“Government Procurement Practice Affect International Trade”

Synopsis for capstone project (Dissertation 1) submitted in partial fulfillment of requirements for
Bachelor of Business Administration (Foreign Trade)

Under the guidance of:

Dr. R. Jayraj

Assistant Professor, Senior scale Department of General management (SOB)

University of Petroleum and Energy Studies

Submitted by:

MOHIT SANTLANI

SAP: 500062410

Enrollment no: R……

BB Aviation Operations 2017-2020

School of Business, UPES

 Student Declaration

I hereby declare that this submission is my own work and that, to the best of my knowledge and
belief, it contains no material previously published or written by another person nor material which
has been accepted for the award of any other degree or diploma of the university or other institute
of higher learning, except where due acknowledgment has been made in the text.

Signature of the student

MOHIT SANTLANI

SAP ID: 500062410

Enrolment Number: R……

BBA (Foreign Trade)

2019

School of Business, UPES

 Acknowledgement

This is to acknowledge with thanks the help, guidance and support that I have received during
the drafting of this synopsis for my dissertation.

At the outset, it is my duty to express my deep sense of gratitude to the UNIVERSITY OF

PETROLEUM AND ENERGY STUDIES for extending me the opportunity for undergoing
this project and providing all the necessary resources and expertise for this purpose.

I am grateful to Dr. R. Jayraj for his encouragement and cooperation. He took painstaking effort
to make my project on Impact of airline route planning on market potential, a fruitful
learning experience.

I express my sense of gratitude to our course coordinator Ms. Bharti Singh for her counsel and
inspiration that helped me in completing the report work successfully.

The task of data gathering for analysis and subsequent report generation was much eased by the
continual support from the University.

MOHIT SANTLANI

SAP ID: 500062410

Enrolment Number: R460217078

BBA (Foreign Trade)

2019

School of Business, UPES

 Table of Content

S.No Content Page No

1 Introduction 1-2

2 Literature Review 3-5

3 Research Objective 6

4 Research Design 7

5 Research Methodology 8

6 Scope of study 8

7 Bibliography 9
 1. INTRODUCTION

Behind-the-border measures have emerged as an increasingly significant factor in global trade and
efforts towards increased economic integration. These measures include the policies maintained
by states with the effect of giving preference to domestic firms over foreign firms in government
procurement contracts (also known as public procurement).The emergence of these policies has
caught the attention of trade policy makers and highlighted the gaps in the evidence base needed
for policy decisions.

Often, government procurement favors local suppliers in the domestic market. While aimed at
boosting the domestic economy, in practice, this approach can introduce market distortions that
limit choices, increase prices, and undermine economic efficiency. Increased competition from
foreign suppliers for government procurement contracts can put downward pressure on costs for
goods and services, giving taxpayer’s value for money, and provide access to goods and services
that can improve the quality of government services, all the while encouraging better allocation of
resources across the economy.

1.1 Government procurement in trade agreements

Recognizing the cost inefficiencies that restrictive government procurement can impose on
national economies, the international trade community has been working for many years to bring
government procurement under multilateral trade disciplines. The Agreement on Government
Procurement (GPA) is a plurilateral agreement, most recently updated in 2014 that sits within the
World Trade Organization (WTO) framework – meaning that some, but not all, WTO members
are signatories to the GPA.

At the heart of the WTO GPA are legally-binding rules that require signatories to establish open,
fair and transparent conditions of competition in government procurement processes for certain
areas they have agreed are covered.
In parallel, a number of regional trade agreements (RTAs) include commitments on government
procurement. By committing to observe some basic principles, such as transparency and non-
discrimination, these regional and multilateral agreements have sought to do away with some of
the preferential and discriminatory practices in traditional government procurement activities.

1.2 Better analysis for better policy outcomes

Despite this progress, information on government procurement measures at the global level is
sparse; in particular, there is a lack of data and information on the types of discriminatory
procurement measures implemented by governments. To help address this gap, the OECD has
developed a taxonomy of measures affecting government procurement that provides a
classification system for different measures, policies, and procedures that can impact cross-border
government procurement. The OECD taxonomy is not designed to pass judgment on the
legitimacy of the public policy objectives that procurement measures seek to achieve, but rather to
highlight the trade impact of the measures as one element for consideration in policy-making and
with a view to informing governments considering less trade restrictive measures to achieve the
same policy objectives.

The taxonomy can be used by countries to map and better understand the nature of their own
procurement regimes, including in relation to existing international good practice. To further assist
countries in assessing their procurement regimes, we have also mapped the taxonomy against
international good practices (the WTO Government Procurement Agreement and the UNCITRAL
Model Law on Public Procurement).
 2. LITERATURE REVIEW

The theoretical literature in government procurement is mainly concerned with trying to explain
the prevalence of favoritism in public procurement. Economists expect truly benevolent
governments to not show favoritism to domestic firms. This is because they should be sufficiently
concerned with the quality of the good or service and the benefits of this to people. Departures
from this should only occur in theory, when the procuring entity is corrupt, or is otherwise not
altruistic. Given the political sensitivity of trade in general, and lobbyists’ preference for
protectionist trade in particular, one would expect preference for domestic firms where the process
is not transparent. In academic literature on favoritism towards domestic firms, Laffont and Tirole
(1991) use the (then prevailing) theory of auction design to derive conditions where a procuring
entity (the ‘agent’ in their paper) will collude with a bidder preferentially. The mechanism that
gives rise to favoritism in their model is a cost parameter that increases for foreign firms. This
could be interpreted as political cost or perhaps a loss of government secrets. In order to limit the
effectiveness and incidence of collusion, Laffont and Tirole suggest the principle (in the case of
government procurement this would be the central government, on behalf of the public) to require
transparency either during the auction or ex post. This is in line with the general principles of the
WTO GPA. Breton and Salmon (1996) take a numeric approach; they consider that all contracts
governments have with suppliers are incomplete. This is because some part of the performance is
unverifiable to a third party. Under a set of assumptions regarding the shape of demand and supply
curves, governments will discriminate against foreign suppliers when the “expected excess costs”
of foreign suppliers are greater than local ones. These “expected excess costs” include political
costs. 2.2 Domestic bias in public procurement is harmful the harm caused by domestic bias in the
eyes of economists comes from the inefficient allocation of resources. This only occurs if the
government demand is large, no matter what the market structure is. Where government demand
is small, domestic bias is unlikely to be harmful and may be optimal given the nature of the political
economy. Trionfetti (2000) considers two broad market structures to assess whether domestic bias
in procurement is harmful: Constant Returns to Scale Perfect Competition (CRS PC) and
Increasing Returns to Scale Monopolistic Competition (IRS MC). Under the former there are many
buyers and many sellers of the good/service and no firm can charge above the market price because
all consumers will forego purchasing from that firm. Under the latter each firm has some room to
set a different price to others. This is the most common market structure in real world applications
and is often associated with product differentiation.

Firstly, in the case of CRS PC if the government demands more of a good than is produced
domestically and has a domestic bias then factors of production at home shift to produce more of
this good and imports of the good fall. This discriminatory policy changes the relative
specialization of the country to producing more of this good and reduces the volume of trade. In
the case of IRS MC it does not matter how large the government’s demand is, domestic production
will always shift and the volume of trade will always decrease. Trionfetti provides the following
numerical example and explanation: To illustrate the logic of the argument, consider a sector
characterized by IRS-MC, for instance, the electrical goods sector. Suppose that there are 50
domestic suppliers of electrical goods, a total of 100 suppliers in the world, and each supplier
produces a different variety. It is well known that, in equilibrium, all varieties will have the same
price. Let us normalize this price to $1 per unit of output. Suppose that the domestic government’s
demand is $100 and the domestic private demand is $400. Both buy all the 100 existing varieties
in the world. Suppose that the demand of the private economy and the government in the foreign
country are also $400 and $100 respectively. Domestic producers face a demand of $50 from the
domestic government, a demand of $200 from the domestic private sector, a demand of $50 from
the foreign government, and a demand of $200 from the foreign private sector. That is, a total
demand of $500. Suppose that the domestic government decides to purchase only domestic electric
goods. Domestic producers now face a total demand of $550. Notice that demand from private
sources and from the foreign government remains the same, but the demand from the domestic
government increased from $50 to $100. Consequently, domestic supply will have to increase and
foreign supply will have to decrease. In sum, regardless of the size of government demand with
respect to domestic output, home biased procurement increases domestic output and reduces
imports. (Trionfetti, 2000) Fujiwara and Long (2012) consider a dynamic game between foreign
(F) and home (H) firms competing for procurement contracts by the government. In this dynamic
game, the government is allowed to have a domestic bias and impose a tax on firms’ profits. In
addition, the foreign and home firms can lobby the government in order to win the contract. The
authors derive the steady state and dynamic equilibrium paths of each firms’ profits. In the steady
state, if government procurements are liberalized, and if the initial bias to the home firm is greater
than the relative efficiency of the foreign firm, then both firms lobby more. The equilibrium paths
include lobbying expenditure, probability of winning the procurement contract, and how this
changes when the bias towards domestic firms changes. The authors also consider welfare effects
of liberalizing trade. Under the initial assumption that there is no trade, total welfare in the model
is only the profit of the domestic firm. Liberalizing public procurement and relaxing the domestic
bias is shown to be beneficial to the home country when the gross profit of the foreign firm is
sufficiently larger than the domestic firm. This condition implies that the foreign firm is large and
efficient, while the domestic firm is not.
4. RESEARCH OBJECTIVE

To examine and to analyze government procurement practices that affect international

trade
To study the importance of transport documentation and depict its alignment on
international trade.
 5. RESEARCH DESIGN
It recognizes the run of the mill sensible model that is being used in the investigation district and
dependent on this new research question will be formed. It in like manner differentiates the social
reality and the objective reality.
Emotional examinations scan for the "why", "what", and the "how" of subject through the
examination of unstructured data by using data gathering gadgets. Discernment, singular
gatherings, notes, photos, accounts, recording the effects and cause are the instrument that goes
under abstract system for data gathering
For the finishing of this report, Descriptive Research has been utilized.

4.1 Data Sources

I took the assistance of essential and optional information as indicated by the appropriateness to
the data required to accomplish the target of the venture, which incorporates:-

5.1.1 Primary information

Essential information is gathered for exceptional reason and should be possible by phone,
individual meeting, surveys, perception and investigation.
5.1.2 Secondary information
Optional information are accumulated from articles and writing which are as of now done and are
genuinely reasonable to apply in research.

o Market pattern

o Article

o Journals

o Magazine article and other related data to finish the goal of study.

Formulation of research question

The definition of research question will be based on the perception and past investigations that are
being done on the subject and from that point the inquiry will be framed.
 6. RESEARCH METHODOLOGY
The technique for accumulation of information is subjective and quantitative.

5.1 Subjective technique

Subjective technique will be utilized for in light of the fact that it's an adaptable method for
gathering the information. It covers few cases and inside and out learning about those cases.

It recognizes the ordinary logical model that is being utilized in the examination zone and based
on this new research question will be shaped. It additionally contrasts the social reality and the
goal reality.

Subjective examinations search for the "why", "what", and the "how" of subject through the
investigation of unstructured information by utilizing information gathering instruments.
Perception, individual meetings, notes, photographs, recordings, recording the impacts and cause
are the apparatus that goes under subjective technique for information accumulation.

5.2 Quantitative information

Quantitative information dependent on implications got from numbers. Gathering result in
numerical and institutionalized information. Examinations directed using outlines and
measurements.

The information must be broke down in the wake of watching and examining the ground reality
occurring in research zone.

7. SCOPE OF THE STUDY

The scope of the study surrounds the industry pertaining to the international trade including
shipping, cargo and transportation sector.
8. BIBLIOGRAPHY

 BOOKS REFERRED :-
1. M.I.Mahajan : Export Policy,Procedures and
Documentations.
2. Justin Paul & Rajiv Aserkar : Export Import Management
3. Hand book of procedures

 COMPANY JOURNALS & MAGAZINES

 WEBSITES :-
1. www.poonawallagroups.com
2. www.seruminstitute.com
3. www.google.com
4. www.wikipedia.com
5. www.sezindia.nic.in