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Public procurement in the Belt and Road Initiative

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04th-Jan-2019       
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Tania Ghossein :
For all the attention the trillion-dollar Belt and Road Initiative receives, there is remarkably little reliable information about the procurement practices that are used to award BRI projects such as ports, roads and railways. When it comes to public procurement of BRI-related contracts, two questions arise. First, how does procurement work-who gets contracts and on what basis? Second, to what extent do the procurement practices applied in BRI projects align with international good practices and differ from ones used in national procurement tenders?
How Does BRI procurement work?
Overall, there is very little data on how BRI procurement works. However, as covered in a new working paper from the World Bank Group, the limited available evidence suggests that Chinese companies account for the majority of BRI-procurement. According to the Centre for Strategic and International Studies, more than 60% of Chinese-funded projects have been awarded to Chinese firms, compared to only 30% in BRI projects funded by non-Chinese financial institutions.
China is certainly not alone in the practice of awarding contracts to its own firms, but many countries have agreed that in the development finance context, this is not a good practice. This is reflected in the 2005 Paris Declaration on Aid Effectiveness, which calls on donor countries to move away from tying aid to sourcing goods and services from national firms. Instead, donors should rely on in-country resources and create a level playing field for all suppliers, regardless of their ownership or nationality.  A similar decision by China with regard to the BRI would provide greater assurance that BRI procurement awards go to the firms best placed to execute a project. Given the competitive strengths demonstrated by Chinese companies in procurement contests around the world, this may not in practice result in a major shift in the share of contracts going to Chinese firms. But, it would provide greater assurance that winning firms are in fact those that have put forward the strongest bids.
Is BRI procurement aligned with good practices?
The new World Bank Group research further shows that procurement practices used for BRI projects could be further aligned with procurement provisions that BRI countries have made in their preferential trade agreements (PTAs) and international standards embodied in the WTO's plurilateral Agreement on Government Procurement (GPA).
One example where procurement practices could be better aligned relates to transparency. The process used to select contractors for high-value projects in the China Pakistan Economic Corridor (CPEC) were not made public. Procurement was restricted to a limited number of Chinese contractors. We know that nominated contractors influenced the bidding process because bidding documents were changed after the fact by addenda. But, it impossible to evaluate the overall fairness of this process or to determine whether or not collusive practices occurred because it lacked transparency.
Moving towards international good practices can help host governments achieve best value for money in BRI projects. Such provisions would also increase the prospects that BRI projects are allocated to firms best placed to implement them and provide a mechanism to promote competition between firms interested in participating in procurement opportunities.
How to move forward
It would be of benefit to all parties participating in the BRI to have better information about the public procurement processes associated with BRI projects. Efforts to improve procurement practices in BRI projects can follow three tracks. One involves action by China. The other involves actions by hosts (BRI partner countries). The third has a multilateral dimension, using international agreements as a mechanism to apply a set of jointly agreed public procurement processes for BRI projects. Whether governments are willing to take action is for them to determine. Suggestions highlighted here are simply intended to sketch out possible paths that could be pursued.
Focusing on what China might do, the most straightforward path would be a unilateral decision that BRI projects financed by public Chinese entities would utilize international good practices on competition and transparency. Examples of such practices could be for China to require international competitive bidding (ICB) in the award of BRI projects above a certain value threshold; and for BRI host countries to demand that open, transparent competition be the basis for engagement in BRI projects. Another option would be for BRI projects above a threshold to be awarded through open national competition among Chinese companies, including foreign-invested enterprises.
Turning to the second path, borrowing countries can consider options to make BRI procurement processes more inclusive and competitive. They can seek to apply national procurement laws to BRI procurement, negotiate offsets or set local content targets for BRI projects for which they borrow.
The third option is to consider multilateral cooperation among BRI countries. Accession to the GPA is perhaps the most straightforward step that is available to China and its BRI partners. Since only one-third of BRI economies are GPA members, acceding to the GPA would also level the playing field in terms of participation in bidding for contracts, in part by offering foreign firms the opportunity to challenge BRI procurement processes that violate GPA provisions.  Further, the GPA provides a strong basis for transparency, embodies a set of rules that are generally regarded as constituting international good practice, and provides a platform for resolving disputes on procurement practices.
(Co-authors: Bernard Hoekman and Anirudh Shingal. From World Bank Blog).

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