3.4: Public Procurement and Trade Agreements
Free Trade Agreements (FTAs) aim to eliminate tariffs on goods made in one country and sold in the other so companies are on an equal footing. (EDC, 2018). FTAs outline government procurement obligations that set out rules and procedures to ensure that procurements are conducted fairly, transparently, and competitively. These trade agreements bind public entities that typically include ministries, certain agencies, municipalities and some organizations in the broader public sector (including school boards and publicly funded academic, health and social service entities). Public procurement commitments include provisions for providing information about reporting on procurement activities, explaining procurement practices, and measures to resolve bid disputes.
Public entities need to report annually on their procurement activities. The annual report must include the number of contracts awarded under the trade agreement and provide a category breakdown of procurement (goods, services or construction). In Canada, new rules, standards, and procedures are adopted to ensure transparency of a public entity’s procurements, which is enabled through a single point of access (SPA).
Procurement rules are revised periodically, including reviews of policies, systems, templates, and supporting tools. Transparency is improved by updating processes and procedures around evaluation criteria, debriefings and duration of bid postings. All participating suppliers must be contacted upon award decision and provided reasons if a tender is unsuccessful. Awarding information must be available within 72 days of awarding a contract.
Bid dispute processes must be timely, transparent and non-discriminatory. Supplier relations and communication are improved by establishing timely administrative procedures. The process allows a supplier to take steps to participate in the procurement process, where appropriate and challenge a procurement that it feels is not in accordance with the trade agreement.
Obligations
Obligations under trade agreements for public procurement are difficult to understand, which may create challenges regarding their application. The first step is determining if a trade agreement applies to a particular procurement. Such an evaluation must consider dollar thresholds and exemptions.
Solicitation is not to be restricted to local suppliers. Therefore, including a preference for local vendors in a bid document when a remote vendor would work equally well is contradictory to the obligations of the trade agreement.
Proposals must give a fair chance for a new vendor to succeed, even if the vendor is qualified and experienced in another region. Suppliers are not required to have experience working with the organization that has advertised the opportunity.
Detailed posting requirements are to be followed in accordance with the applicable trade agreement. Information about rules to be followed is listed in the agreement. Care must be taken when reviewing these bid documents as some implications are not immediately obvious, such as indicating whether a particular trade agreement applies to an opportunity.
The requirement for transparency in public posting requires the organization to use its electronic tendering tool and website to post the opportunity. Specific articles in the FTA identify the communication details and documentation requirements, including specific information about the solicitation posting period, how submissions will be received, and public posting to inform bidders of the contract award.
Benefits
Trade liberalization can improve public procurement performance, resulting in more transparent, competitive, inclusive and effective public procurement outcomes.
Open borders introduce:
- Enhanced competition for contracts delivering greater value for money.
- Greater competition stimulates product and service innovations and process improvements by bidders, including public suppliers, for government contracts.
- More cost-effective choices available to public buyers.
- More informed price benchmarking for comparable goods and services, deterring collusion among bidders.
- Use of increased transparency facilitating ex-post or after-the-event reviews of procurement outcomes.
- Greater incentives to stick to norms of due process, transparency, and the like to ensure full compliance with trade commitments.
- Erosion of entitlement among well-connected domestic suppliers.
- Greater benchmarking against international best practices in procurement.
Read about the Broader Public Sector directive and answer these questions.
Real Cases in Public Procurement: Learning from Experience
The Bombardier-Embraer Dispute
Issue: Government subsidies are a problem for international trade and economic development because they distort investment decisions with the use of public resources. Embraer and the government of Brazil argued that Canada offered Bombardier unfair subsidies that allowed it to become more attractive to air carriers considering the purchase of Bombardier’s jets. Canada made the same arguments about Brazil’s export credit program. Brazil’s Embraer and Canada’s Bombardier are competitors in the short to medium-haul route aircraft in the world market, particularly in the profitable United States market.
Background: The goal of the General Agreement on Tariffs and Trade (GATT) is for goods and services to be exchanged among countries without tariffs, quotas, favouritism or discrimination. The GATT was replaced by The World Trade Organization (WTO). The WTO Agreement on Subsidies and Countervailing Measures regulates the provisions of subsidies and provides rules for countervailing measures. Currently, WTO members, including Canada and Brazil, can subsidize exports but only for products on which they have commitments to reduce the subsidies. Most developing countries argue that their domestic producers are handicapped if they have to compete with imports whose prices are depressed because of export subsidies. Developed countries continue to spend large amounts on export subsidies. In contrast, developing countries cannot because they lack the funds.
WTO Dispute: a) A claim was submitted on a Brazil export financing programme that awarded loans to Embraer clients. b) Brazil challenged the Canadian government’s subsidies for the C-Series aircraft by bringing the Canada—Measures Affecting the Export of Civilian Aircraft case to the WTO. c) Brazil claimed that export credits and loan guarantees were made for the Bombardier aircraft to gain market share.
Outcome: Embraer claimed victory in the long-running trade dispute with Bombardier. The WTO found that subsidies provided by Canada were inconsistent with its agreement on subsidies and countervailing measures and ordered Canada to withdraw all subsidies within 90 days.
Discussion Questions
- Could a trade dispute have been avoided?
- Should governments limit the use of subsidies?
- What risks should be avoided?
Sources: Based on Bombardier Aerospace and Embraer S.A. government subsidy controversy. (Updated September 2023.) In Wikipedia. Retrieved on September 26, 2024. Bombardier Aerospace and Embraer S.A. government subsidy controversy – Wikipedia; Embraer. (Updated September 2024.) In Namuwiki. Retrieved on September 26, 2024. Embraer – NamuWiki; WTO to also probe alleged Bombardier subsidies into CSeries jets. (2017, September 29). CBC; Bombardier suffers another blow as WTO to probe subsidies in Brazil row. (2017, September 29). The Globe and Mail.
Checkpoint 3.4
Attribution
The multiple choice questions in the Checkpoint boxes were created using the output from the Arizona State University Question Generator tool and are shared under the Creative Commons – CC0 1.0 Universal License.
Action taken by the importing country, usually in the form of increased duties to offset subsidies given to producers or exporters in the exporting country.
