Geoffrey HalePolitical Science 3170

University of LethbridgeNovember 16, 2010

OutlineProcurement – What is it? Why does it matter to

international trade policies?

Procurement: What is it?The purchase of goods and services by

governmentsCanada - $ 296 billion in 2006 (all governments)

25.5% of GDP Federal $ 48.7 billion Provincial $ 148.3 billion

Government Procurement:Relevance to International TradePotential 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.

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.

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.)

The WTO Government Procurement Agreement (GPA)Three types of tendering (rules for submitting bids) for

contractsOpen 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

Government Procurement Rules:Surprise! One Size Doesn’t Fit AllCanadian domestic exclusions from GPA –

paralleling NAFTA’s Chapter 10 (per Kukucha)Provincial and municipal governments (until 2010)R&DHealth and Social ServicesUtilitiesCommunicationsEducation and TrainingFinancial Services“Activities related to the delegation of government

services to private corporations”

Implications for Canada-US Trade RelationsDifferent legal, political contexts for procurement in

each country, magnified by workings of federalismCanadian 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.

The Buy-American DebateLongstanding, but selective domestic procurement

preferences built into U.S. federal law since 1930sMost extensive for transportation materialsExtensive state, local variationsMajor union pressure – esp. from USWA – for

extension of Buy American since 1980sExtension 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

The Buy-American DebateMajor 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.

The Buy-American DebateMajor 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 CanadaProposals for retaliation by Canadian Federation of

Municipalities

The Buy-American Debate – Interim ResolutionHarper 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. 2009Agreement initialed February 2010

Reciprocal access of Canadian provinces / U.S. StatesApplicable 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.