Nonetheless, offsets do not per se discriminate against foreign bidders, since as the pertinent article in the revised GPA requires, they must be set out in the notice of intended procurement. Therefore, all suppliers participating in a determined procurement will be subject to the same conditions.84
A distinction must be made however between offsets allowed as transitional measures in favor of developing countries during a transition period, and those provided for by Article IV: 6 GPA. The latter prohibits the use of offsets with regard to covered procurement by stating that ‘...a Party, including its procuring
(a) treat a locally established supplier less favourably than another locally established supplier on the basis of the degree of foreign affiliation or ownership…’.
82 Arrowsmith, supra n. 8, p. 333 83
Ibid.
24
entities, shall not seek, take account of, impose or enforce any offset’. The wording of this subparagraph has been maintained from that envisaged by the GPA 1994, in which the aim was to prohibit such conditions, regardless from the subjects intending to apply them, namely, the procuring entity itself or by suppliers as part of their tenders.85 This is considered as a significant contribution of the revised GPA, since it has managed to clarify the ambiguity revolving around the extent of the
scope of offsets found in the GPA 1994. iii. Phased-in addition of specific entities or sectors
Although this kind of measure aims at excluding procuring entities in developing countries from GPA coverage, it is noteworthy to mention that a collateral effect of its application also implies protecting vulnerable sectors of their economy from the economic shocks that an abrupt liberalization of their procurement markets could involve.
The wording of subparagraph c) of Article V:3 suggests that a determined developing country, upon its accession to the GPA, can exclude specific entities from the covered procurement envisaged in Annexes 1, 2 and 3 of Appendix I of each party, notwithstanding its further and gradual inclusion.
Müller rightly asserts that the period of time during which these exclusions from coverage will take place is not specified in the Agreement, nor is that for the ‘phased-in’ inclusion of these entities. Nevertheless, it must be borne in mind that such topics are subjected to negotiation, given the requirement of the chapeau of Article V GPA to count ‘with the agreement of the Parties’ not only for the purposes of this measure in particular, but with regard to the other three transitional measures as well.
iv. Thresholds
According to Article II:2 (c) GPA, a criterion to consider a measure within the scope of covered procurement is the value of procurement. To this effect, the latter must equal or exceed the relevant threshold specified in the annexes to
85 Arrowsmith, supra n. 8, p. 333
25
Appendix I of a Party, at the time of publication of a notice in accordance with Article VII.86
In the interest of opening up procurement to international competition, the GPA is aimed at procurements of cross-border interest, which explains GPA thresholds being set higher than those applied for formal biddings under national procurement systems. 87
Nevertheless, through the approval of setting even higher thresholds than those already established, the GPA intends to ‘...carv[e] procurements with higher contract values out of GPA coverage...’.88
Two effects can be identified from the application of this measure. On the one hand, higher thresholds exclude foreign competition from a determined procurement contract, which would foster local participation. On the other, it entails a pressured and swift process in which local suppliers of developing countries must adjust in order to fit the profile of those procurement procedures, which usually comprise the rendering of services which characteristics outreach the capacities of local offer.
Albeit the transitional character of this measure, the challenges domestic suppliers can –and will- face while adapting their structures and resources to live up to the expectations of high threshold procurements, cannot be qualified under the same epithet. Entreched structural difficulties must be promptly addressed and should definitvely be considered as fertile ground for the technical cooperation committment embodied in Article V:8 to unfold. This assistance however, should not only be triggered by a specific request of a developing country, but as a consequence of allowing for this transitional measure in particular.
86 Article VII GPA reads in relevant part: ‘1. For each covered procurement, a procuring entity shall publish
a notice of intended procurement in the appropriate paper or electronic medium listed in Appendix III, except in the circumstances described in Article XIII. Such medium shall be widely disseminated and such notices shall remain readily accessible to the public, at least until expiration of the time-period indicated in the notice’.
87 Arrowsmith, supra n. 8, p.134 88
26
3.2. Transitional Measures in the Trade Agreement
During the XXI Ministerial Conference held between the Andean Community (Bolivia, Colombia, Ecuador and Peru) and the European Union (hereinafter EU) on April 19 2007, the Ministers expressed their will to engage in negotiations with the view of creating an Association Agreement between both blocs. These negotiations were launched in June 2007 during the XVII Session of the Andean Presidential Council held in Bolivia.89
After reaching a stalemate in 2008, negotiations continued between the EU and Colombia, Ecuador and Peru, in light of the possibility of each Andean country to agree –or not- to the three central aspects of the flexible framework agreement reached at the V EU-Latin America and the Caribbean (LAC) summit: Trade, politics and cooperation.90
An agreement was concluded with Colombia and Peru in 2010, which led to its signing in June 2012 and its subsequent provisional application since 1 August 2013 and 1 March of the same year, respectively.91
Ecuador returned to the negotiating table at the beginning of 2013. After four negotiation rounds, an agreement was concluded between the Parties, which enabled the annexation of Ecuador to the Trade Agreement that had been previously concluded by the EU with Colombia and Peru. The negotiations with Ecuador focused on particular aspects of interest to the country such as agriculture, intellectual property and government procurement.92 In 12 December 2014, the Trade Agreement was signed between Ecuador and the EU.
Article 3 of the Trade Agreement establishes a free trade area in conformity with Article XXIV of the General Agreement on Tariffs and Trade of 1994 (hereinafter GATT 1994) and Article V of the General Agreement on Trade in Services (hereinafter GATS).
The objectives of the Trade Agreement comprise, inter alia, progressive liberalization of trade in goods and services under the aforementioned articles, and
89
Foreign Trade Information System, Background and negotiations, Trade policy, 2014 [online]
90
Ibid.
91 European Commission Directorate-General for Trade, EU and Ecuador publish text of the Agreement,
News Archive, 23-09-2014, p.1 [online]
92
Ministerio de Comercio Exterior, “Este acuerdo es bueno para el futuro del país”, Noticias, 12-12-2014 [online]
27
the effective and reciprocal opening of government procurement markets of the Parties. Bearing in mind the object of this paper, the analysis shall focus on the latter.
The provisions of the mentioned Agreement apply to the bilateral trade and economic relations between each individual signatory Andean Country and the EU.93 This is reflected on the general character of the provisions along the Agreement, -except for some explicative footnotes in which precisions from the Parties have been made-, in contrast to the more concrete concessions made between them in the twelve annexes to the Trade Agreement. Therefore, as will be demonstrated below, most of the tangible flexibilities granted to the signatory Andean countries can be found in those annexes rather than in the text of the Agreement itself.
Transitional measures under the Trade Agreement are, thus, not clearly spelled out as the four provided for under the GPA. Moreover, ‘offsets’, defined in Article 172 of the Trade Agreement as ‘any condition or undertaking that encourages local development or improves balance–of-payments accounts of a Party, such as the use of domestic content, the licensing of technology, investment, counter-trade and similar action or requirement’, are prohibited under Article 175, which wording resembles that of Article IV:3 GPA.94
Nevertheless, Article 329 of the Trade Agreement allows for certain flexibilities on the accession of Andean Countries. Albeit those flexibilities during accession seem to be limited to the negotiation of the lists of mutual concessions corresponding to Annexes I (Tariff Elimination Schedules), VII (List of Commitments on Establishment) and VIII (List of Commitments on Cross border Supply of Services), its wording reflects some leeway for further facilities in favor of the acceding Andean country to be negotiated, by acknowledging that any aspect for which ‘such flexibility were necessary for [its] accession…’ could also be negotiated.
93
See Article 7 of the Agreement.
28
Hence, upon accession, the Trade Agreement does not envisage specific transitional measures to be negotiated, maintained or created as provided for Article V:3 GPA. Nonetheless, the broad nature of Article 329 of the Trade Agreement – also responding to its ample coverage- can easily comprehend several other issues that represent a challenge to the countries of the Andean Community by virtue of its content, among which those related to the realm of public procurement can be included.
As described earlier, flexibilities for the protection of sensitive industries under the GPA can be granted to developing countries not only during their accession, but –theoretically- also thereafter.95
Although only one provision regarding measures in favor of developing countries during their accession has been identified in the Trade Agreement, it is noteworthy to point out other provisions in it that could also fulfill the aim of addressing the difference in economic and social development between the Parties with the view of enabling their accession.96
Under the GPA, post-accession flexibilities comprised an extension, through negotiation, of the conferred periods granted to developing countries to implement their respective obligations, -five years to LDCs and three to developing countries-, or the adoption of a new measure if unforeseen circumstances arise.
In the case of the Trade Agreement, Article 192 and 193 embed actions to be taken in order to protect sensitive sectors of the economies of the Andean signatories, as well as to enhance access to their procurement markets.
Article 192 represents the acknowledgment of the parties of the relevance of the participation of Micro, Small and Medium-sized Entities (SMEs) in government procurement. Consequently, alliances between suppliers of the Parties, and in particular of Micro and SMEs, including joint participation in tendering procedures is provided for, as well as facilitating access of Micro and SMEs to procurements, methods and contracting requirements, focused on their special needs.
95 See subsections i) and ii) in pages 10-12 96
The eleventh recital of the Trade Agreement reads: ‘CONSIDERING the difference in economic and social
29
In line of this objective, Article 193 encourages capacity building and technical assistance to suppliers with respect to access to the government procurement market, and institutional strengthening for the implementation of the provisions of the Title on government procurement (Title VI), including training to government personnel. Moreover, this provision entails a unilateral commitment by the EU to provide, upon request, assistance to ‘…potential tenderers from the signatory Andean Countries in submitting their tenders and selecting the goods or services which are likely to be of interest to the procuring entities of the European Union or its Member States….’97. This includes assistance to achieve compliance with technical regulations and standards relating to goods or services which are the subject of the intended procurement.
The mandate of Article 192 contemplates a key element of the procurement systems of the signatory Andean countries.
Although the analysis at hand will elaborate on the particularities of the Ecuadorian procurement system, it is worth mentioning that all three Andean countries have excluded from its covered procurement under the Trade Agreement those procurements aimed at the exclusive or major participation of Micro and SMEs. They all affirm in Subsection 7 of each of their Annexes on Government Procurement (Annex XII) that Title VI of the Trade Agreement does not apply to procurements on behalf of Micro and SMEs.98
In Colombia, 96% of the enterprises comprised Micro and SMEs in 201199, and 99.6% fell within the same category in Peru according to its National Institute for Statistics and Informatics in 2013100.
97 Article 193 of the Trade Agreement between the European Union and its Members, and Colombia, Ecuador
and Peru.
98
Colombia states in Subsection 7: ‘Title VI of this Agreement does not apply to: (d) set-asides of
procurements below SDR 130 000 on behalf of MIPYMES [i.e. Micro and SMEs]; including any form of preference, such as the exclusive right to provide a good or a service and measures conducive to facilitate the transfer of technology and sub-contracting’.
Ecuador stipulates in the same subsection of its Annex that Title VI of the agreement does not apply to programs and procurements reserved to MYPIMES and Social and Solidarity Economic Actors, provided that these actors fulfill the criteria in order to be considered as such.
The exclusion of Peru reads: ‘Title VI of this Agreement does not apply to procurement programs on behalf of
small and micro-sized companies’.
30
Similarly, the National Institute for Statistics and Census alongside the National Secretary for Planning and Development of Ecuador reported that 99.5% of the registered enterprises in that country constituted Micro and SMEs in 2014.101
Based on these figures, the need of these countries to protect the procurements aimed at the development of this sector of their economy from international competition is evident.
Concordantly, Article 25.2 of the Organic Law on Public Procurement of Ecuador and Article 16 of its Rules of Procedure, state that suppliers of goods and services containing higher local content, as well as Micro and SMEs and Social and Solidarity Economic Actors102, shall be preferred to other suppliers through the application of, inter alia, margins of preference and preferential subcontracting.103
The margins of preference to be granted in light of this article are subjected to a technical determination of the Ecuadorian content of the goods to be supplied or the services to be rendered (VAE104) according to resolutions adopted by the Public Procurement Service of Ecuador, the latest of which, at the time of writing, was adopted in 13 May 2015.105
100 EFE, Más del 99% de las empresas del Perú son pequeñas y medianas, Economía y Mercados, América
economía, 09-03-2013 [online]
101 Instituto Nacional de Estadísticas y Censos, Inec y SENPLADES presentan el Directorio de Empresas,
Noticias, 12-02-2014 [online]
102 Article 1 and 2 of the Organic Law on Social and Solidarity Economy of Ecuador defines these actors as
natural and juridical persons engaged in forms of economic organization whereby, individually or collectively, they organize and develop production processes, exchange, commercialization, financing and consumption of goods and services to satisfy needs and generate revenue streams through solidarity-based relations, cooperation and reciprocity, favoring work and the human being as subject and end of its activity, oriented towards a better standard of life, in harmony with nature, above appropriation, profit and the accumulation of capital.
103
The original text of Article 25.2 reads: ‘En todos los procedimientos previstos en la presente ley, se
preferirá al oferente de bienes, obras o servicios que incorpore mayor componente de origen ecuatoriano o a los acto res de la Economía Popular y Solidaria y Micro, Pequeñas y Medianas Empresas, mediante la aplicación de mecanismos tales como: márgenes de preferencia proporcionales sobre las ofertas de otros proveedores, reserva de mercado, subcontratación preferente, entre otros…’.
104 In its Spanish acronym, VAE stands for Valor Agregado Ecuatoriano, (‘aggregate Ecuadorian value’)
which expresses the percentage of local content in goods or services (including construction services) and is calculated by dividing the intermediate consumption of the national component with respect of the value of the production at basic prices of the input-output Matrix.
105 Resolución INCOP No. RE-2013-0000089 of 28 June 2013; Resolución No. RE-INCOP-2013’0000096 of
26 July 2013; Resolución No. SERCOP-2014-000019 of 11 November 2014; Resolución No. RE-SERCOP-2015-0000031 of 13 May 2015 available at
