Cesar Pereira PhD, Partner at Justen, Pereira, Oliveira & Talamini (Brazil)
Rafael Wallbach Schwind PhD, Partner at Justen, Pereira, Oliveira & Talamini (Brazil)
Introduction
Brazil applied to join the World Trade Organization (WTO) Agreement on Government Procurement (GPA) in 2020, and by 2023 its accession process is ongoing. It has been the first and only Latin American country to negotiate actively its accession.[1] The GPA has been criticized for being a realm of developed countries, and scholars expect Brazil’s entry to bridge the gap and encourage other emerging economies to join this WTO plurilateral agreement.[2]
Brazil became a GPA observer in 2017. After applying to join the agreement, it made its first offer in February 2021, the second one in November 2021, and the most recent (listed as third and final) offer in June 2022. At the time of the second offer, Brazil’s government stated that “Brazil’s adhesion will promote the reduction of public spending and the improvement of the quality of government goods and services, as well as will promote Brazilian exports and foreign investments in the country”.[3]
The offers are confidential, but disclosed information indicates that there have been successive increases in SOEs (state-owned entities) and subnational entities in each new offer. As reported by the Brazilian press, Brazil’s first offer is reported to have included the opening of 6 states for the GPA and at least 42 SOEs. The second offer had 11 states. The latest had 20 states, in addition to the Federal District.[4] Considering that Brazil has a total of 26 states and the Federal District, Brazil’s offer of geographical coverage (20 out of 26 states) is broader than the one in force in the United States, for instance, with 37 out of 50 states.[5]
In addition to joining the GPA, Brazil has been taking several measures to “internationalize” its public procurement. Since 2016, Brazil has sought to sign agreements with Canada, Singapore, South Korea and, within the MERCOSUR, with the European Union, among others. This means that the Brazilian Government has adopted a policy of internationalization of public procurement that goes beyond but is consistent with its accession to the GPA.
“As reported by the Brazilian press, Brazil’s first offer is reported to have included the opening of 6 states for the GPA and at least 42 SOEs. The second offer had 11 states. The latest had 20 states, in addition to the Federal District.”
GPA and the private sector
As a public policy, the decision to join the GPA was led by the government, not by the private sector. However, the private sector contributed with opinions, as presented by the National Confederation of Industry (CNI).[6] Brazil’s government conducted a public consultation to gather information regarding the private sector’s views on the accession process. The public consultation carried out was also a means of including private initiative in the accession process.[7]
The summary of the public consultation was made publicly available by the government.[8] The public consultation focused on i) interest of foreign companies in public tenders; ii) the goods or services that are sensitive for public contracts; iii) the GPA countries and products in the procurement of which the private sector is interested in participating; iv) the barriers in foreign markets that can prevent bidders from participating in public tenders.
The private sector also conducted studies to identify its own concerns about the accession to the GPA[9]. The main concern is that the so-called “Brazil Cost” – the economic implications of tax inefficiencies and bureaucratic encumbrances – drags Brazilian companies away from competitiveness. According to CNI, 72% of the participants stated that opening the market even more to foreign suppliers will have significant impacts in their sectors. Conversely, most participants (59%) showed that facilitated access to foreign public procurement markets would have little or no impact on their business.
The main causes for that lack of competitiveness are “regulatory requirements”, “difficulties to comply with formalities or to obtain required documents”, “problems of access to information regarding biddings” and “preferential treatment to foreign [rectius, domestic] products”.
The New Government Contracts Act
In 2021, Brazil enacted a new Government Contracts Act (Law 14,133). Its rules are in line with GPA’ s fundamental principles, but some changes may be necessary as Brazil accedes to the GPA. For example, the act provides that, under equal conditions, if a tie is not broken through certain criteria set out in the act, preference will be given, successively, to the goods and services produced or provided by (i) companies located in the territory of the State or Federal District of the Public Administration body or entity that is carrying out the bidding, (ii) Brazilian companies, and (iii) companies that invest in research and technology development (R&D) in Brazil. The rules that consider the nationality of bidders or the fact that they invest in research and development of technology in Brazil for the purpose of breaking a tie do not seem compatible with the principle of non-discriminatory treatment of the GPA. After all, they amount to a discrimination among bidders based on their nationality, something that the GPA precisely seeks to rule out.
Besides, the law provides that a margin of preference may be set out for domestic manufactured goods and services that meet Brazilian technical standards, which also seems to violate the principle of non-discrimination under the GPA.
Despite some legal incompatibilities, the core of the 2021 Government Contracts Act is in line with the GPA. There will be no need for significant changes in domestic norms. Brazil has a sophisticated and robust bidding system that requires clear, objective, transparent decisions, prevents conflicts of interest and ensures due process of law in review proceedings.
The law also created a definition of international bidding, with specific rules, aiming at the participation of foreigner bidders[10], which can be seen already as a positive influence of the GPA. However, the passing of the new law and the application for GPA accession are unconnected in their origins and underlying purposes.
Among the elements of the definition of international bidding, it is worth noting that the admission of foreign companies in general is mandatory. This provision, together with the fact that the new law no longer requires formal authorization to operate in Brazil[11] as a qualification requirement, leads to the conclusion that foreign companies are no longer required to have authorization to operate in Brazil only for the purpose of participating in public tenders. Therefore, the 2021 Government Contracts Act has abolished a practical difficulty that was indeed a barrier for participation of foreign companies in public tenders in Brazil.
“…the new law no longer requires formal authorization to operate in Brazil as a qualification requirement..”.
Brazilian law allows two or more companies to join in a consortium (joint venture) to take part in public tenders. The formation of a consortium permits the companies to join their technical, economic, and financial qualifications to fulfill all the participation requirements. Every consortium must have a leading company, which is normally the one with the largest share.
There is another change that is an advance: the previous public procurement act (Law 8,666/1993) prohibited any foreign company from being the leader of a consortium in these situations. The leadership of the consortium had to be given always to the Brazilian company. This situation generated uncertainty among foreign companies because they could not lead a consortium with Brazilian companies even if they had the largest share. Law 14,133/2021 no longer forbids foreign companies from being the leaders of a consortium with Brazilian companies. Therefore, from now on, in case of a consortium between Brazilian and foreign companies, they are free to define that the leadership may be provided by the foreign company. It is also possible for a fully foreign consortium to participate even without any Brazilian partner. This is an important innovation of Law 14,133/2021, and it is in line with GPA provisions.
“Law 14,133/2021 no longer forbids foreign companies from being the leaders of a consortium with Brazilian companies.”
Brazilian legislation also requires companies to be registered with certain professional bodies (for example, in order to carry out constructions, the company must be previously registered with the Regional Board of Engineering – “CREA”). The previous legislation (Law 8,666/1993) required bidders – including foreigners – to be registered with the competent professional body as a prerequisite for participating in public tenders. However, Law 14,133/2021 permits foreign companies to apply for such registration only to sign the contract (article 67, item V). Therefore, foreign companies may take part in public tenders even without having applied for such registration yet.
There are other topics that are compatible with the GPA. For example, the bidding methods provided for in the Brazilian legislation do not conflict with GPA’s selection methods. This is because the general rule is that bidding procedures are open to all interested parties, and there are provisions for flexible auxiliary procedures. Thus, it is not necessary to redesign the procedural structure of public tenders in Brazil.
Moreover, Brazilian legislation guarantees due process of law in administrative proceedings. Besides the possibility of challenging certain acts within the scope of the bidding itself, there are a variety of other means to protest or seek administrative or judicial review, such as (i) complaints to the Public Prosecutor’s Office, (ii) complaints to the competent Court of Audit (Accountability Office), (iii) possibility of filing class actions, (iv) possibility of joining existing cases as amicus curiae, among others. This system of protests and review of acts performed in any contracting procedure is in line with GPA requirement that the parties to the GPA have a procedure for domestic review of conduct related to the contracts covered by the Agreement. It may be used for alleged violations of the GPA and domestic rules issued by the signatory parties as a means of enforcing the GPA.
Even though Brazilian law insists on national preferences, studies show that such domestic preferences have little practical effect, as shown by CNI’s study about the causes for lack of competitiveness. The barriers to foreign participation are more subtle and indirect, rather than outright prohibitions or direct favors to domestic bidders. In general, they are formal requirements for participation in public tender. These requirements ended up making this market relatively closed to the participation of foreign companies in practice, although it is defined on paper as fully open. The GPA may represent a change of perspective in this regard. Brazil has had a bureaucratic and formalistic tradition in public tender, which scholars believe can be changed by new interpretation and regulation based on the GPA.[12]
Data collected confirms the absence of foreign companies in public tenders in Brazil. Between 2011 and 2018, the Federal Government carried out public purchases in the total amount of BRL 422.6 billion (equivalent to USD 74.1 billion). From this total, only BRL 28.9 billion (USD 5.07 billion) were in contracts with foreign companies (out of 22,726 public contracts in the period)[13]. This means that only 6.83% of public purchases carried out by the Brazilian Federal Government between 2011 and 2018 were awarded to foreign companies. The Ministry of Health alone handled 88.67% of such public purchases from foreign companies.
Furthermore, Brazil is the second country with the highest number of discriminatory measures in public procurement. Only the United States has more discriminatory measures in bidding than Brazil.[14]
“…recent statements seem to signal the continuity of the government’s commitment to the internationalization of public procurement. However, they also suggest changes in positioning, especially in relation to the role of public procurement in national development.”
The participation of foreign companies is more prevalent in long-term contracts – such as concessions of public services, public-private partnerships and port leases. This relates to the fact that, in these types of contracts, the private party can normally be a Special Purpose Entity (SPE) incorporated under Brazilian law after the end of the bidding process, with the foreign bidders as its shareholders.
The Brazilian government is aware hidden barriers to foreign bidders still exist.[15] Even before Brazil’s application for GPA, it took regulatory measures to tackle this issue. For example, foreign companies became exempt from legal representation in Brazil to apply for registration as prospective federal suppliers.
In addition to addressing difficulties that affected foreign companies, Brazil’s government also realized that facilitating the participation of foreign companies in public tenders in Brazil is a tool to increase competition and the availability of better offers.
Conclusion
The enactment of new public procurement legislation around the same time of Brazil’s application to join the GPA has facilitated the accession process. Although harmonization is still needed, great advances have already been made in legislation.[16] Brazil’s negotiation efforts have been active and focused, with three offers within 18 months, all of them in around two years since Brazil first international statement of its intention to apply for GPA accession. The decision-making process regarding the conditions for Brazil’s accession to the GPA has been conducted with considerable transparency and agility. Brazil’s level of commitment is promising for its own accession process and may prompt other Latin American countries to pursue a similar path.
The Brazilian government itself recognizes that assessing the effects of accession to the GPA is extremely difficult to carry out. However, it expects that joining the GPA will generate gains on exports and imports, increase the participation of foreign suppliers in contracts public procurement, and improve the efficiency of procurement carried out by governments. Nevertheless, it also sees the possibility that the effects of the GPA may be smaller in Brazil, when compared to other countries, due to internal barriers. At the same time, it sees the possibility that the effects are greater than expected due to factors specific to Brazil, such as the current low participation of foreign suppliers in public tenders. The conclusion is that the practical effects of Brazil’s accession to the GPA depend on several internal factors, which makes it difficult to predict its impacts.[17]
The first moves and statements from Brazil’s federal administration inaugurated in 2023 were in favor of keeping the efforts to join the OECD[18] and suggest that Brazil’s drive towards the GPA may not change substantially under President Lula.
The new government administration also declared that it would seek to continue the agreement between MERCOSUR and the European Union for the internationalization of public procurement. President Lula declared that he would seek to conclude this agreement by June 2023, which demonstrates commitment and speed. At the same time, he stated that he is concerned about the terms of the agreement, especially considering that there is a relevant role for public purchases in generating growth for small and medium-sized companies.[19]
“The first moves and statements from Brazil’s federal administration inaugurated in 2023 …suggest that Brazil’s drive towards the GPA may not change substantially under President Lula.”.
These recent statements seem to signal the continuity of the government’s commitment to the internationalization of public procurement. However, they also suggest changes in positioning, especially in relation to the role of public procurement in national development.
The size and complexity of Brazil’s economy and the country’s relevance in regional arrangements such as Mercosur is expected to incentivize its regional partners to join the GPA as observers or apply for full accession.[20] It is an open opportunity for Brazil to exert its natural role of economic and institutional leadership in Latin America and advance open competition and transparent public procurement in the region.
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[1] For a comprehensive analysis of Brazil’s accession process, see PEREIRA, Cesar. SCHWIND, Rafael Wallbach. The GPA/WTO and Latin America: lessons from Brazil’s accession process, paper submitted to the University of Nottingham’s Global Revolution XI, in 2022, and accepted for publication at Public Procurement Law Review – PPLR in 2023.
[2] BUSH, Gabriel W. Bridging the Gap Between International Development and Government Contracts: Why Including the Developing World in the World Trade Organization’s Government Procurement Agreement Matters and How It Can Work. American Bar Association, Public Law Contract Section, Public Contract Law Journal, Fall 2022.
[3] Joint Press Release by the Ministry of External Relations and the Ministry of Economy – Brazil presents offer for accession to the Agreement on Government Procurement, available at https://www.gov.br/mre/en/contact-us/press-area/press-releases/joint-press-release-by-the-ministry-of-external-relations-and-the-ministry-of-economy-brazil-presents-offer-for-accession-to-the-agreement-on-government-procurement .
[4] Available at https://valor.globo.com/opiniao/assis-moreira/coluna/adesao-do-brasil-a-um-acordo-da-omc-subiu-no-telhado.ghtml (in Portuguese).
[5] Available at https://e-gpa.wto.org/en/Annex/Details?Agreement=GPA113&Party=UnitedStates&AnnexNo=2&ContentCulture=en
[6] Cf. CNI’s publication: Negociações para acessão do Brasil ao Acordo da OMC em Compras Governamentais: Posição da Indústria (https://static.portaldaindustria.com.br/media/filer_public/ca/e0/cae0bb77-0504-45fa-9c46-02cff19e4140/id_237623_a_acessao_do_brasil_ao_acg_web_1.pdf (in Portuguese).
[7] PEREIRA, Cesar. InfraDebate: Importância da Consulta Pública da Secex/ME (Circular 55) para a acessão do Brasil ao GPA/OMC – a participação do setor privado – Agência Infra, https://www.agenciainfra.com/blog/infradebate-importancia-da-consulta-publica-da-secex-me-circular-55-para-a-acessao-do-brasil-ao-gpa-omc-a-participacao-do-setor-privado/ (in Portuguese).
[8] The summary of the public consultation contributions is available at https://www.gov.br/produtividade-e-comercio-exterior/pt-br/assuntos/comercio-exterior/publicacoes-secex/outras-publicacoes/arquivos/resumo-das-contribuicoes_gpa.pdf (in Portuguese).
[9] CNI’s publication: Negociações para acessão do Brasil ao Acordo da OMC em Compras Governamentais: Posição da Indústria (https://static.portaldaindustria.com.br/media/filer_public/ca/e0/cae0bb77-0504-45fa-9c46-02cff19e4140/id_237623_a_acessao_do_brasil_ao_acg_web_1.pdf) (in Portuguese).
[10] For an in-depth analysis, see SCHWIND, Rafael Wallbach. Licitações Internacionais: Participação de estrangeiros e licitações realizadas com financiamento externo – Rafael Schwind, 3rd ed., Belo Horizonte : Fórum, 2022 (in Portuguese).
[11] This formal authorization is necessary to operate in Brazil and is granted if the applicant complies with the requirements set out in articles 1134 to 1143 of the Brazilian Civil Code (for example, nominate a legal representative in the country and deposit a certain amount of funds in a Brazilian bank account). Instead of requiring this authorization only for the formalization of the public contract or for the beginning of its execution, Law 8,666/1993 required this authorization (as a general rule) ex ante, namely for the mere participation in the public tender.[11] However, it takes months to obtain such authorization.
[12] KLEIN, Vinícius; FERNEDA, Ariê. The New Public Procurement Law and GPA Accession: A Way for Brazil to Overcome Path Dependence – Aris of Lawxley, https://arisoflawxley.com/wto-gpa-brazil-accession/the-new-public-procurement-law-and-gpa-accession-a-way-for-brazil-to-overcome-path-dependence/.
[13] According to FERREIRA, Carlos César Martins. Participação estrangeira em licitações federais: uma abordagem quantitativa utilizando Painel de Compras, 72 Revista do Serviço Público 779–802 (2021).
[14] According to KUTLINA-DIMITROVA, Zornitsa. Government procurement: data, trends and protectionist tendencies. Directorate General for Trade, European Commission, 2018, issue 3, https://trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157319.pdf.
[15] Brazil’s federal government recognizes the complexity and high level of doubts regarding the participation of foreign companies in public tenders, as shown in Participação de Empresas Estrangeiras em Licitações (https://www.gov.br/compras/pt-br/agente-publico/cadernos-de-logistica/midia/empresas-estrangeiras-em-licitacoes-publicas.pdf) (in Portuguese).
[16] The necessary harmonization, advances already made, and regulatory measures taken are analyzed in SCHWIND, Rafael. Participation of Foreign Companies in Public Tenders in Brazil and the New Brazilian Law on Public Procurement (Federal Law 14133/2021): A Big and Necessary Step Towards the WTO/GPA Accession – Aris of Lawxley, https://arisoflawxley.com/wto-gpa-brazil-accession/participation-of-foreign-companies-in-public-tenders-in-brazil-and-the-new-brazilian-law-on-public-procurement-federal-law-14133-2021-a-big-and-necessary-step-towards-the-wto-gpa-accession/.
[17] According to Acordo sobre contratações governamentais da Organização Mundial do Comércio – Análise da Adesão Brasileira, https://www.gov.br/produtividade-e-comercio-exterior/pt-br/assuntos/comercio-exterior/publicacoes-secex/serie-acordos-comerciais/arquivos/gpa-analise-adesao.pdf (in Portuguese).
[18] President Lula stated in 2023 that Brazil’s administration is still committed to joining the OECD – as shown in https://valor.globo.com/politica/noticia/2023/01/30/lula-diz-que-brasil-tem-interesse-em-participar-da-ocde-mas-no-como-pas-menor.ghtml (in Portuguese).
[19] The completeness of the statements and the context can be seen in https://agenciabrasil.ebc.com.br/politica/noticia/2023-01/lula-defende-mudancas-em-acordo-entre-uniao-europeia-e-mercosul; https://valorinveste.globo.com/mercados/brasil-e-politica/noticia/2023/01/30/lula-quer-acordo-entre-mercosul-e-ue-concluido-ate-junho-mas-com-alteracoes.ghtml (both in Portuguese).
[20] About the possible domino effect of Brazil’s accession, see BUSH, Gabriel W. Bridging the Gap Between International Development and Government Contracts: Why Including the Developing World in the World Trade Organization’s Government Procurement Agreement Matters and How It Can Work. American Bar Association, Public Law Contract Section, Public Contract Law Journal, Fall 2022.
