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TPP's government procurement rules, explained

Soon, government toilets could be made in Vietnam.
Soon, government toilets could be made in Vietnam.
Chip Somodevilla/Getty Images

Right now governments often use "buy local" rules: the Canadian government might require that Canadian agencies buy exclusively Canadian-made furniture even if cheaper Australian-made furniture is available. It's a bit of economic stimulus, and an expression of local pride. The Trans-Pacific Partnership deal doesn't quite end all that, but it lays down the principle that this kind of local preference should be brought to an end:

With respect to any measure regarding covered procurement, each Party, including its procuring entities, shall accord immediately and unconditionally to the goods and services of any other Party and to the suppliers of any other Party, treatment no less favourable than the treatment that the Party, including its procuring entities, accords to: (a) domestic goods, services and suppliers; and (b) goods, services and suppliers of any other Party.

The controversial trade deal's government procurement chapter hasn't attracted much notice, but it's actually a great example of the way modern trade deals are now about much more than trade.

The practical extent of curbs on buy-local rules is blunted by a number of exceptions and by the fact that many TPP countries already have procurement agreements with the United States.

But both the politics and the substance of this chapter of the TPP are bigger than the words in the text. These provisions represent the latest step in an ongoing journey to restrict governments' control over their own contracting behavior — and the treaty itself at least theoretically commits countries to going even further down this road at some point in the future.

The many faces of "buy local"

Governments impose buy-local rules on procurement contracts for a range of reasons:

  • The contract could involve national security secrets.
  • The procurement program might be an effort to stimulate the economy, in which case purchasing foreign-made goods wouldn't work.
  • The buy-local provision could be an effort to broaden the political coalition for a program — most US military aid to Israel, for example, requires the purchase of US-made equipment, turning the American defense sector into an advocate for aid. Many nutrition assistance programs, similarly, mandate the purchase of American-grown foodstuffs to help secure the clout of the farm lobby to work on behalf of programs for the needy.
  • The buy-local provision could be a simple matter of perverse interest group politics in which a politically connected company or labor union raises costs to capture a larger share of the revenue.

In practice, these rationales can be difficult to disentangle. One person's savvy coalition building is another person's corrupt interest group giveaway.

TPP's impact on procurement is limited

The TPP should not have an enormous impact on government procurement in the United States because all but three of the countries covered by the TPP — Vietnam, Malaysia, and Brunei — already have government procurement agreements with the United States, either through the World Trade Organization or through a bilateral agreement.

But in addition to expanding the list of countries with which the US has procurement agreements, TPP will also expand the list of agencies that are covered. On the American side, this means the Denali Commission, which builds infrastructure in rural Alaska, is now on the list — a real change, but not exactly a game changer.

Meanwhile, American companies' ability to bid for new contracts in Vietnam and Malaysia will be limited by transitional measures that Jean Heilman Grier, a trade consultant with Djaghe, says are "quite extensive."

American labor unions oppose procurement agreements in principle

Celeste Drake, a trade policy analyst with the AFL-CIO, explains that the labor federation is opposed in principle to the concept of this kind of multilateral government procurement agreement.

"We feel it's a domestic issue about how governments choose to use money," she explains, and not really a question of trade protection at all.

In particular, the AFL-CIO is concerned with the potential impact of these agreements on the government's ability to use fiscal policy to stimulate the economy.

Theoretically, the most efficient way to combat a global depression with fiscal policy would be for all countries to engage in simultaneous fiscal stimulus unencumbered by domestic procurement preferences. But in the real world, where countries need to make uncoordinated policy, it is reasonable to fear stimulus "leaking" out if the government ends up buying foreign-made goods rather than domestically produced ones. This means that, in practice, including "buy American" provisions in a stimulus bill can make it more effective.

The kind of procurement agreements that the TPP is extending don't make this kind of stimulative move impossible, but they do make it more challenging by forcing locally directed funds to be channeled through particular lists of excepted entities.

Many classes of government spending are exempt

All existing free trade agreements exempt many areas of US government spending from the procurement agreement, and the TPP continues that tradition. The key exempt areas are:

  • Federal funding for state and local highway and mass transit projects
  • Federal funding for state and local water projects
  • Procurement of transportation services (i.e., airline tickets for federal workers)
  • Purchases of food for the domestic or global poor
  • "Sensitive elements" of Department of Defense procurement ranging from weapons systems to materials and textiles

In addition, the TPP does not cover purchases by American state or local governments, though Drake notes that this might change. The text of the agreement states that "no later than three years after the date of entry into force of this Agreement, the Parties shall commence negotiations with a view to achieving expanded coverage, including sub-central coverage."

Whether that actually happens, of course, is anyone's guess. But its inclusion in the agreement underscores the fact that TPP's government purchase provisions, though modest, are just one step in a chain of international agreements that increasingly work to globalize the government procurement market in a way that may improve the efficiency of service delivery but also can curb governments' ability to use discretionary fiscal policy as a way to manage the overall economy.