This study aims to conduct a quantitative study and analyze the feasibility of joining the Agreement on Government Procurement (GPA) by reviewing Korea’s export possibilities and effects of opening the domestic procurement market, thus serving as a basic resource for negotiations.
Based on the principle of non-discrimination as stated in Paragraph 8 of Article III of the General Agreement on Tariffs and Trade (GATT), government procurement has given preference to specific traders unlike regular trade activities, which has distorted the basic conditions of free trade. To correct such a distorting effect on trade, the Agreement on Government Procurement was signed in the Tokyo Round of Trade Negotiations. But the number of signatories from developing countries remains at a low level including Korea.
Due to the non-application of the GATT principle on national treatment derived from the distinctive non-commercial nature of transactions, government procurement holds similar barrier effects as subsidies since it offers various kinds of preferences to local industries. As protecting the domestic industry based on government procurement does not violate any GATT clauses, this protection carries similar effects to a tariff policy, thus increasing total employment. However, such preference only maximizes the interests of a few stakeholders instead of the entire country at a great amount of social cost. In no ways is this policy more advantageous than a tariff.
In an effort to discontinue the favoritism on government procurement, the Organization for Economic Co-operation and Development (OECD) crafted a draft on the ‘policies, procedures, practices of government procurement.’ Such initiatives from developed countries led developing countries to recognize the necessity of free trade under the MFN treatment and the provision of preference, ultimately agreeing to discuss the contents of the OECD draft at the Tokyo Round.
The procurement market for concession items of member states is a gigantic market with a volume of $43.6 billion as of 1985, while amount of procurement above the lowest limit of the total procurement approved records at $28.8 billion, sharing 66% of the total amount. Korea has applied to join the GPA three times between 1979 and 1982, but was rejected due to the inadequate items of concession and the low level of items from developed countries. At present, various items have been included in the list with the country’s increased competitiveness unlike early 80s. The expanded list is expected to make the application process for GPA to be much smoother.
Except for a few government agencies, including the Ministry of Defense and the National Railroad, most purchase their commodities through the Public Procurement Service (PPS). 14 local governments, 23 government investment organizations and reinvestment agencies, institutes and public universities purchase most daily-use commodities through PPS. It is only specialized investment organizations, including the Korean Electric Power Corporation and Korea Telecom Authority, that have their supplies self-procured. The PPS-policy of procurement includes principles of central purchasing, planned procuring, lease contracting, and bidding. Procurement is carried out in the forms of domestic procurement, foreign procurement, facility construction contracting, and stockpile management.
In order to join the GPA, the concession list of commodities should reflect as much as possible all member nations’ items of interest so long as they are deemed economically beneficial. In this regard, conducting a quantitative analysis on export possibilities and effects of market-opening holds vital significance. As such, this study attempted to analyze the economic effects of joining the agreement by analyzing export possibilities and effects of opening the Korean procurement market, and drafting the concession list of commodities, thus developing and expressing insights for Korea’s joining to the GPA.
MTN정부조달협정 가입의 경제적 효과분석(Analysis of the economic effects of joining the MTN agreement on government procurement)
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||산업연구원; KDI 국제정책대학원|