Government procurement

trade policy brief

Government Procurement

January 2019

overnment procurement policies that give preference to domestic firms can introduce market G distortions that limit choice, increase prices, and undermine economic efficiency.

Analysis shows evidence of increasing home-bias in government procurement in recent years.

ECD has created a taxonomy of measures affecting trade that can help policy makers map O and better understand their procurement regimes.

What’s the issue?

Policies maintained by states with the effect of giving preference to domestic firms over foreign firms in government procurement contracts (or public procurement) are one of the behind-the-border measures that affect global trade and efforts towards increased economic integration.

While aimed at boosting the domestic economy, such domestic-bias policies can introduce market distortions that limit choice, increase prices, and undermine economic efficiency. Increased competition from foreign suppliers for government procurement contracts can put downward pressure on costs for supplied goods and services, ensuring taxpayers value for money, and encouraging better allocation of resources across the economy.

There are two forms of domestic bias: explicit (when regulations and policies clearly favour domestic firms), and implicit (when exclusion of foreign suppliers indirectly or potentially results from procurement procedures). To get an idea on the incidence and nature of restrictive measures in government procurement OECD assessed home-bias in government procurement which captures the effects of explicit and implicit measures.

The analysis presents evidence of domestic bias in government procurement markets increasing over recent years (figure 1).

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However, policy decisions to address distortions in government procurement markets can be difficult because of the lack of statistics related to the types of procurement measures and policies affecting trade implemented by governments. To help fill these evidence gaps, the OECD created a taxonomy of government procurement measures affecting trade. The taxonomy covers measures that have an explicit effect on trade as well as implicit measures that potentially can affect cross-border procurement.

The explicit categories gather measures or practices that directly and intentionally reduce or prevent foreign companies' access to a government procurement system, such as explicit market access restrictions, domestic price preferences or local content requirement policies.

The implicit categories includes measures or practices that do not expressly target foreign bidders, but that may indirectly – or potentially – affect cross-border procurement opportunities. These measures can relate to the conduct of procurement (type of tendering), to the qualification and evaluation criteria, to the review and complaints mechanisms to the transparency and information systems, depending on how these systems and mechanisms are implemented.

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Government Procurement

Evolution of home bias over time Home bias in Government Procurement 1.5

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0.5

0

-0.5

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Note : Home bias is defined as the government’s propensity to spend procurement funds on domestic rather than imported goods and services

Better understanding the nature of government procurement In setting out different categories of measures that can impact access to cross-border procurement, the OECD taxonomy has two objectives: to promote further consideration of the nature of measures, and to determine whether and how they impact foreign suppliers. The OECD taxonomy is not designed to pass judgment on the legitimacy of the public policy objectives that measures seek to achieve, but rather to highlight the trade impact of the measures as one element for consideration in policymaking and with a view to promoting consideration of less trade restrictive measures to achieve the same policy objectives.

Recognising 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) a plurilateral agreement that sits within the World Trade Organization (WTO) framework. In parallel, a number of regional trade agreements include commitments on government procurement.

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, the OECD has also mapped the taxonomy against international good practices (the WTO GPA and the UNCITRAL Model Law on Public Procurement).

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Further reading • Gourdon, J. (2018), “Mapping the OECD Government Procurement Taxonomy with International Best Practices: An Implementation to ASEAN Countries”, OECD Trade Policy Papers, No. 216, OECD Publishing, Paris. http://dx.doi. org/10.1787/1bd4d59a-en • Gourdon, J. and J. Messent (2017), “How government procurement measures can affect trade”, OECD Trade Policy Papers, No. 199, OECD Publishing, Paris. http://dx.doi.org/10.1787/ d1ab07b8-en • Gourdon, J., V. Bastien and L. Folliot-Lalliot (2017), “OECD taxonomy of measures affecting trade in government procurement processes”, OECD Trade Policy Papers, No. 198, OECD Publishing, Paris. http://dx.doi. org/10.1787/5bfb44c3-en • Stone, S., J. Messent and D. Flaig (2015), “Emerging Policy Issues: Localisation Barriers to Trade”, OECD Trade Policy Papers, No. 180, OECD Publishing, Paris. http://dx.doi. org/10.1787/5js1m6v5qd5j-en • Ueno, A. (2013), “Multilateralising Regionalism on Government Procurement”, OECD Trade Policy Papers, No. 151, OECD Publishing, Paris. http:// dx.doi.org/10.1787/5k46l8vvq2np-en

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