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B&E
From ‘Third World’ frying pan to ‘First World’ fire!
India must lead to protect developing nations from developed world’s restrictions

On the 24th of this July, a one-sentence amendment (popularly known as the Kissel amendment) was inserted and approved in the US$ 33 billion Fiscal 2010 Energy and Water Appropriations Bill in the United States Congress, which stipulates that none of the funds under the Act may be used to purchase motor vehicles other than those manufactured by Ford, General Motors or Chrysler. In times of the global economic recession, the impact of such regulatory changes in the US is not expected to be insignificant on Indian suppliers, as India has a sunrise auto-components industry supplying high-value and critical parts to a number of automobile manufacturers worldwide, with exports to the US accounting for 26% of the total. The recent US developments built upon the “Buy American” provisions in the American Recovery and Reinvestment Act of 2009 (ARRA), will certainly affect the sharp growth rates and inroads that the Indian steel industry has been constantly making into the US construction markets for the last few years. The implementing guidance issued by the White House in April this year for the ARRA also directed executive agencies to target financial assistance to support small businesses and promote local hiring in the US, while using stimulus funds.

National security concerns with the outsourcing of IT-enabled services to India and other countries is another ground that has been frequently used to attempt the imposition of restrictions on government contracts, making it more difficult for Indian companies to participate in the US public procurement market.

Various countries in the EU have also made similar changes to their national public procurement laws and policies, with an ultimate view of promoting domestic suppliers and contractors. France, for instance, recently raised the thresholds for competitive procurement in the wake of the economic crisis, with the result that normal rules for open and transparent bidding now apply to fewer government contracts than hitherto in the past. And the biggest blow for Indian companies may be yet to come, as the EU as a whole is now seriously engaged in coming up with a small business contracting plan akin to the US preferences for small and disadvantaged businesses.

While many of these international developments could make potentially bad news for India, the rising explicit and implicit barriers within domestic government procurement markets in leading developed economies gives strong credence to many of India’s apprehensions with the manner in which international trade negotiations were conducted in the past—a situation that India can make strategic use of in the forthcoming WTO negotiations. India has already managed to get the talks on transparency in the WTO’s plurilateral Government Procurement Agreement (GPA) to be on the hold since 2004. It may, therefore, be good posturing for us in the upcoming one-to-one negotiations with the US starting later this month, and also during the informal WTO ministerial to be held in New Delhi this year, to take advantage of these visible chinks in the armour of our major international trading partners, by highlighting their increased use of domestic preferences and restrictive trade practices in government procurement.

An even more worthwhile option for India is may be to examine the desirability of entering into formal negotiations for becoming a member of the plurilateral GPA. The advantages will lie for high-value contracts in the GPA member-states, since depending upon the scheduled commitments of each member-state, Indian bidders will then be mandatorily treated on par with domestic bidders, quite unlike the present situation. At a minimum, initiating procedures for GPA-entry could be a useful, tactical signal that India can leverage to obtain more favourable negotiation outcomes in the mainstream Doha Round.

China has already initiated negotiations for entry into the GPA, and all that India may really need to do is to restructure its bid-challenge or protest system for challenging contract award decisions.

          

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