The Trade & Government Procurement Policy Nexus: Before and After The COVID-19 Pandemic Simon J. Evenett1 University of St. Gallen2 and the St. Gallen Endowment for Prosperity Through Trade3 21 December 2020 To be published in In Sue Arrowsmith, Luke Butler & Christopher Yukins (eds.) Public Procurement in (a) Crisis: global lessons from the COVID-19 pandemic. Hart Publishing. 2021. 1 The author thanks Professor Sue Arrowsmith and Robert Anderson for comments on an earlier version of this chapter 2 Professor of International Trade & Economic Development. Email address: [email protected]. 3 Founder of the new non-profit Foundation to house the Global Trade Alert and other commercial policy- related initiatives. I. Introduction Since being declared a pandemic by the World Health Organization on 11 March 2020, COVID- 19 has spread to every continent. There has been an attendant surge in demand for medical goods, medical equipment, and medicines. That public sector organisations are responsible for sourcing these essential items implicates government procurement policy. That patterns of international specialisation imply that sourcing can come from abroad implicates trade policy. The COVID-19 pandemic amounts to nothing less than a major stress test for the extant trade and government policy nexus. How well did current institutional arrangements and practices fare? If the statements of senior policymakers in the major trading powers are to be believed, the curt answer is: Not well at all. Should policymakers’ words translate into deeds then there could be implications for national procurement policies, for the conduct of unilateral trade policy, and for the negotiation and possible renegotiation of relevant provisions in regional trade agreements and for the plurilateral Agreement on Government Procurement (GPA) at the World Trade Organization (WTO). Nine months into the pandemic the purpose of this chapter is to reflect on the implications of this stress test for the trade and government procurement nexus. Drawing on data collected on government policy response and on the recent analyses of others, this chapter will ask whether current arrangements and practices are fit for purpose. If not, why not? Do any deficiencies reflect lacunae, blind spots, or implicit assumptions that turned out to be false? Perhaps any failings reflect the fact that the extant nexus was not designed to cope with pandemics in the first place? It is not claimed that these observations are the final word—after all, at the time of writing (December 2020) there is no end in sight for the pandemic. Two thoroughly tested vaccines have been approved but global distribution of vaccines has barely begun. The remainder of this chapter proceeds as follows. The next section describes the organising logic of what is termed the trade and procurement policy nexus before the pandemic hit. As will become evident, this logic had three important consequences which were to come to light once the pandemic results in a surge in demand for medical kit. The third section of this chapter describes the initial trade policy responses as governments scrambled to source medical kit and the consequences for the international supply chains implicated. The backlash against those supply chains that followed and its consequences for the trade and government procurement nexus is discussed in the fourth section. The concluding section of this chapter draws out three root causes that must be faced if a more effective trade and government procurement nexus is to be designed. II. The Trade & Procurement Policy Nexus before the Pandemic This section describes the organising logic and consequences of the inter-relationship between trade and government procurement policies before the COVID-19 pandemic. Although it refers to a nexus this does not mean to imply that there is a global accord or understanding concerning the relationship between these two policies. Nor it is implied that the better practices that follow 2 of 16 have been implemented everywhere. Rather the goal is to describe how this nexus was supposed to work and then to highlight three facets of that nexus that were ultimately cast in a poor light as the pandemic unfolded. The starting point is the assumption, as discussed in chapter 2, that value for money in public procurement is best achieved through competitive tendering processes. For those goods and services where cross-border supply is technically feasible, suppliers based abroad are a potentially valuable source of competition. It follows that public purchasing policies and practices should be adopted that encourage bids from suitably qualified foreign firms. In turn this has implications for the transparency of public procurement procedures (including the publication of tender announcements in international languages, such as English) and for due process rights of bidders, as again was discussed in chapter 2. It also implies eschewing price preferences, bans on sourcing from any group of technically qualified bidders, and other forms of discrimination.4 Trade policy can be aligned with this logic as well. Governments can commit not to charge import tariffs on goods sold to public bodies. They could also refuse to undertake anti-dumping and countervailing duty investigations against foreign bidders for state contracts. Regional trade agreements can be signed that reduce or eliminate discrimination against foreign bidders, locking in what trade diplomats refer to as ‘market access’ to public procurement systems.5 The range of public bodies covered by those market access ‘disciplines’ can be negotiated as well. On this logic, greater coverage of public bodies in trade accords is better. Similar initiatives have been undertaken by the members of the plurilateral GPA.6 4 The international dimension to public procurement processes are handily described and assessed in the contributions to A Georgopoulous, B Hoekman, and P Mavroidis, (eds) The Internationalization of Government Procurement Regulation (New York, Oxford University Press, 2018). A factual overview of the size of national public procurement markets and the means that governments deploy to favour locally-based firms can be found in J Goudron and J Messent, ‘How Government Procurement Measures Can Affect Trade’ (2019) 53 Journal of World Trade 679. 5 For an overview of government procurement provisions in regional trade agreements see R Anderson, A Müller, K Osei-Lah, J de Leon, and P Pelletier, ‘Government procurement provisions in regional trade agreements: a stepping stone to GPA Accession?’ in S Arrowsmith and R Anderson (eds) The WTO Regime on Government Procurement: Challenge and Reform (Cambridge, Cambridge University Press, 2011). For a finding that after competition policy provisions, among other behind-the-border policies it is the government procurement provisions of regional trade agreements that have the largest positive effect on the level of bilateral trade see K Hayakawa, F Kimura, and K Nabeshima, ‘Nonconventional Provisions in Regional Trade Agreements: Do They Enhance International Trade?’ (2014) 17 Journal of Applied Economics 113. 6 For a timely account of the flexibilities available to members of the GPA, a subject also discussed in chapter xx of the present volume, see R Anderson and A Müller, ‘Keeping Markets Open While ensuring Due Flexibility for Governments in a Time of Economic and Public Health Crisis: The Role of the WTO Agreement on Government Procurement (GPA)’ (2020) 29 Public Procurement Law Review 189. For assessments of the working of the GPA before the pandemic see R Anderson and N Sporysheva, ‘The Revised WTO Agreement on Government Procurement: Evolving Global Footprint, Economic Impact and Policy Significance’ (2019) 28 Public Procurement Law Review 71, B Hoekman, ‘Reducing Home Bias in 3 of 16 At this point in the argument three considerations that are implicit in, or that arise from, the organising logic described immediately above should be emphasised. The first observation is that it is only the public sector practices of the importing jurisdiction that mattered. When sourcing occurs from abroad no consideration was given in the argument above to the government policies of the nations where firms export from. To the extent that international trade agreements included provisions on government procurement, the ‘problem’ being tackled was the behaviour of the importing nation’s government, not the policies of exporting nations. The second observation is that, according to this organising logic, one advantage of sourcing from abroad is that it is risk reducing. Cross-border sourcing is seen as particularly valuable if there is a sharp, unexpected reduction in the capacity of domestic or locally-based firms to supply goods to public bodies. From the perspective of any one government, the option to source from abroad was seen as a plus. The consequences of other governments having the same option was either overlooked or known but regarded as unimportant. The third observation is that, to the extent that the emphasis on value for money results in intense price-based competition bidding firms have strong incentives to keep costs as low as possible. Private sector firms designed and executed supply chains based on so called Just In Time principles in response to these incentives. Those supply chains typically involve constituent firms holding few inventories of parts, components, and final produced goods as well as maintaining as little redundant production capacity as possible. The goal here is not to denounce this organising logic—the author has based policy recommendations on this logic many times in the past and is yet to be persuaded by an alternative logic.7 Instead, as is argued in the next section, the pandemic has rudely called into question the validity of the three observations outlined immediately above. III. The Initial Trade Policy Response to the Pandemic In many nations governments are directly responsible for the supply of public health services. In those nations where private sector provision of health care is the norm, the state is still seen as having overall responsibility for public health.