Public Procurement, Trade and Industrial Policies

Executive summary

Public procurement represents a large share of economic activity in OECD countries (13% of GDP on average) and is increasingly used to pursue strategic policy goals including industrial policy goals. As governments reassess the balance between trade openness, resilience, and security of supply, procurement policy has become a focal point where industrial policy and international trade intersect, with implications that extend beyond national borders.

Drawing on OECD surveys, legal analysis, case studies and data collected up to October 2025, the report examines the role of public procurement in industrial policy as a lever to strengthen national economies while exploring the linkages and dynamics among public procurement, industrial policies, and international trade throughout value chains. It also reviews the effects of these policies on competition, market access and supply chain resilience.

Public procurement as an industrial policy tool

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.

Indirect measures supporting national economies, affecting trade and public procurement

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.

Trade frameworks, reciprocity and market access

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.

Global value chains, resilience and policy trade-offs

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.

Conclusions

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.