2013

Trade with Korea and Canada: 4. Doing busiess with Canadian and Korean governments

Living in Ottawa, the nation’s capital, it is hard to miss the government. Most of my neighbours in Orleans – suburb located in the east of Ottawa and popular among the French Canadians – get into their cars at 7:30 in the morning for a commute and will be back before 4. Graphs of GDPs and other important economic figures are important, but the city’s economy will ultimately be decided by the federal budget. In fact, the Keynesian financial crisis management brought prosperity to the city for a while, until the A word (for “Austerity”) became the new buzz-policy.

Governments are big. The fourth largest city in Canada, with population of the metropolitan more than 1.2 million, is in many aspects created by the government. Korea is no different. The move of the government entities from Seoul to Sejong city is a big deal and you only need to look at the following key words: constitutional court ruling, Wall Street Journal headline and USD $20 billion Sejong city construction budget.

For that reason, what and how governments buy is no small business. The government purchases, “government procurement”, are matters of national concern. Not only does government procurement affect the tax payers who ultimately fund the budget, but it is also a mean of governmental influence, in many times without legislative (the voters’) stamp of approval. Needless to say, the “Buy American Act” is no innocent display of patriotism. It is a mean to spur American economy by supporting domestic industries.

As you see in the example of the “Buy American Act”, international trade is also affected by procurement policies. In fact, considering the size of public budgets, governmental influence on international trade through its procurement policies is no joke. In this important matter, Korea and Canada yet again has a close relationship.

Korea and Canada are two of 15 countries that have signed WTO Government Procurement Agreement (“GPA”). Under the GPA, countries agreed to provide non-discriminatory treatment to the businesses of another signatory country and other safeguards to protect fair, open, and competitive business environment in the government procurement.

Specifically, covered government bodies generally have to make their purchases through open tenders, whereby any interested businesses may bid (there are exceptions that allow for selective and limited tendering under restricted circumstances). Under the GPA, these interested businesses include bidders from the signatory countries. In addition, the tender qualification requirements and procedures have to be fair and non-discriminatory to foreign bidders. Signatory countries must also provide means of challenging government procurement result and process, for example in Canada, through a quasi-legal challenge before the Canadian International Trade Tribunal.

There are restrictions to GPA though. For one, it only applies to the government entities listed in Annex 1, 2 and 3 of the Appendix 1 in GPA. In addition, procurements under certain threshold amount are exempt, so that Joe in Parks Canada doesn’t have to send out public tender notices to 14 signatory countries and 27 countries of EU each time he needs to buy a highlighter.  Finally, there are exempted products and services, many of which are considered particularly sensitive to the national security and identity.

See all the entities and exceptions at here.

Interestingly, GPA is not the only instrument that promotes fair and open government procurements. Under NAFTA, Canada-US Agreement on Government Procurement, and various other FTAs, Canada and its counterparts have conferred preferential treatments to one another. Korea and Canada also had one of such, called “Korea-Canada Telecommunications Equipment Agreement”. However, this agreement expired in 2005 . For this reason, Korean bidders are currently disadvantaged in a number of aspects.

Notwithstanding the lack of any bilateral agreement, the protection under GPA for Korean and Canadian companies doing business with governments of each other is extensive. In addition, there are only 15 signatory members who benefit from GPA (1 of the member, EU, acconuts for 27 countries though). “Austerity” aside, this is yet another opprtunity to build a deeper partnership between the two countries.

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