09 Mar 2016

TTIP and Public Procurement: Going beyond the tip of the iceberg

Lucian Cernat / Zornitsa Kutlina-Dimitrova

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Trade negotiations involving international public procurement rules are on the rise, stimulating a growing interest in having a clear picture of the economic stakes involved, including the current level of international openness. A recent paper published by the European Centre for International Political Economy (Messerlin, 2016) made an attempt to provide a range of estimates for the EU and the US and found relatively low rates of import penetration. This analytical approach, however, looked only at the ‘tip of the procurement iceberg’, as the data used covered primarily only one modality of international procurement (direct cross-border), which is not the main avenue for international government procurement. Other modalities, such as procurement from foreign subsidiaries established in Europe, account for much more. Such an approach therefore ignores the main modalities through which foreign firms win EU contracts. Once these other main procurement modalities are taken into account, EU openness in procurement is much higher. Comparable data across all modalities do not yet exist for the US, but we do have clear evidence that the US has introduced the largest number of protectionist procurement measures since 2008 affecting all modalities for international procurement.

Against this background, this Policy Brief makes four basic points:

i.              Public procurement is a key area of trade negotiations, and TTIP is no exception to this rule.

ii.             The existing levels of openness in procurement markets need to be assessed across all three main procurement modalities and not based only on direct cross-border procurement, which is not the main procurement avenue. According to this comprehensive metric, the EU market already has a high foreign participation rate, including by US companies.

iii.            Unfortunately, similar data do not exist for the US market. But there is growing evidence of discriminatory measures introduced in recent years, which impede the ability of EU firms to compete on a level-playing field in US procurement markets.

iv.           The importance of procurement as a key negotiating area requires better data and a greater analytical engagement.

Lucian Cernat is the Chief Economist of DG TRADE of the European Commission. Zornitsa Kutlina-Dimitrova is a senior economist in the Chief Economist and Trade Analysis Unit of DG TRADE.