Discriminatory public procurement and international trade

It is usually recognised that discriminatory procurement favouring domestic suppliers may constitute a barrier to trade and to international competition. In order to remedy this situation, 22 countries signed the Government Procurement Agreement (GPA). The agreement, which entered into force in 1996, regulates public tenders in a way to guarantee the transparency of the procedures and to ensure equal treatment of domestic and foreign suppliers. While the GPA is a major step forward in the process of public procurement liberalisation, some points of dissatisfaction remain. One in particular seems remarkable: compared to other multilateral trade agreements, the adhesion of developing countries to the GPA is extremely limited compared to other WTO agreements. Out of the 22 contracting parties, only two (Israel and Korea) are not in the set of industrialised countries. In contrast with the concern of policy makers with procurement liberalisation, theoretical and empirical research on the effects of home biased public procurement on international specialisation and trade flows remains scant. The purpose of this paper is to offer a birds-eye view of the issue informed by economic theory and backed up as far as possible by empirical evidence.