WTO Agreement on Government Procurement Possible by December

BRIDGES 20th October 2010

A deal that would liberalise access to billions of dollars worth of public procurement contracts among over forty WTO members is within reach by the end of the year. However, it remains unclear whether China will become part of the optional scheme in the foreseeable future; major trading powers like the US and the EU want China to join, but not on the terms Beijing has offered thus far.

At the top of the The WTO government procurement committee’s agenda are two issues, neither of which are linked to the WTO’s struggling Doha Round talks: revising the Agreement on Government Procurement (GPA), a plurilateral WTO accord that has since 1996 opened up access to several types of public tenders to companies from all participating countries; and negotiating the accession to the GPA of several WTO members, most significantly China.

Government agencies’ procurement of goods and services tends to account for 10 to 20 percent of national GDP. Joining the GPA requires governments to give up the ability to direct certain types of public purchases to domestic firms - traditionally a much-used lever for promoting particular economic sectors (albeit one that has been vulnerable to abuse, at increased cost to taxpayers). In return, their companies receive access to the types of public tenders covered by the GPA in all countries that are party to it.

But not all types of public procurement are covered by the GPA. When the 41 WTO members covered by the agreement signed up to it (the figure includes all 27 member states of the EU), each made a detailed offer describing which types of public purchases of goods and services would be open to competition from other GPA signatories. These offers spelled out which ministries would be covered, monetary thresholds below which GPA obligations would not apply, and exceptions. For instance, the US excludes food aid from its commitments, enabling it to direct such purchases exclusively to domestic suppliers; it also has exceptions for the purchase of construction-grade steel and programmes to support veteran soldiers. Sub-central entities like state and provincial governments are often (but not always) subject to disciplines under the GPA, but tend to have greater latitude to source locally than central governments.

The present GPA and its commitments were negotiated in the Uruguay Round. These negotiations achieved a 10-fold expansion of coverage, extending international competition to include national and local government entities whose collective purchases are worth several hundred billion dollars each year. The new agreement also extends coverage to services (including construction services), procurement at the sub-central level (for example, states, provinces, departments and prefectures), and procurement by public utilities. The new agreement took effect on 1 January 1996.

It also reinforces rules guaranteeing fair and non-discriminatory conditions of international competition. For example, governments will be required to put in place domestic procedures by which aggrieved private bidders can challenge procurement decisions and obtain redress in the event such decisions were made inconsistently with the rules of the agreement.

See full article here. Other resources on the GPA can be found here.

Growth in the African Skies

With air traffic between the United States and Africa growing at more than 5 percent annually, the US based carrier Delta Airlines has increased flights to the continent in response to strong customer demand. Africa is home to 12% of the world’s people, but it accounts for less than 1% of the global air service market. Part of the reason for Africa’s under-served status, according to a just-published World Bank study, Open Skies for Africa – Implementing the Yamoussoukro Decision, is that many African countries restrict their air services markets to protect the share held by state-owned air carriers. 

According to Delta Airlines as well, there has been an underserved U.S.-Africa demand for many years that historically did not have many options for service other than circuitous routings through Europe. Delta began to fill that void in 2006 by introducing the  service to Johannesburg from Atlanta via Dakar- a flight that operates nonstop and has been very successful. Since then Delta has been expanding its footprint in the region.

In the EAC Region, players in the aviation sector have also witnessed growing business opportunities especially with the coming into force of the East African Common Market. The East African region initiated an open skies agreement in 2006 when the EAC Partner States undertook the implementation of Yamoussoukro Decision on the liberalization of air transport in the region. The framework for liberalization is progressing, however, despite slow liberalization of the regional airspace, airlines have been pushing their governments to negotiate for landing rights. Meanwhile, the region has discussed and passed the Civil Aviation Safety Standards Oversight Agency (CASSOA) Bill, which will harmonize aviation safety and training standards- thereby seeing to safer EAC skies.

For local cargo carriers operating in the region, Tanzania has been a major destination mainly driven by the mining industry since a substantial amount of mining cargo is moved by air from the country.  With commodity prices on the rise, demand for minerals has increased leading to more demand for air services. In addition, the boom in tourism has seen a rise in business on the Zanzibar route and to Juba which relies heavily on imports, thus creating an opportunity for cargo services. Additionally, as the capital city of Southern Sudan emerges from 21 years of civil unrest, it has become an attractive investment destination, making it new ground for business in the region. 

Delta Airlines has also attributed the growth in Africa's aviation industry to three key factors: strong economic growth across the African continent, the large number of African-born American citizens who are now traveling back and forth to Africa on personal and business travel, and increased investment in the continent’s oil and natural resource industries. Despite restrictions in Africa's aviation market, in July 2007, Delta had 97 departures to Africa from the U.S but by July 2010, they had 320 flights, hence they tripled in size in three years. 

The Yamoussoukro Decision of 1999, named after the Ivorian city in which it was agreed, commits its 44 signatory African countries to deregulate air services, and promote regional air markets open to transnational competition. In 2000, the Decision was endorsed by head of states and governments at the Organization of African Unity, and became fully binding in 2002.  In general terms, the Yamoussoukro Decision calls for:

• Full liberalization of intra-African air transport services in terms of access, capacity, frequency, and tariffs
• Free exercise of first, second, third, fourth and fifth freedom rights for passenger and freight air services by eligible airlines (These rights, granted by most international air service agreements, enable, among others, non-national carriers to land in a state and take on traffic coming from or destined for a third state.)
• Liberalized tariffs and fair competition
• Compliance with established ICAO safety standards and recommended practices

Open Skies for Africa’s recommendation is for African states to implement the Yamoussoukro Decision which applies to all its signatories, but especially mentions those that have not signed or properly ratified it, namely: Djibouti, Equatorial Guinea, Eritrea, Gabon, Madagascar, Mauritania, Morocco, Somalia, South Africa, and Swaziland.

Meanwhile at the WTO level, the General Agreement on Trade in Services (GATS) Annex on Air Transport Services, excludes the liberalization of traffic rights and services directly related to the exercise of traffic rights. However the GATS addresses measures affecting aircraft repair and maintenance services; selling and marketing of air services and computer reservation services. 

The EC EPA Text (2009 version) includes the later elements as well however the EPA Text also extends the scope of air services covered by the Agreement, to include: other ancillary services that facilitate operation of air carriers such as ground handling services, rental services of aircrafts with crew and airport management services.

Africa's Energy Infrastructure

Africa's 5 power pools are well illustrated in the 2010 Energy Atlas. The Energy Atlas also shows the current energy projects in the continent including the % of population with access to power. Despite various efforts to generate increased renewable and non renewable energy, Africa is the only continent estimated to generate less power than demand necessitates, in the next few decades.  

                                               Click to enlarge

Source: Africa Energy

The Rise of China and Implications for Dominance, Development and Aid

Interesting piece on the Rise of China and Implications for Developing Countries. 

There is a need to digest new avenues of thought such as: "China challenges the pre-existing dominance of the OECD countries (Organisation for Economic Cooperation and Development)".

On development and aid "the rise of China requires a rethinking of development theory and rethinking of traditional donor practices".

China and the US: The World's Largest Economies

China is expected to surpass the US as the world's largest economy by 2025. This is unsurprising given China has maintained about four times the US growth rate and population, which currently consists of approximately six times the US labour force. Additionally, China's exports to the US already quadruple US exports to China.  China surpassed Japan this year to take its place as the world's second largest economy. 

Click to Enlarge.

 Source: Reuters

Nationalisation of SA's Mining Sector Ruled out

All Africa 24th September 2010

South Africa is among the world's largest producers of gold, platinum and chromium, having reaped thirty-two billion euros in 2008 alone from its mining industry.

South African president Jacob Zuma ruled out the nationalisation of the country's mining sector as he closed a tense congress of the ruling party in Durban.

The week-long ANC National General Council was marked by fiery speeches and calls by the the party's left for the state take-over of the the economy's largest export sector.

Nevertheless, Zuma assured the 3,000 delegates that the ANC regards South Africa's minerals and petroleum as strategic national assets over which the state would retain custodianship.

China Embargoes Natural Resources but Not Semi Processed Alloys

Interesting piece along the lines of a previous post on proposed export ban on natural resources.

China has overtaken Japan and is now the world's second largest economy and Japan’s number-one trading partner. China also mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths. 

In a recent spat however, the Chinese government reportedly blocked exports and shipments to Japan, of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles, sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, who was subsequently released.

However no discriminatory ban was imposed on the export to Japan, of semi-processed alloys that combine rare earths with other materials. China has been trying to expand its alloy industry to create higher-paying jobs in mining areas, instead of exporting raw materials for initial processing. 

Legality?

Publication of government regulations or other official pronouncements barring exports from China would reportedly allow Japan to file an immediate complaint with the World Trade Organization, claiming a violation of free trade rules. But an administrative halt to exports, by preventing the loading of rare earths on ships bound for Japan, is much harder to challenge at the W.T.O. This is possibly because there is no formal directive.

On general export controls, the Japanese media has also reported that China has repeatedly rejected Japan's requests for Beijing to consider lifting its export controls on rare earth material. Beijing has cited national security concerns and the protection of natural resources for its export restrictions. It has also argued that the export controls do not violate World Trade Organization rules. Chinese officials also pointed out that there are other countries that export rare earth minerals and that Japan should diversify its sources. 

Natural Resource Stabilization Funds in Latin America

According to the 2010 World Bank report "Natural Resources in Latin America and the Caribbean: Beyond Booms and Bust?", the current commodity bonanza, if managed wisely, can propel Latin America to rich-world growth levels, contradicting the long-held view that commodities are a curse to a country’s development. Is there something for Africa to learn?

The Report indicates that Latin American countries are increasingly savvier with commodities, implying that Latin America may be breaking the “natural resource curse” – a huge deal for a region where similar to Africa, 93 percent of the population and 97 percent of economic activity is in countries that are net commodity exporters.  For instance, in 2008, commodity exports for the seven largest economies in LAC reached a high of nearly US$400 billion. This accounted for just over half of overall exports (52 percent). In the Southern Cone of the region (Argentina, Uruguay, Paraguay, and Southern Brazil) the share of agriculture related exports represents more than 50% of total exports, as an average.

The commodity boom seems to working in South America because those countries that are rich in natural resources are being smarter in the way they manage their income.  For instance, Chile’s copper stabilization fund is a good example of wisely managing a commodity boom. By saving the proceeds of its copper windfall during good times Chile has been able to maintain its social programs and invest in new industries during lean times. Chile even used part of the stabilization fund to finance the country’s reconstruction following its February 27 earthquake. Other commodity-exporting countries such as Peru, Colombia and Brazil, which are following responsible economic policies, may be following Chile's steps. 

The report further argues that well-designed natural resource stabilization or long term savings funds could help the region deal with revenue instability and wealth preservation. Of five countries that began the boom in 2002 with stabilization funds or similar fiscal arrangements, Chile and Trinidad and Tobago ended it with significant savings to be able to finance a counter cyclical response to the downturn. The Report however warns that many stabilization funds have failed because it is hard to resist political pressure to spend unduly during the boom. 

Along similar lines, a recent report indicates that Ghana is expected to adopt the Norwegian model for managing petroleum revenue. The Government has also presented Parliament with a Petroleum Revenue Management Bill, drafted along the lines of the Norwegian model, which  divides petroleum revenue into three modules; Budget, Heritage and Stabilization Funds, aimed at preventing volatility shock in the market whilst promoting budget stability and continuity in government expenditures.  The Heritage Fund will ensure intergenerational equity because of the finite nature of resource revenue which compels some governments to save windfall revenues for future generation. The Stabilization Fund on the other hand would be used to mitigate volatile situations that might arise in future.

Herein lies the lesson and the solution for Africa. good governance, political stability. If Latin America can do it, so can we. Ghana seems to be on the right track.

Need for Capacity for Value Addition in Natural Resources

We need to build capacity in Africa in order to add value to natural resources. 

In a recent post, we discussed a proposal from African countries to ban exports of natural resources. Tanzania reportedly has in place a ban on the export of raw gemstones. However, in a recent news piece, the Tanzania Government Ministry of Minerals and Energy has proposed to lift the ban on exports of gem stones with a weight of over one gram, due to lack of local capacity to cut stones, stating "as there is no point of people staying with uncut stones while there is no capacity."

The Ministry's Commissioner for Minerals, Dr Peter Kafumu, also stated that the government move was propelled by the fact that the lapidary is still at infant stage and exporters need additional time. He also added "In actual fact we were not ready when we imposed the ban. I think politicians pushed us a bit harder."

It is interesting to note that investors such as TanzaniteOne are pushing for exemption from the export ban while the labour market opposes lifting of the ban, which could reduce employment opportunities locally. What is Government to do?

Discouraging Exports of Raw Materials

Delegates at a recent meeting proposed that Africa should ban or discourage exports of raw materials to developed countries. Instead these resources should be developed and added value locally. The AU commission may be requesting Presidents to put their political weight behind such a proposal ahead of the 3rd Africa-Europe Summit in November in Libya.

Indeed such an approach would put local content and value addition policy at the heart of Africa's development plans. Local content is where foreign companies are obliged to procure a percentage of labour, goods and services from the host country. Norway pioneered it. See related post on the Norwegian case study. Brazil, a rising oil giant, is using it.

Two questions to ask are: how many African countries currently have the regulatory, investment and governance environment necessary to efficiently manage and add value to natural resources?  Additionally are there legal agreements- regional or bilateral including other barriers that would prohibit such an approach at a national level?

The WTO dimension.

Tariff escalation in developed countries e.g. in fuels, forestry and mining sectors would continue to be a concern. Non tariff barriers e.g. technical regulations, import licensing and prohibitions in value added products would also be prohibitive.

WTO rules (e.g. GATT Articles I, III, XI, XIII) would ordinarily not permit a WTO Member to undertake a legal measure to ban or discourage exports, even for reasons of poverty. It may be possible to use export taxes especially where natural resources dominate an economy. However there are proposals and/or disputes in the WTO and EPAs seeking to phase them out. There could also be possibilities for developmental flexibility for the economic development of LDCs. GATT Article XI:2 also provides an exception to the ban of export restrictions to prevent critical shortages. In addition, general exceptional measures found in GATT Article XX, could be relevant. These include measures:

XX (g) for the conservation of exhaustible natural resources. However measures taken pursuant to this provision, would need to be implemented in conjunction with restrictions on domestic production or consumption. This is therefore a two part legal requirement- a need to show conservation of exhaustible resources such as fossil fuels and metallic ores and restrictions on domestic production. However even renewable resources can be exhausted if over-traded or mismanaged hence export restrictions may be necessary.

XX (i) involving restrictions of exports of domestic materials necessary to ensure essential quantities of such materials to a domestic processing plant during periods when the domestic price of such materials is held below world price as part of a government stabilisation programme. This is a periodic measure applicable specifically to export restrictions undertaken to ensure sufficient quantities for domestic processing, specifically when domestic price is below world price and as part of an internal price stabilisation scheme. Given the extreme price volatility of certain natural resources, this provision maybe relevant however the precise requirements require dual pricing mechanisms. 

XX (j) essential to the acquisition of products in general or local short supply. However such measures must be consistent with the principle that all members are entitled to an equitable share of the international supply of such products.

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Daily Monitor Uganda

Participants at a meeting of the African Union’s Trade and Industry Commission yesterday proposed that the continent adopts policies to discourage the export of raw materials to the developed world.

During a media briefing at Munyonyo, Kampala, Ms Elizabeth Tankeu, the Trade and Industry Commissioner, said: “We have been exporting our raw materials to Europe since the colonial times when the Europeans came to Africa. They still come here for our resources but we have remained the poorest continent”.

“The European Union through its Economic Partnership Agreements wants Africa to trade with them at zero per cent tariffs. They say they want reciprocal trade. But we are saying Africa still needs a lot in place for reciprocation to begin. We’re telling them we are not going to continue exporting raw materials.”

More here.