Public Procurement, Trade and Industrial Policies

Public procurement measures aimed at fostering domestic industry should be designed in a way that does not generate unjustified trade barriers or discriminatory criteria. The report shows that many countries use procurement to support and favour domestic firms or production through direct measures such as domestic content requirements, award preferences, reserved contracts, joint venture obligations or exclusions based on security grounds. Subsidies granted outside procurement rules can also influence procurement outcomes by allowing supported firms to underbid competitors. Evidence on the economic effectiveness of these measures remains mixed, and reported impacts depend heavily on design and context.

Procurement is also used by some countries to pursue different priority goals including innovation and security-of-supply. These priority goals are not primarily industrial policy tools but can favour domestic actors in practice. Innovation-oriented procurement, environmental and social criteria and resilience requirements may raise entry costs for foreign firms if not applied proportionately. The report highlights that local sourcing does not automatically deliver better outcomes and that trade-offs among objectives require careful market analysis.

International trade agreements, notably the World Trade Organization (WTO) Agreement on Government Procurement and bilateral or regional agreements, play a central role in opening procurement markets and setting rules for non-discrimination and transparency. At the same time, concerns about lack of reciprocity and unfair competition have led some countries to adopt instruments restricting access for firms from non-covered countries or those benefiting from distortive subsidies. Recent measures illustrate a shift towards conditional openness in procurement markets.

Public procurement is deeply embedded in global value chains, with most procured goods and services relying on internationally sourced inputs. Policies aimed at reshoring, near-shoring or friend-shoring production seek to reduce vulnerabilities but may increase costs and concentrate risks. OECD evidence suggests that highly restrictive approaches can reduce trade and GDP without necessarily improving resilience, underscoring the need to balance security objectives with the benefits of open markets.

Public procurement sits at the centre of growing tensions between industrial policy goals and open trade. It underlines the need for better impact assessment of procurement-based interventions, an updated OECD taxonomy of trade-related procurement measures, and greater use of digital tools to improve transparency and access. Careful policy design and evaluation based on evidence are essential to align national priorities with efficient, competitive, and resilient procurement systems.