International Public Procurement: The role of data-driven policy making*

Chief Economist and Trade Analysis Unit

European Commission

Trade Economist Network, 26 November 2018

*The opinions expressed in this presentation are the author's own and do not necessarily reflect the views and opinions of the European Commission.

Contents

Why dealing with public procurement in trade negotiations?

Protectionism in international public procurement;

The impact of international procurement liberalization: first quantification attempts for the US and GPA countries;

The role of data and sound economic analysis public procurement negotiations;

Conclusions and some reflections.

Why public procurement in trade negotiations?

Size of the markets: public procurement accounts for 6-25% of GDP on a world basis and for 19% in 2016 in the EU including procurement of utilities.

Large potential impact: limited commitments at the bilateral and/or multilateral level.

Increasing importance: Public procurement becomes increasingly important in a low tariff environment and thus turns into major impetus for trade policy.

Protectionism in international public procurement is on the rise.

Public Procurement in % of GDP

Source: EUROSTAT, OECD National Account Statistics, own calculations, web access 15 September 2017. *Note that including state-own utilities for the EU would lead to a PP share in GDP terms of 19%.

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Public Procurement spending patterns

Source: EUROSTAT, OECD National Account Statistics, own calculations, web access 15 September 2017.

Public procurement at different government levels

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Central level State level Local level SSF

Source: EUROSTAT, OECD National Account Statistics, own calculations, web access 15 September 2017

Public procurement provisions in RTAs

Source: WTO, list of all RTAs, 4/12/2014

Theoretical economic literature shows that local preferences i.e. 'home-bias' in public procurement can distort international specialisation and affect trade flows, output and prices, see Evenett and Hoekman (2005), Trionfetti (2001), Miyagiwa (1991).

Empirical literature provides evidence for the presence of local preferences and some proxies for the severity of the 'home-bias' in public procurement see Rickard and Kono (2014), Shingal (2011), Brühlhart and Trionfetti (2004) and (2001).

Recent work by Kutlina-Dimitrova and Lakatos (2016) identify the determinants for direct cross-border procurement in the EU.

Protectionism in public procurement

Protectionism in public procurement: Stock of newly introduced measures

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2009 2010 2011 2012 2013 2014 2015 2016 2017

National Subnational Total

Source: GTA database, web access 15 February 2018

Protectionism in public procurement: Type of measures

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73

203

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Public procurement

localisation

Public procurement

preference margin

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access

Public procurement, nes

Source: GTA database, web access 15 February 2018

Protectionism in public procurement:Implementation duration of measures

Source: GTA database, web access 15 February 2018

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Procurement mesures in

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Procurement mesures in

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Share Number

Protectionism in public procurement:Top 10 most protectionist countries

Source: GTA database, web access 15 February 2018

291

29 28 22 15 12 10 6 5 40

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Protectionism in public procurement:Top 20 most affected countries

Source: GTA database, web access 15 February 2018

3.371

402 397 387 387 385 377 373 372 368 366 363 362 362 359 357 353 351 351 348 347

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Kutlina-Dimitrova (2017) assesses the impact of extending the scope and coverage of the GPA in the framework of the recently created pubic procurement extension of the GTAP model and shows that:

GPA parties' welfare is estimated to increase by US$8-10 billion.

GPA parties' exports will be boosted by US$75 billion.

These results do not include extending the country coverage i.e. a possible GPA accession of China or Russia neither the impact of scraping Buy local provisions.

Dixon et al. (2017) show that scrapping Buy America(n) provisions leads to an increase in US GDP by 0.12% and job creation of over 300,000 jobs. In terms of state and congressional districts level results, fifty out of 51 states and 430 out of 436 congressional districts would gain jobs.

The impact of public procurement liberalization:first quantification attempts

Direct cross-border international procurement: Foreign companies may win public procurement tenders directly from abroad.

Commercial presence procurement: Domestic subsidiaries of foreign companies may be awarded locally public contracts.

"Value-added" indirect international procurement: Foreign companies participate indirectly along the value-chain as subcontractors in a tender which can be won by a foreign or a domestic company.

Modalities of international procurement

First attempt to create a database combining both public procurement flows data covering all modalities and corresponding procurement barriers.

This is a challenging undertaking as there is severe lack of data on both the flows and barriers side let alone a combination of those.

However, both government procurement expenditures and corresponding barriers are needed so as to be able to assess the impact of public procurement commitments in RTAs and the GPA.

Towards a global public procurement database for trade negotiations

International public procurement data collection and barriers assessment project (1)

Project objective:

The project's main objective is improving the availability, coverage and quality of government procurement data in an international context.

Time frame:

2016-2018 – extension of this project for another 3 years is possible.

Budget:

4 million euros + possible extension of another 4.5 million euros.

Country coverage:

China, India, Brazil, Indonesia, Australia, New Zealand and Thailand. In addition, the US and Canada will be covered in respect to modality 1 and 2 procurement.

Milestones of the project:

Development of a methodology for data collection;

Making use of a dedicated taxonomy of public procurement barriers;

Public procurement data collection in the beneficiary countries;

Collection of a full-set of public procurement barriers;

An assessment of the economic value of the collected public procurement barriers.

International public procurement data collection and barriers assessment project (2)

Conclusions

International procurement has gained importance in WTO and in bilateral trade negotiations. Protectionism, however, is also on the rise in public procurement.

First quantification attempts show that the US can reap significant benefits from scrapping Buy-America legislation.

Currently there severe lack of data hampers sound assessment of procurement gains.

Building up a global public procurement database will serve negotiators and analysts to evaluate and assess the impact public procurement provisions and initiatives.

We have a long way to go before we can provide an in-depth assessment of impact in the field of public procurement. However, there are first encouraging attempts in this respect.

Thank you for your attention!