Procurement central to global free trade

22
JUN
2010

Author: Jonathan Webb - Categories: Economy & Current Affairs

Over the last year, national governments have announced new free trade agreements between emerging and developed economies. Procurement liberalisation lies at the heart of these bilateral and multilateral deals.

Increasing interest in free trade has seen a variety of agreements emerging recently. Yesterday, China and Australia announced a raft of commercial energy, resources and procurement contracts worth US$8.8 billion. The parties hope that these will act as a precursor to a broader customs agreement.

Elsewhere, countries are scrambling to lower their tariffs. Mexico is currently in negotiation with Brazil to liberalise trade. The central American state is also considering entering into discussions with South Korea. Both of these deals list open public procurement as crucial to their success.

The prospect of membership into the Trans-Pacific Partnership, which includes Brunei, Chile, New Zealand and Singapore, has prompted Malaysia to consider opening its public procurement market. The multilateral partnership, which is currently negotiating the accession of Australia and the US, places procurement liberalisation as a central criterion for membership.

Japan's interest in forging an "economic integration agreement" with the EU has been stalled by restrictions on government buying. The EU has demanded that Tokyo lower its non-tariff barriers to trade as a precursor to any broader integration package.

India has bucked the trend by insisting that public procurement is excluded from its free trade negotiations between Australia and the EU. A protectionist public procurement policy has traditionally sheltered smaller domestic suppliers from the international competition of large, multinational corporations.

Countries afraid of grasping the nettle of full trade liberalisation often appear to ease themselves into a more open relationship through liberalised government buying arrangements. A free public procurement deal allows governments to enjoy greater competition in the market, and therefore a reduced taxpayer spend.

Zero customs will significantly lower the cost of international trade and enable companies to generate larger savings by operating a global supply chain. The eradication of tariffs also provides best value for consumers, who can access cheaper goods sourced from overseas.

Can procurement act as stimulus for global trade? Certainly, a level playing field in the purchasing market allows open and fair competition, which allows the best enterprises to sell their goods. Perhaps procurement can, in its own way, bring nations closer together and fuel the world economy?

Comments

Karen Bowman

Tue 22 Jun 2010 16:59

publicly funded procurement can stimulate ethical trade - fair trade is better than free trade or governments can find the risk of global companies (worth more than most GDPs) determining their future.

Jonathan Webb

Tue 22 Jun 2010 17:06

Karen,

Thanks for you comment. You make an interesting point about free trade; and one that I have never considered.

It would be interesting to see how this may be applied to public procurement. Fair trade generally is sourced from overseas, so would this mean that governments should mandate that a certain proportion of their spend is sourced abroad?

Candace

Mon 28 Jun 2010 14:16

You both raise an interesting point. I see this on the state and local level as well. Just this morning someone asked, "Do any of you have an established policy now for prime contractors to qualify for local vendor preference under the local subcontractors used by them as a percentage[?]".

Do you believe that the international system needs a set of values and guiding principles for public procurement? (Similar to OGC guidance out of the UK...only on a global scale)? If so, how would it best be implemented, and would it help generate a more competitive lest restricted trade market?

Mon 28 Jun 2010 17:49

Free trade can work only when pre-defined ethical values are in place. It is important to note that power is unequal among governments which implies that tarde would not be free from distortive effets of government interference.

Henceforth, there has to be clear guidelines defining the does and don'ts of such a system. In addition, pre-existing bilateral trade agreements would continue unaffected.

Jonathan Webb

Tue 29 Jun 2010 17:03

Thanks for your comments.
Candace, I would definitely advocate less protectionism in public procurement, and open suppliers to the entire market. I tend to believe that free trade, in the long run, will result in lower governmental spend. Although, I think your idea of an agreed set of principles and values for public procurement is an excellent suggestion, as there are some countries which are still subject to corruption within state contracting.
Ben, I agree that there is an inequity in certain trade relations, but, in the long term, both parties do win out, even in trades where one party has an absolute comparative advantage.
We seem to agree, however, that the government procurement market is in need of system of values that are recognised and implemented on a global level.