A model of trade restrictiveness index: Its application and implications in public procurement

Date01 March 2012
Pages189-220
DOIhttps://doi.org/10.1108/JOPP-12-02-2012-B002
Publication Date01 March 2012
AuthorDemelash Demessie
SubjectPublic policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 12, ISSUE 2, 189-220 SUMMER 2012
A MODEL OF TRADE RESTRICTIVENESS INDEX:
ITS APPLICATION AND IMPLICATIONS IN PUBLIC PROCUREMENT
Demelash Demessie*
ABSTRACT. Public procurement is characterized as a distorted market which
grants limited access to foreign suppliers and contractors. However, the
different impediments existing within the public procurement policies and
their relative significance in restricting effective international competition are
not very well known. This paper, through the process of developing a model
of Trade Restrictiveness Index, identifies weighs and scales 17 impediments
existing within the public procurement policies. The paper also reveals that
implicit restriction which emanates mainly from lack of transparency
imposes a greater level of restriction in the market. In a final application of
the model, comparison of the public procurement policies of selected
Common Market for Eastern and Southern African (COMESA) countries, has
shown that with a rated index of 1, the procurement policies of Kenya and
Uganda are rated as most restrictive while Rwanda’s is found to be least
restrictive.
INTRODUCTION
In most countries of the world, government procurement
represents a significant proportion of economic activities. The market
covers a substantial amount of public spending, which in OECD
member countries alone has been measured to be in excess of 15%
of GDP (OECD, 2010). The share is believed to be much higher in
developing and least developed countries, where development of
basic infrastructure is still the prime focus of governments and
consumes huge budget.
--------------------------------------
* Demelash Demessie, MBA, member of the PBS Program Secretariat/
World Bank, Ethiopia Country Office. His research interest is in public
procurement and public policy.
Copyright © 2012 by PrAcademics Press
190 DEMESSIE
Despite the general presumption that liberalization of market
increases global economy and welfare and broader competition is
identified as a key in curbing procurement costs (World Bank, 2008),
the public procurement market has remained inaccessible to foreign
suppliers and contractors (Trionfetti, 2000). Although reasons for
discrimination pertaining to public procurement have been discussed
at various occasions, the detail nature of the impediments (“taking
restrictive” or “not taking unrestrictive” measures) and their relative
level of restrictiveness have not been empirically studied, at least to
the best knowledge of the writer. Thus, this kind of vagueness
existing within the public procurement environment obviously affects
the actions of policy makers and the public at large in determining
which actions of the public procurer affect broader competition and to
what extent, which ones can be related with “justifiable”
governments’ other objectives and which ones are against public
interest for economy and efficiency, etc.
In this paper, by developing a Model of Trade Restrictiveness
Index applicable to the public procurement market (TRI-PP, here
after) an attempt is made to identify and analyse overt public
procurement regulatory impediments that impose restrictions on the
access and winning chance of foreign bidders. Using the TRI-PP
model, the public procurement policies of six member states of
COMESA were measured and compared. Bringing 19 Eastern and
Southern African states and Egypt, Libya and Sudan from the
northern part under the umbrella of one organization, COMESA has a
vision of integrating and creating one regional economic community
to cater for a population size of more than 400 million and GDP of
over $ 360 Billion (COMESA). As part of this effort and targeting the
opening up of the government procurement market for regional
players, COMESA is trying to harmonize the public procurement
system of the member countries. Hence, a detailed assessment and
comparison of the procurement policies of the member countries is
believed to facilitate the on-going effort for harmonization.
The remaining part of the paper is organized into six sections; the
first section discusses issues related to restrictiveness in public
procurement, the second and third sections discuss the research
methodology and findings, the fourth section focuses on evaluation
and comparison of the public procurement policies of selected
A MODEL OF TRADE RESTRICTIVENESS INDEX: ITS APPLICATION AND IMPLICATION S 191
COMESA member countries. The fifth section concludes and is
followed by an appendix.
ISSUES RELATED TO RESTRICTIVENESS IN PUBLIC PROCUREMENT
Given the huge volume of spending public procurement involves,
an open market geared towards free competition is considered to
have benefits of substantial budgetary savings (up to 8% of total
cost), innovations and higher quality procurements, positive impact
on local private business behaviour, increases competitiveness in the
economy as a whole and foster good governance(World Bank, 2008).
As a result, “Open Competition” is one of the most shared mottos in
public procurement.
However, in practice, the public procurement market is
recognized for being uncompetitive and restrictive. OECD’s estimate
shows that not more than 7% of public procurement of the member
countries of the group is open for international competition. In some
cases, the public procurement market is even considered as a
stumbling block to free movement of goods and services (Ghemawat,
2007). Despite the unprecedented result attained in opening up
markets in all other sectors, the success with regard to the public
procurement market is rather very limited. Until the Tokyo Round of
Trade Negotiations which has resulted to the first effort to bring
public procurement under internationally agreed rules under the GATT
code in1996, public procurement has been deliberately omitted from
main multilateral trade rules (Mattoo, 1996). After eight rounds of
negotiation, the only achievement of the WTO with regard to public
procurement, so far, is the Agreement on Government Procurement
(GPA) which is a voluntary multilateral arrangement signed by a few
member countries to give reciprocal access among the signatories.
Developing countries consider the GPA as an arrangement skewed
towards firms of developed nations which have an asymmetrical cost
advantage over firms of their own. Thus, their involvement is very
limited and the resistance is very rigorous. Currently, as of February
2012, only 41 of the total 153 member nations had signed the GPA
and the majority (more than 90%) of them are from developed
economies. In the last five years, only 4 countries have acceded and
joined the GPA.
Furthermore, during times of crises, public procurement
liberalization agreements remain vulnerable to political opportunism.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT