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How Government Procurement Measures Can Affect Trade”, OECD Trade Policy Papers, No Please cite this paper as: Gourdon, J. and J. Messent (2017-04-12), “How government procurement measures can affect trade”, OECD Trade Policy Papers, No. 199, OECD Publishing, Paris. http://dx.doi.org/10.1787/d1ab07b8-en OECD Trade Policy Papers No. 199 How government procurement measures can affect trade Julien Gourdon, James Messent OECD TRADE POLICY PAPERS This paper is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and the arguments employed herein do not necessarily reflect the official views of OECD countries. The publication of this document has been authorised by Ken Ash, Director of the Trade and Agriculture Directorate This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document has been declassified on the responsibility of the Working Party of the Trade Committee under the OECD reference number TAD/TC/WP(2015)26/FINAL. Comments on the series are welcome and should be sent to [email protected]. OECD TRADE POLICY PAPERS are published on www.oecd.org/trade. © OECD (2017) You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for commercial use and translation rights should be submitted to [email protected]. HOW GOVERNMENT PROCUREMENT MEASURES CAN AFFECT TRADE Julien Gourdon and James Messent, OECD A number of countries used discriminatory government procurement policies as part of stimulus packages designed to alleviate the effects of the global economic crisis. This paper collates and updates the evidence related to the size of procurement markets, the level of home bias they exhibit, and the effectiveness of multilateral and bilateral procurement agreements in reducing that bias. The share of procurement in GDP has been increasing gradually since 1995 with clear spikes during 2000-2002 and 2008-2010, the latter in response to the global economic crisis. The analysis presents evidence of domestic bias in government procurement markets, bias which has been increasing over recent years. The analysis in this paper suggests that the results of international efforts to address home bias in government procurement have been mixed to date. The World Trade Organisation's Government Procurement Agreement (GPA) is found to reduce discrimination in procurement markets, although available -- but limited -- evidence does not indicate a significant effect for bilateral agreements. The evidence suggests liberalisation of investment barriers undertaken in parallel with trade agreements increases the ability of those agreements to reduce discrimination. This suggests that countries negotiating procurement agreements could also benefit from negotiating investment agreements in parallel. Keywords: Government procurement, home bias, Government Procurement Agreement (GPA). preferential trade agreements , International Trade, Auctions JEL code: F13, F14, F15, F53, D44, H57 Aknowledgements The authors would like to thank Nozomi Kimura for her contribution and Clarisse Legendre for statistical assistance. Comments received from the Working Party of the Trade Committee are gratefully acknowledged, as are those provided by the Government Procurement and Competition Policy Group of the WTO (IPD). All errors and omissions are the sole responsibility of the authors. The research was undertaken by the Development Division of the OECD Trade and Agriculture Directorate under the management of Julia Nielson. This report was declassified by the Working Party of the Trade Committee on 8 February 2017. OECD TRADE POLICY PAPER N°199 © OECD 2017 HOW GOVERNMENT PROCUREMENT MEASURES CAN AFFECT TRADE – 3 Table of Contents Executive Summary .............................................................................................................................. 4 Introduction ........................................................................................................................................... 5 1. Contextualising government procurement ........................................................................................ 5 2. What is the size of the Public Procurement market? ......................................................................... 7 3. Domestic bias in Government Procurement .................................................................................... 10 4. Impact of Procurement Agreements: Some evidence ..................................................................... 16 5. Conclusion ....................................................................................................................................... 23 References ........................................................................................................................................... 24 Annex 1. Estimation of home-bias in Government Procurement ........................................................ 26 Annex 2. Estimating the efficiency of Procurement Agreements ....................................................... 27 Annex 3. Estimating the efficiency of Procurement Agreements using EC award data .................... 29 Annex 4. Entity coverage in Regional Trade Agreements .................................................................. 31 Annex 5. Thresholds in Regional Trade Agreements ......................................................................... 39 Tables Table 1. Different estimates of the size of GP market .................................................................... 9 Table 2. Gravity model with imports: Summary of result ............................................................ 19 Table 3. Effectiveness of procurement agreements using award data: Summary of results ......... 22 Table A1.1.Econometric results of discrimination in GP .................................................................... 26 Table A2.1. Econometric results of discrimination in GP ................................................................... 28 Table A3.1. Effectiveness of procurement agreements using award data ........................................... 30 Table A4.1. Entity coverage in RTAs ................................................................................................. 31 Table A5.1. Thresholds in RTAs ......................................................................................................... 39 Figures Figure 1. Evolution in GP size over 1995-2011 ............................................................................... 8 Figure 2. Ratio Public to Private import share ............................................................................... 12 Figure 3. Change in ratio public to private propensity to import over 2004-2011 ......................... 13 Figure 4. Estimation of Domestic Bias in GP ................................................................................ 14 Figure 5. Trend of bias in GP over years ....................................................................................... 15 Figure 6. Number of GP agreements .............................................................................................. 17 Figure 7. Parties to RTAs with GP provisions and their WTO GPA status ................................... 17 Figure 8. EU cross-border procurement ......................................................................................... 20 Figure 9. US procurement to foreign recipients ............................................................................. 20 Figure 10. Japan procurement under GPA ....................................................................................... 21 OECD TRADE POLICY PAPER N°199 © OECD 2017 4 – HOW GOVERNMENT PROCUREMENT MEASURES CAN AFFECT TRADE Executive Summary A number of countries used discriminatory government procurement policies as part of stimulus packages designed to alleviate the effects of the global economic crisis. The re-emergence of these policies has caught the attention of trade policy makers and highlighted gaps in the evidence base needed for policy decisions. Government procurement information at the global level is sparse. There is a lack of statistics related to the size of procurement markets, the flows of trade in procurement, and the types of discriminatory procurement measures implemented by governments. This paper is the first part of an OECD project to fill some of these evidence gaps; it collates and updates the evidence related to the size of procurement markets, the level of home bias they exhibit, and the effectiveness of multilateral and bilateral procurement agreements in reducing that bias. Creation of a taxonomy of measures affecting government procurement represents the second part of the project. The size of government procurement markets is estimated to be between, on average, 11% and 12% of GDP in 2011, based on a sample of 89 countries (not including
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