Geoffrey Hale Political Science 3170 University of Lethbridge November 16, 2010

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

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 $ billion

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.

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 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

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”

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.

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

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.

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

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 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.