Until recently, Brazil has shown little interest in the WTO Government Procurement Agreement (GPA) or foreign procurement markets. Instead, it adopted procurement policies that favored its own suppliers and created barriers to participation by foreign firms. However, recent Brazilian actions indicate its interest in participating in the international procurement arena: in 2016, it signed its first international agreement covering procurement; it is negotiating a trade pact with the European Union; and it has requested observer status in the GPA. Brazil is facilitating the opening of its procurement with the removal of a number of preferential procurement policies. This post explores Brazil’s advances into the international procurement arena and reduction of measures protecting its procurement.
On August 25, Brazil requested observer status in the WTO Committee on Government Procurement, the committee that oversees the GPA. While observer status imposes no obligations, it is often a preparatory step to seeking GPA membership. WTO Director-General Roberto Azevêdo welcomed Brazil’s August 25 request for observer status, noting that its interest in joining the GPA as an observer “shows its desire to follow closely global discussions about best practices on government procurement”. The GPA committee is expected to grant Brazil’s request at its next meeting this fall.
In 2016, Brazil and Peru signed an Agreement on Economic and Trade Expansion, which is the first international agreement to open Brazil’s procurement. It provides for reciprocal access to procurement in the two countries.
Currently, Brazil, as a founding member of Mercosur, along with Argentina, Paraguay and Uruguay, is engaged in negotiations of a trade pact with the EU. The EU-Mercosur trade talks began in 2000 but stalled; they were re-launched in 2010. The negotiations proceeded slowly until 2016, when for the first time the participants exchanged market access offers, including in public procurement.
According to Borderlex, Mercosur and the EU are aiming to complete the negotiations by the end of 2017, even though they are not expected to exchange new offers until after the German elections in late September. Reaching an agreement this year may be a heavy lift, as there are still a number of open issues, including procurement.
As illustrated most recently in its trade pacts with Canada and Japan, the EU makes strong demands of its trading partners for access to their procurement markets. As a consequence, the EU is expected to seek ambitious procurement commitments from Brazil and the other Mercosur members at both the central and sub-central levels of government.
The negotiations also provide an opportunity to address barriers to foreign firm participation in Brazil’s procurement. In reports earlier this year, both the EU, as well as the United States, identified barriers, including procurement preferences, that foreign firms face in participating in Brazilian procurement.
Brazil demonstrated its interest in opening its procurement markets when it permitted a number of procurement preferences, which were adopted in recent years, to expire. In the WTO’s 2017 review in July of Brazil’s trade policies, the Secretariat described Brazil’s expansive system of government procurement preferences, noting that some 17 decrees established preference margins, ranging from 8% to 25%, for various products. These preferences applied to procurement at all levels of government. However, in an encouraging development, all but two of these preferences expired at the end of 2016, and the remaining two in the first half of 2017.
Other restrictions on Brazil’s procurement remain. In particular, procuring entities may limit procurement to goods and services developed in Brazil and produced in accordance with a Basic Productive Process (PPB). PPB criteria are product-specific and stipulate the stages of the manufacturing process that must be carried out in Brazil. Compliance with PPB criteria is an eligibility requirement for certain public procurement in the technology and communications sector. It applies to information and communications systems defined as strategic by the government, such as a National Broadband Program.
While Brazil may not be ready to apply for GPA accession this year, its request to observe GPA proceedings is a sign of its interest in the Agreement. Moreover, its opening of its procurement market to Peru and negotiations with the EU demonstrate that it is prepared for greater engagement with the international procurement community. Brazil has reinforced its openness with the removal of a number of preferential procurement policies, which would limit foreign firms’ access to its procurement markets. This approach is a welcome alternative to the Trump Administration’s strong embrace of “buy American” policies.
Jean Heilman Grier
September 5, 2017
[Note: Revised to add information on Brazil-Peru agreement, Sept. 6, 2017]