UN Flags Concerns Pandemic May Aggravate Corruption

This is an onsite edited excerpt of the G|O Briefing newsletter

"The COVID-19 crisis creates additional opportunities for corruption. Governments are spending rapidly to get economies back on track, provide emergency support, and procure medical supplies. Oversight may be weaker. And the development of vaccines and treatments adds to the risk of bribery and profiteering," remarked UN Secretary-General António Guterres on December 9, Anti-corruption Day, adding "it undermines trust in institutions, exacerbates the vast inequalities exposed by the virus ... We cannot allow stimulus funds and vital emergency resources to be diverted."

The figures are staggering. “Various studies suggest that an average of 10-25 percent of a public contract’s value may be lost to corruption,” according to the UN Office for Drugs and Crime (UNODC). "Corruption in public procurement has an enormous negative impact on government spending. These costs arise in particular because corruption in public procurement undermines competition in the market and impedes economic development,” it states.

A recent World Bank study on "Procurement for Development," concluded, "Public procurement is a crucial component of democratic governance, poverty reduction, and sustainable development." It also highlighted that governments worldwide "spend an estimated US$ 9.5 trillion in public contracts every year,” amounting to 25% of some countries’ GDPs.

"The GPA is the only international standard for government procurement," noted an EU trade official and added these standards "support the rule of law and help reduce corruption."

Beyond the COVID-19 question, a large share of these public purchases, however, remain outside the purview of transparency and international competition rules for public tenders enshrined in the World Trade Organization's (WTO) plurilateral Government Procurement Agreement (GPA) as only 48 of the WTO's 164 members are full parties and 36 are observers. The GPA is referred to by some trade diplomats as the WTO's anti-corruption agreement. When used, its effects are noticeable in ensuring the rule of law applies in procurement matters.

Overall, the WTO estimates that as a result of several rounds of talks, GPA members have opened public procurement activities worth about US$ 1.7 trillion to suppliers from GPA members offering goods, services, and construction services. WTO’s hope is to develop mutually open government procurement markets for entities at the Federal and sub-federal levels to international competition under reciprocal terms.

"The GPA is the only international standard for government procurement," noted an EU trade official and added these standards "support the rule of law and help reduce corruption."Indeed, a key clause of GPA stipulates a procuring entity shall conduct covered procurement in a transparent and impartial manner, namely using methods such as open tendering, avoiding conflicts of interest and preventing corrupt practices.

Many developing countries have, nevertheless, been reluctant to join the GPA because membership would, as one ambassador put it, "limit policy space" for national development. Others, more simply, balk at the requirements.  
As some key PGA members are raising their outlays to tackle the pandemic and to stimulate their struggling national economies while other governments do not commit to the GPA, the issue of public procurement could be a source of new trade tensions.

In late November, the US submitted a proposed modification that would remove procurement coverage of any goods deemed necessary for responding to public health emergencies, including COVID-19, as part of implementing an executive order on essential medicines, medical countermeasures, and critical inputs. Members have 45 days to contest the proposed withdrawal.

The “buy national” initiative has raised concerns among GPA members such as the European Union, and Brussels is considering filing an objection.
"The intended withdrawal could negatively affect a substantial amount of EU exports to the US ... Furthermore, this sets a negative precedent contrary to the rationale of the GPA,” an EU official told The G|O.

Concerns over “buy national” provisions, trade diplomats say, is likely to become an even bigger issue of discord, experts given the incoming US Biden administration's hard stance on procurement policies.

-JZ