Government Procurement Policies and International Trade

1. Government Procurement Policies and International Trade Geoffrey Hale Political Science 3170 University of Lethbridge November 16, 2010

2. Outline • Procurement – What is it? Why does it matter to international trade policies?

3. Procurement: What is it? • The purchase of goods and services by governments • Canada - $ 296 billion in 2006 (all governments) • 25.5% of GDP • Federal $ 48.7 billion • Provincial $ 148.3 billion

4. Government Procurement:Relevance to International Trade • Potential tool for national or regional economic development • Pricing preferences, set asides for Canadian or provincially-based firms, including small businesses • Domestic preferences may be used to promote development of new technologies • Minimal price impact if gov’t procurement accounts for small market share for particular products, services. • Potential economic gains in sectors with global oligopoly • Major exceptions for “national security” provisions, health & safety, environment etc. • Economic efficiency • National, provincial set- asides may reduce efficiency, value for money in government purchasing • Potential to reduce interprovincial trade barriers • Potential to reduce special interest “rent seeking”, and in some settings, corruption. • Reciprocity • Canadian limits on access to procurement markets invites retaliation or exclusion from much larger procurement markets of competitors.

5. Government Procurement:Relevance to International Trade • Government procurement accounts for significant proportion of national GDP in many countries • Extent of national preferences for procurement may extend or limit economic benefits of trade liberalization in many economies • WTO’s Government Procurement Agreement (1979, 1996 extension to services, revised in 2006) expands market access for specified range of goods and services • Voluntary participation – 38 countries in 2008 (mainly OECD members) • Provides for “non-discrimination”, “national treatment” for businesses from signatory countries • Widespread exclusions in coverage – “opt-in” provisions for participating countries, with specific designation of “covered” goods and services • Canadian provinces not participants until 2010 Procurement Agreement with U.S. • 37 U.S. States are GPA signatories – including most, not all large, medium-sized states.

6. The WTO Government Procurement Agreement (GPA) • Contract coverage thresholds – Canada • $ 208,000 (actual prices in SDRs) for goods & services • $ 8 million for “listed construction contracts” (excl. Transport Canada) • Public tendering not required, but . . . • GPA emphasizes “transparency, impartial rules” • Requirements for published rules, public notices of intended contracts, disciplines on treatment of tenders, contract awards  “minimum procedural standards” • Limits use of “offset agreements” to force domestic investments by foreign bidders • Intended to reduce opportunities for corruption, provide appeals mechanisms (H&B - “bid challenge procedures”) • Most countries have wide range of exemptions • e.g. Transportation equipment (Canada, U.S.)

7. The WTO Government Procurement Agreement (GPA) • Three types of tendering (rules for submitting bids) for contracts • Open tendering – rules providing for competitive tendering by any potential supplier. • Selective tendering – rules providing for tendering by pre-qualified bidders  e.g. Canada’s “Standing Offer” / Advanced Contract Award Notice system (applies to goods contracts < $ 25,000; services contracts < $ 100,000) • Limited tendering – no requirements for competitive bidding; “procuring entity” approaches one or more bidders of its choice • Accounted for about 10% of tendering in U.S., EU in late 1990s • Limited data available to monitor application, effect of GPA

8. Government Procurement Rules:Surprise! One Size Doesn’t Fit All • Canadian domestic exclusions from GPA – paralleling NAFTA’s Chapter 10 (per Kukucha) • Provincial and municipal governments (until 2010) • R&D • Health and Social Services • Utilities • Communications • Education and Training • Financial Services • “Activities related to the delegation of government services to private corporations”

9. Implications for Canada-US Trade Relations • Different legal, political contexts for procurement in each country, magnified by workings of federalism • Canadian federal procurement rules largely administrative in character – domestic / int’l appeals through Canadian International Trade Tribunal (CITT) • U.S. federal procurement rules governed by wide variety of Congressional legislation, administrative law processes subject to Congressional oversight & review. • Potential for Canadian provinces to negotiate reciprocal access processes with U.S. states, even before signature of 2010 procurement agreement.

10. The Buy-American Debate • Longstanding, but selective domestic procurement preferences built into U.S. federal law since 1930s • Most extensive for transportation materials • Extensive state, local variations • Major union pressure – esp. from USWA – for extension of Buy American since 1980s • Extension in 2009 “Stimulus Act” to cover “iron and steel and manufactured goods” purchased with federal funds • Effort to maximize domestic benefit from major increase in U.S. deficit spending

11. The Buy-American Debate • Major reaction by Canadian manufacturers, governments to perceived threat to market access with potential for more general application by Congress • Additional concerns over disruptions of highly integrated North American supply chains for many industries resulting in loss of business for firms that could not “prove” adequate U.S. content. • One of two top priorities (with energy / climate change) in bilateral relations in first year of Obama Administration.

12. The Buy-American Debate • Major push-back by U.S. protectionist interests • Promotion of U.S. domestic job creation in response to major recession • Emphasize failure of Canadian provinces to subscribe to WTO Government Procurement Agreement • Growing controversy within Canada • Proposals for retaliation by Canadian Federation of Municipalities

13. The Buy-American Debate – Interim Resolution • Harper government recruits provincial support for adherence to GPA in return for reciprocal agreement with U.S. • Parallel trade negotiations underway with EU also included strong EU focus on procurement access • High level negotiations with US initiated Sept. 2009 • Agreement initialed February 2010 • Reciprocal access of Canadian provinces / U.S. States • Applicable to existing stimulus spending with provisions for consultation, negotiations prior to any future agreement. • U.S. executive could not bind Congress, but could provide utilize “national interest exception” provided by U.S. law.