New regulation by the Chinese government requires vendors to gain accreditation for their products and once accredited, they can be included in the government’s procurement catalog of products (known as -indigenous innovation).  If a company/vendor is not accredited, they can still sell their products to government agencies, though they do not get priority over those in the catalog.  The deadline for companies to apply for accreditation was last Thursday, however most industry groups did not hear of the regulation until well into the month of November.  Did China have a motivation for keeping this important regulatory policy hush- hush for days, if not for weeks-on-end? Many believe China acted this way in response to the US government’s recent regulations to boost their own economy, through the stimulus funds approved by congress earlier this year.

China is not the only country that is using procurement policies to their benefit, as the US and the EU have engaged in the same kind of policies to boost their stifling economies. As part of the ARRA (American Recovery and Reinvestment Act) of 2009, mandates for steel, iron and manufactured goods were put in place, making it illegal for these goods to be produced outside US, so long as the goods are produced for ARRA public buildings/projects. This stipulation on goods will continue to have an effect on US suppliers, like those of India and China. In particular, India’s steel industry has seen significant growth within US markets, particularly within the automobile industry, however this regulation will negatively impact that growth; likely even cause a decline in the industry’s profits over the long run.

Other types of ARRA funds were directed at US small businesses to stimulate their growth. The funds support the hiring of local employees to small American businesses while also implementing compliance norms on ethics for sub-contractors performing work outside the US. The hiring of local employees and the implementation of compliance norms will undoubtedly have an effect on Indian companies, costing them more money, but to what extent?

The EU is working on a similar plan to support its own small businesses, which will undoubtedly have a similar affect on India’s economy, as well as the economies of other nations. The Agreement on Government Procurement (GPA) is the only legally binding agreement in the WTO focusing on government procurement. Since India is currently not a part of the GPA, it would be in the country’s best interest to become part of it. China is one step ahead of India, already initiating negotiations for entry to the GPA.

Entry into the GPA can have remarkable benefits for both China and India’s economic recovery. International trade negotiations as well as general WTO negotiations can be made with other GPA member nations, essentially valuing all GPA members as if they were domestic bidders in the procurement process. Indian suppliers would be bidding right along with domestic ones, increasing the value of those goods and services since they can be purchased at the same price.

Both the US and EU have implemented regulations to boost small businesses; but will India’s government do the same? While it is negotiating its entry into the GPA, India’s government could benefit from a similar type of implementation; one that encourages small to medium sized companies to focus on research, development and technological innovation. If both the US and EU are encouraging growth within their own economies, it is time for India to follow suit. Just as developed countries have implemented regulations to boost their own economies, India should be as concerned about its own. Entry into the GPA, as well as India’s government implementation of a Small Business Act to support its own small business owners, could have a profound effect on not only the economy of India but also its relations with the rest of the world; namely members of the WTO and GPA.