Sustainable Public Procurement Policies on Promoting Scientific and Technological Innovation: A country-specific review

By Yun Liu

Sustainable Public Procurement Policies on Promoting Scientific and Technological Innovation: A country-specific review

In many countries, sustainable public procurement is a powerful tool to reflect on national strategic intentions and promote scientific and technological innovation. It is also an important policy to support domestic enterprises’ innovation and development from the demand side. In China, PP means government procurement. As an effective system to promote S&T innovation, the role of PP policy has been widely recognized. In China’s import and export trade in November 2016, the top three countries or regions were the European Union (EU), the U.S., and the Association of Southeast Asian Nations (ASEAN). Germany, the UK, and France are the top three countries in the EU, Japan and South Korea are the top two countries in ASEAN. This article chooses the above six countries to conduct a comparative analysis with China. This article compares the main policy tools from four dimensions in China, the U.S., the United Kingdom, Japan, Germany, France, and South Korea. Based on the perspective of an institutional structure, we filtered out the core policies. For PP polices on promoting S&T innovation, there are lots of successful experiences and practices across the globe. It is the consensus and common practice to promote S&T innovation and industry development. Through the formulation and implementation of PP policies, developed countries have accelerated their technological progress and S&T innovation, and have enhanced their competitiveness. PP policies on promoting S&T innovation follow four classes: (1) energy-saving and environmentally friendly products, (2) development of S&T SMEs, (3) high-tech products, and (4) domestic products. On sorting out policies, China has learnt from the developed countries, adopting the above-mentioned four measures.

Promoting Energy-Saving and Environmentally Friendly Products

Sustainable PP focuses on promoting the investment, development, and production of energy-saving and environmentally friendly products. In China, fiscal fund supporting projects preferentially procure energy-saving and environmentally friendly products and phase out low-efficiency products. Mandatory procurement is implemented for products that meet the standards for energy-saving effects and performances. Some of China’s policies stipulate specific and operable terms for energy-saving and environmentally friendly products, such as the Opinions on Implementation on Government Procurement Energy-Saving Products. The U.S. federal procurement agency has formulated the green procurement plan, which establishes federal environmental enforcement agencies, supervises green PP, and submits annual reports. The Federal Acquisition Regulation stipulates ways of procuring eco-type products and utilizing recycled materials—ones that have the least impact on people’s health and the environment. For green PP, the federal government pays particular attention to formulating standards and developing a variety of methods (e.g., minimum price, life cycle cost, price concession, etc.). The European Union (EU) has formulated the Guidelines for Green Procurement, which explicitly requires implementing environmental protection policies. It has also issued green procurement standards for 18 classes of products and services. Most of the member states implemented the National Action Plans (NAPs) for green PP and formulated specific implementation measures. The mechanism of developing green procurement varies among the EU member states, and there are mainly two types: centralized procurement represented by the United Kingdom (UK) and independent procurement represented by Germany. Japan encourages manufacturers to develop products that have less impact on the environment, and to enhance environmental awareness in PP. To build an environmentally friendly and sustainable society eventually, Japan influences manufacturers of environmentally friendly products based on demand. South Korea has expanded its green product market through mandatory procurement programs to prevent resource waste and environmental pollution, and to achieve sustainable development. The scope of eco-products in the green procurement program complies with environmental label certification or green certification in South Korea.

Promoting S&T SME’s Development

To promote SMEs development, especially S&T SMEs, PP is an important government issue on sustainable economic development strategy. For preferential treatment of SMEs, China has formulated many policies, such as SME recognition, equal treatment, reserving shares, reviewing preferences, encouraging SME consortium, subcontracting, and training SMEs. China also provides support policies, such as credit guarantees, performance bonds, payment deadlines, and payment methods. The U.S. has formulated preferential policies to encourage SMEs to participate in PP, including reservation contracts and separation contracts, stipulating procurement ratios, offering quotations, providing loan guarantees, establishing specialized service agencies, accrediting procurement representatives and experts, issuing ability certificates, and establishing electronic supply systems. By improving legislation and publicizing rules for PP, the EU provides action guidelines for SMEs to participate in and reduce SMEs’ entrance barriers. The UK has introduced policies such as “Pre-commercial Procurement of Innovation”, “Small Business Research Initiative”, and “Forward Commitment Procurement.” Germany has stipulated that SMEs have priority in bidding for public projects, which could split for SMEs easy to participate in. To encourage SMEs to participate in procurement activities for high-tech products in France, the government reserves shares, prioritizes, splits the contract, allows bids without contract guarantees and advance payments, and has set up a dedicated service department. Japan has focused interiorly on SMEs’ protection in the form of laws and has supported domestic SMEs through an exception clause in the Agreement on Government Procurement (GPA). Japan’s main policies include lowering the entry threshold, splitting the contract, reserving the proportion, and assisting in exploring foreign government procurement markets. South Korea has actively promoted the identification of SMEs’ technical products and requires all public agencies to procure them with priority. South Korea pays certain R&D expenses for SMEs’ new technology development and guarantees that the institutions supported by fiscal funds procure these products. SMEs’ patent fees are supported by the exemption’s system and are funded for applications on board.

Promoting High-Tech Products (Services)

High-tech products (services) involve outputs for the key industries supported and protected by the government. PP of high-tech products (services) aim at fulfilling social functions to promote national economic and social development. China has formulated certain policies, such as giving priority to domestic high-tech companies, introducing innovation-oriented technical indicators, price concession in bidding, sharing the risks of R&D and consumers (including price subsidies and preferential loans), setting procurement ratios, forward ordering or first procuring, and procuring first major technical equipment. For high-tech products’ PP, the U.S. has given priority to domestic manufacturers and has protected the domestic high-tech product market by raising the entry threshold. It has encouraged emerging enterprises to participate in the development of major strategic technologies and has designed a larger competitive space in the PP system. PP is tilting toward high-tech products in the EU, thereby supporting the development of high-tech industries. Whether or not it is due to be a signatory at the GPA, EU members have a series of policies and regulations that limit imported high-tech products (services) and encourage procurement from the region. The UK implements the Innovation Procurement Plan and regards innovation as a key requirement for large-scale equipment and capital planning. In Germany, PP policies on innovative technologies and solutions aim to share the risks of R&D and consumers; innovation-oriented technical indicators are introduced in PP processing to encourage new technologies’ utilization. Through local procurement ratio restrictions, high tariffs on foreign products, and preferential treatment for high-tech products (services), Japan has promoted the development of high-tech industries. In South Korea, fiscal supporting agencies give priority to procurement of high-tech products, and have acquired all publicly-owned equipment, such as domestic high-speed trains and nuclear power stations, preferring to procure domestic products if they are expensive.

Promoting Domestic Products

It is common practice for all countries to maintain their own interests and protect their own industries in accordance with the GPA. In China, the PP has focused on achieving the state’s policy goals for economic and social development, including the protection of key domestic industries. For domestic products, the government has implemented priority procurement, minimum procurement share, and compulsory procurement (in certain areas) in fiscal funding projects. China has stopped implementing some policy documents that conflict with the GPA and has accordingly formulated some policies consistent with the agreement. To protect key industries, Chinese policies include implanting quota restrictions on international bidding, raising tariffs, reviewing imported products, and importing products attached with technology transformation or services or compensation. According to domestic product PPs in the U.S., the laws include the Buy American Act, the Reciprocal Tariff Act, the Berry Amendment Extension Act, and the Federal Acquisition Regulation. The legislative purpose of the Buy American Act is “Supporting and protecting American industry and investment capital”. Even though the U.S. is a member of the GPA, its exception clause still applies to the unopened procurement project and all of its non-members. For EU public facilities, the EU products’ procurement proportion must reach more than 50%, and its products can obtain priority if their prices are not above 3%. Most EU members require that PP products must meet EU’s market standards, which are often difficult for foreign companies. In the UK, the fiscal supporting institutions must procure high-tech products such as computers and communications equipment from their domestic companies. In France, aviation, railway, communications, and other departments give priority to domestic products. For more than €5 million worth of projects or more than €200,000 worth of goods and services, Germany stipulates that procurement must be within the EU. Japan has made full use of domestic policies and various GPA exception clauses to protect domestic industries. Its internal policies include stipulating the domestic product’s procurement proportion, enjoying special depreciation benefits in case of procuring domestically-made computers, enjoying subsidies, long-term and low-interest loans, and deferring repayment loans in case of procuring domestically-made machinery and equipment. Japan’s foreign product policies include high tariffs on foreign procurement and restrictions on the GPA exception clause. South Korea has encouraged preferential procurement for domestic products, limits on the number of international tenders, splits contracts, and excludes international suppliers to protect domestic suppliers.

 

 

 

This is an excerpt of the journal article: Sustainable Public Procurement Policies on Promoting Scientific and Technological Innovation in China: Comparisons with the U.S., the UK, Japan, Germany, France, and South Korea, by Xiaoli Wang, Yun Liu, and Yanbing Ju. Published: June 2018 in Sustainability 10(7), 2134; DOI: https://doi.org/10.3390/su10072134 under a Creative Commons Attribution License (CC BY 4.0). 

Yun Liu
Professor

Dr. Liu Yun is currently working with the School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing. He serves as the consultant expert for Ministry of Science and Technology of China, National Natural Science Foundation of China, the State of Intellectual Property Office of China, Ministry of Education of China. His research interests are theory and methods of R&D assessment, S&T policy and management, and R&D and innovation management.