Regulaton & Policy
Using Public Procurement To Support National Interests – Protectionism On The Rise

The global forces pushing economies towards protectionist approaches seem unstoppable at the moment. We featured the new Australian Government procurement rules yesterday, which ask buyers to consider “the economic benefit of the procurement to the Australian economy”. That raises questions about compliance with wider international trade and procurement agreements. But it is not just Australia that is moving in this direction. Just in the last week or so we have seen:

Macron suggesting a “Buy European” act – the new French President, Emanuel Macron, wants to introduce a “Buy European Act” which would restrict the ability of companies operating mainly outside of the EU to bid for public procurement contracts within the Union. That would of course hit UK firms as well as those from many other countries. There is the problem of definition though; is it firms whose headquarters are in the UK? Or those that don’t have a physical presence within the post-Brexit EU? It would also raise the issue of the UK responding in a similar manner, which would be bad news for firms such as Capgemini, Veolia, EDF, Sopra-Steria, Finmeccanica, Siemens … the list goes on!

Alistair Maughan, a well-known lawyer in UK public procurement and a partner at Morrison Foerster, said in the Times that a Buy Europe act “would be difficult to square with the EU’s commitments under the WTO (World Trade Organisation) Government Procurement Agreement so I don’t see how it could ever be implemented … It’s a nice soundbite but not really practical.”

In Ghana, there is pressure for a buy local policy;  the GhanaWeb website reports that that country’s Government will introduce a procurement policy “that will bond its agencies and large companies operating in the country to source majority of their raw materials and inputs from local producers once such inputs are available”. That was from Carlos Kingsley Ahenkorah, a Deputy Trade and Industry Minister.

Itis good to see the procurement community at least getting involved in the debate – President of the Ghana Institute of Procurement and Supply (GIPS), Collins Agyemang, said in January that “getting people to buy locally is about the mindset and changing that mindset should be backed by policies and strategies”.

Buy in India is a “mega-policy” coming soon – so says the Business Standard website. It says that a “mega policy is learnt to be in the works covering several key economic sectors, where domestic procurement should be given preference”. Apparently the Prime Minister’s Office recently had a meeting about the proposed policy, which “could be rolled out soon”.  The sectors that the new policy could cover are likely to have names where the government is the largest consumer such as engineering, machinery and paper, among others, economists said. Some local economists have suggested that it could just be a short-term measure to boost such firms for a year or so, recognising that (like the EU example above) it could be challenged by the WTO.

Meanwhile, the news from the USA was perhaps a touch more positive if you are not a supporter of protectionist behaviour. Treasury Secretary Steven Mnuchin said last week  that the United States reserves the right to be protectionist on trade, but noted that his international counterparts are growing more comfortable with the Trump administration’s economic agenda. “We do not want to be protectionist but we reserve our right to be protectionist to the extent that we believe trade is not free and fair,” Mnuchin told a news conference at the end of a meeting of finance ministers from the Group of Seven industrial democracies.

Why is this pressure growing for countries to behave in this sort of manner? Much of it is political. These moves appear to be popular with voters who see some obvious problems with “global free markets” and unfettered capitalism. A perception of increasing inequality, companies exploiting workers, “foreign” firms winning local contracts and “stealing” local jobs … you can see why politicians are attracted to the idea of “buying local”.

There are also legitimate concerns with supposed free trade. Some countries probably have exploited the rules to their own benefit. And for developing countries, giving local industry some protection while it gets itself into a state where it can compete globally may be both sensible in the short-term and economically beneficial to everyone in the longer term (if it creates more genuine competition in oligopolistic markets, for instance).

But … there are issues too with this rise in protectionism and “buy local” philosophies. So next week  we will re-visit the arguments against such ideas and behaviour.