While India is still struggling to come with a WTO compliant local content program , many countries, USA, Europe, Japan etc found a way to strategically use public procurement for promoting local innovations.

1. PUBLIC PROCUREMENT OF
INNOVATION
A.S.Rao
motguru.com

3. GPA (Agreement on Government
Procurement)
The GPA (Agreement on Government Procurement)
is a plurilateral agreement within the framework of
the WTO, meaning that not all WTO members are
parties to the Agreement. At present, the
Agreement has 20 parties comprising 48 WTO
members. Another 34 WTO members/observers
participate in the GPA Committee as observers. Out
of these, 9 members are in the process of acceding
to the Agreement. The fundamental aim of the GPA
is to mutually open government procurement
markets among its parties.

4. Public procurement
Public procurement is defined by the OECD as the
purchase by governments and state-owned
enterprises of goods and services. Even though the
primary objective of public procurement is to
provide public administrations with goods and
services necessary for performing and delivering
public services, governments and other public
authorities have been also using their purchasing
power to achieve a number of additional economic
and social goals. Its specific inclusion into national
and regional innovation policy mixes have only
recently gained a renewed interest and impetus.

5. Amtrak-USA
US regulations requires Amtrak to buy only ‘(A)
unmanufactured articles, material, and supplies
mined or produced in the US; or (B)
manufactured articles, material, and supplies
manufactured in the US substantially from
articles, material, and supplies mined, produced,
or manufactured in the US’ when the cost of
those articles, material or supplies bought is at
least USD 1,000,000.

6. The Buy American Act
Typically applies when the federal government is
directly purchasing products or materials or a
federal building or facility is being constructed
(such as US highways, federal prisons, etc.)
Domestic Requirement: Requires 51% of the
components of the final product to be made in
the US.

7. Local content stipulation in Public
Procurement
Even though most local content measures thus run
into conflict with the substantive obligations under
Article III of the GATT (and the TRIMs Agreement),
several governments apparently considered them
justified as measures of government procurement.
Government procurement is regulated by the
plurilateral Agreement on Government
Procurement (GPA). Government procurement is
also exempt from the normal obligations relating to
State Trading Enterprises (STEs).

8. LICENSING
The precise amount of local content the licensee
has to use can be determined in several ways. It can
be fixed by law, as is commonly the case in cultural
content requirements, or it can be part of the offer
of the licensor itself. broadcasting stations need to
apply for broadcasting licenses or mining
businesses for mining permits almost everywhere.
Other licensing requirements are less common and
are not required for all relevant activities, such as
licenses for importers or investors.

9. Permission for Investment
Recognizing that foreigners had started to acquire control
of Canadian companies, Canada enacted the ‘Foreign
Investment Review Act’ in 1973. The Act intended to
submit the acquisition of control of a Canadian business
(or establishment of a new business) by a foreigner to a
review to assess whether the investment was ‘of
significant benefit to Canada’. The effect of the
investment on economic activity in Canada, such as the
utilization of parts, components and services produced in
Canada and on Canadian exports were to be a factor in
the assessment whether it was of such benefit.

10. Feed-in Tariffs
FIT programmes give countries means to require the use
of local content by conditioning the benefit granted by
the programme on using local content. Ontario’s FIT
programme – recently held to be in violation of Canada’s
WTO obligations by the WTO Appellate Body – provides
an example. To participate in Ontario’s FIT programme
offering twenty- or forty-year contracts, wind power
projects with a capacity to produce electricity greater
than 10 kW and solar photovoltaic projects with a
capacity of up to 10 MW need to include a minimum
amount of domestic goods and services in the
development and construction of the facility.

11. GPA, MFN, FTA
Economically weaker countries expressed the view
that GPA dilutes MFN (Most Favoured Nation)
principle. Under GPA reciprocity conditions are
attached to every element of market access
commitments: thresholds, entities, goods and
services and even small business programs. GPA
parties in Europe, led by the European Union, apply
the greater share of the reciprocal conditions. The
GPA reciprocity restrictions provide leverage for the
negotiation of procurement commitments in
bilateral agreements outside the WTO.

12. Public procurement of Innovation (PPI)
The use of public procurement as an innovation
policy instrument is encouraged at the
international level. For instance, the OECD
highlights its positive impact and sets the
objective “to leverage public procurement to
foster innovation” in its innovation strategy. The
European Commission is particularly active in
the promotion of public procurement of
innovation (PPI) as well.

13. PP - PPI
Public procurement refers to the purchase of goods
and services by a public agency. In the case of
regular procurement, public agencies buy ready-
made products ‘off the shelf’, and normally no
innovations are the result of the public
intervention.
Public procurement for innovation (PPI) occurs
when a public organization places an order for the
fulfilment of certain functions (that are not met at
the moment of the order or call) within a
reasonable period of time through a new or
improved product.

14. PPI Modes & Practices
• Innovation requirements in tenders
• Early interaction with procuring organisation
• Outcome-based specifications
• Advanced communication of future needs
• Emphasis on sustainability criteria
• Full life-cycle costing considerations
• Competitive dialogue
• Incentive contracts such as profit-sharing
arrangements
• Negotiated tender
• Open competitive tender
• Framework agreement

15. Innovation procurement targets
The adoption of targets for innovation
procurement has been suggested and
considered across a number of countries as a
possible mechanism for encouraging contracting
authorities to promote innovation in the
economy while pursuing their primary goals.
These targets are in most cases indicative and
non-binding.

16. Forward Commitment Procurement
The Forward Commitment Procurement (FCP) is a
Public Procurement of Innovation (PPI)
methodology. It was specifically designed to both
provide a practical methodology for procurers to
follow and to manage the perceived risk of the
customer and supplier in innovation investments.
FCP is an innovation procurement methodology first
developed and demonstrated in the UK. It is a
practical methodology for public sector customers,
which was specifically designed to manage risks in
buying innovative solutions.

17. Inducement prizes
Inducement prize contests require additional effort
by contestants, directly related to the achievement
of a clearly specified objective, if they hope to win
the prize. Contestants for inducement prizes must
actively compete for the prize by investing
additional time and resources to meet the
objectives of the contest. To attract contestants,
inducement prize contests must offer a prize or
reward valuable enough, as well as a probability of
winning high enough, for contestants to risk the
costs of participating in the contest.

18. Key challenges in public procurement
1. Lack of skills and know-how on innovation
public procurement.
2. Lack of comprehensive strategies to
manage and share risk in innovation public
procurement.
3. Lack of transparency of the market.
4. Poor use of procurement procedures
favourable for innovation.
5. Insufficient size of demand of the
procurement market.

19. Further reading.