Flawed premises in US Trade Representative report

Assessment of Indian govt procurement norms is not only astonishingly one-sided, but also riddled with factual omissions

A recent report from the office of the US Trade Representative (USTR) is a good lesson in how not to go about such an exercise.

Titled ‘National trade estimate on foreign trade barriers in India’, it is a defective assessment of Indian government procurement. It fails to acknowledge that US procurement regulations are far more subjective, protectionist and prone to abuse as compared to the Indian one. It begins by stating that India lacks an over- arching government procurement policy and, so, the procedures vary at the state and central levels, and by ministry. In comparison, the US has a single Federal Acquisition Regulation (FAR).

Yet, the US also has procurement policies and procedures that vary among states — any federal constitution, by its very nature, needs to respect the subject- matter separation of legislative and executive authority among central and state governments. The USTR report could, therefore, appear to have issues with India’s Constitution itself.

The report also fails to mention that all US government departments are allowed their own subsidiary rules, called the ‘FAR Supplements’. And, so, does not explain why Indian government departments should not enjoy similar flexibility, on subsidiary rules suited to the specific departmental programmes.

It then jumps to another perverse finding, that foreign enterprises are disadvantaged in India when competing for government contracts, due to preference for state-owned enterprises (PSUs, as we know these). The factual position is completely the reverse; it is US public procurement markets which are closed to Indian enterprises wanting to compete as prime contractors. And, Indian purchase preference policies for PSUs have been virtually discontinued after a Supreme Court judgment of 2007.

A research report by the Indian Institute of Foreign Trade last year revealed the annual share of Indian supplies and services in US government procurement was merely $450 million (of which the directly contracted amount, by this author’s estimate, could be as small as $ 10 mn). In comparison, India’s annual direct government procurement from US sources could be as high as $2 billion.

Indian entities find it has become increasingly impossible for them to partner even as subcontractors to US prime contractors.

Higher differential taxes have been imposed on Indian- origin supplies and services forming part of final deliveries. Entry barriers have been imposed on Indian suppliers in the form of policy preferences for local (American) job generation.

And, tenders have begun to explicitly forbid any offshoring of contract portions.

The report criticises Indian policies for according even a bare minimum protection to Indian MSMEs (public procurement of chutneys, bread, safety matches, pickles, wax candles, fireworks and so on), when US government contracts below certain thresholds (that can be as high as $ 500,000) are mandatorily set aside for American small businesses, irrespective of the nature of supplies or services procured.

The report also casts aspersions on India’s policies requiring 30 per cent offsets in defence procurement and minimum domestic content in certain high- tech procurements under the 2011 National Manufacturing Policy. Yet, even basic products procured by the US government need to have 50 per cent American content in terms of the ‘ Buy American’ Act. Also, most US high- tech and defence procurement policies effectively require 100 per cent manufacturing within the country.

The report then casts aspersions on Indian policy makers by suggesting their initial drafts of the (Indian) Public Procurement Bill deviated from international practices set out in the World Trade Organization’s (plurilateral) GPA, conveniently ignoring that the GPA is merely a compromise agreement among a handful of developed countries. In fact, the language of the Indian Bill might lead to a situation where international bidders could access Indian government contracts as a matter of legal right, when similar rights are unavailable to Indian companies bidding for government contracts in the US or, for that matter, to Indian bidders in almost all other GPA member states.

For anyone with a rudimentary knowledge of US government procurement policies, it is evident that the USTR Report is bereft of any substantive merit. Its fundamental premises and findings are defective, to the point of being shallow and rhetorical. This is particularly surprising, given the vast amount and exchange of public information on government procurement policies and statistics.

In sum, the government in India should register serious objections to the USTR assessment, factual and analytical.

(The author is an expert in government procurement laws. Views expressed are personal and academic)