This chapter provides an overview of the linkages among public procurement, industrial policies and trade policies. It highlights how public procurement is used in industrial policies to stimulate domestic production throughout value chains, ultimately providing an advantage to domestic firms and products. It also explores how cross-border procurement helps governments deliver public services efficiently and effectively.
Public Procurement, Trade and Industrial Policies
Supporting National Priorities
Abstract
The public procurement market is a core part of the economy, accounting for 12.7% of GDP in OECD countries in 2023 (OECD, 2025[1]). As a core function of government activity, the procurement of goods, services and public works plays a critical role in the delivery of public services and in enhancing public sector efficiency. At the same time, governments increasingly recognise that public procurement has the potential to contribute to economic development and help achieve strategic policy objectives (OECD, 2025[2]).
In recent years, governments have increasingly considered the strategic role of industrial policies, defined as “interventions intended to improve structurally the performance of the domestic business sector” (Criscuolo et al., 2022[3]). These policies aim both at encouraging domestic production and technological advancement, developing new sectors through innovation and at improving strategic autonomy, resilience and productivity. They support local employment, upgrade value chains, and reduce risks linked with ill-functioning global markets such as those with an overconcentrated supply, over-dependency on foreign economies via trade, or foreign investment that can threaten national security in case of geopolitical conflicts, (OECD, 2024[4]) .(see Figure 1.1) These policies enable governments to address the needs of businesses and citizens through different channels, particularly the “demand-side” channel associated with public procurement.
Source: (Criscuolo et al., 2022[3]).
However, no national economy can efficiently produce all the goods and services it consumes, given factors such as limited natural resources, lack of necessary expertise or high costs associated with domestic production (Asian Development Bank, 2013[5]) (World Bank Group, 2020[6]) (Criscuolo et al., 2022[3]).Therefore, the relationship between industrial policies and trade policies is strong: trade and market openness help drive industrial policies by enabling countries to focus on industries where they have a comparative advantage or strategic ones, while industrial policies reshape trade policies. Thus, industrial policy, given its focus on structural performance, needs to go hand-in-hand with other policies, including competition policy and trade policy.
Public procurement is part of this equation. It is used in industrial policies to stimulate domestic production throughout value chains through various mechanisms, ultimately providing an advantage to domestic firms and products. On the trade side, cross-border procurement helps governments deliver public services efficiently and effectively. Given the relevance of the public procurement market, trade policies impact public procurement policies and outcomes, including market access. In addition, advantages provided to domestic firms through targeted industrial policies have direct consequences on the access of foreign firms to the national public procurement market (see Figure 1.2).
In line with the OECD Recommendation on Public Procurement and other international standards, public procurement decisions should follow the principles of non-discrimination, transparency, market openness, value for money and integrity (OECD, 2015[7]). In this context, looking at the core goals of different policies separately might suggest contradictions. However, when these policies are designed in a coherent way, their goals can be aligned. All these elements highlight the strong linkages between public procurement, trade, and industrial policies throughout value chains.
International public procurement can present several benefits. Operating in a global public procurement market may allow public buyers to source goods and services they may be unable to obtain domestically (Asian Development Bank, 2013[5]) (World Bank Group, 2020[6]). This can enable more competitive pricing, improve quality and ensure value for money. Furthermore, opening procurement markets globally enhances public buyers’ ability to benchmark prices for comparable goods and services and reduces the risk of collusion among bidders (Asian Development Bank, 2013[5]). It can also help strengthen national economies by giving domestic firms greater opportunities for growth by participating in markets beyond national borders (OECD, 2023[8]). For instance, it can further enhance domestic firms’ incentives to innovate by expanding their potential markets and facing increasing competitive pressure from foreign firms (OECD, 2023[8]; Autor et al., 2020[9]). It can also enhance the participation of domestic firms in the supply chains of contracts won in the domestic market. This stimulus to innovate could boost firms’ competitiveness and export capacity.
In this context, the OECD Recommendation on Public Procurement promotes the achievement of value for money and encourages countries to facilitate trade in public procurement by treating bidders, including foreign suppliers, in a fair, transparent and equitable manner, taking into account governments’ international commitments (OECD, 2015[7]). Several international agreements – both plurilateral, such as the Government Procurement Agreement (GPA) of the World Trade Organisation (WTO), and regional and bilateral free trade agreements – have aimed at reducing barriers to entry for foreign firms in public procurement processes and maximising competition. As a result, international trade agreements covering government procurement have progressively helped eliminate not only tariff barriers, but also non-tariff barriers (particularly relevant for services), including excessively short tender deadlines or unclear registration requirements that effectively exclude foreign bidders.
As industrial policies are likely to have a strong impact on public procurement outcomes, their impact goes beyond national borders, including on cross-border procurement. In addition, recent developments in the global economy are prompting governments to reassess their trade and industrial policies, including in relation to public procurement, to balance different policy objectives and address existing and emerging risks.
First, trade faces increasing tensions arising from the need to ensure the reliability of global supply chains. Addressing this challenge requires confronting the risks associated with the concentration of production of certain goods and raw materials in certain regions, as well as non-compliance with international standards in different areas, including human rights. These vulnerabilities undermine the resilience of global value chains and heighten the risk of disruption, particularly in times of crisis, thereby threatening the ability of public procurement systems to guarantee the continuity of essential public services. The current poly-crisis environment and successive global shocks; including the COVID-19 pandemic and since 2022, Russia’s war of aggression against Ukraine, highlighted the crucial role of trade in providing critical goods and services, but also exposed for some countries, some vulnerabilities in the reliance on imported essential goods such as pharmaceuticals (OECD, 2024[10]), semiconductors (OECD, 2021[11]), construction materials or even basic food supplies (OECD, 2022[12]), with sometimes significant consequences for public buyers and the delivery of public services. For instance, during the COVID-19 pandemic, contracting authorities faced sharp price increases, abusive contract terms, and widespread performance failures, as some suppliers withdrew from their contractual obligations to take advantage of more lucrative market conditions (OECD, 2020[13]; Folliot Lalliot and Yukins, 2024[14]). Conversely, global supply proved to be essential in providing critical goods such as medicines and medical equipment to some economies, including developing ones. These disruptions highlight the importance of carefully considering trade-offs in supply chains.
In addition, public procurement is increasingly used by some countries to pursue public interest goals which can include economic, environmental, social, and other public interest goals, according to national priorities. Some of these policies might have an impact on industrial policies and trade across supply chains. For instance, in some countries supply chain sustainability laws are part of a broader ecosystem for sustainability governance which includes public procurement regulatory frameworks. Examining the economic activities in countries with supply chain laws addressing labour issues, along with the foreign affiliates of firms headquartered in those countries, suggests that nearly half of global output is directly or indirectly connected to these laws. The implementation of these laws comes with a cost that may lead firms to consider reorganising their supply chains to avoid any business partners that might lead to additional paperwork or other regulatory hurdles (OECD, 2025[15]).
To secure effective delivery of public services and strengthen resilience in this volatile and unpredictable environment, and to support the policy objectives they are pursuing, governments have initiated new industrial policies (or re-industrialisation) aimed at implementing strategic interventions to stabilise, revitalise or stimulate key sectors of the economy and reinforce domestic production capabilities. Such policies seek to increase economic resilience, self-sufficiency, and national security (OECD, 2024[16]). The volatile environment has also pushed some governments to consider rerouting value chains to countries perceived as politically and economically at low risk, to avoid disruption to the flow of goods. These practices can take the form of friend-shoring, whereby countries relocate manufacturing nodes in politically friendly and reliable countries or reshoring; however, the impact of such policies on value chains resilience remains limited, and they can on the contrary have the adverse effect of concentrating risk in supply chains (OECD, 2025[15]; Broecke, 2024[17]; Tran, 2022[18]) . Likewise, the potentially huge social and economic costs of climate-related events have prompted governments to leverage industrial policy to develop low-carbon domestic manufacturing sectors, while green industries are also increasingly viewed as potential engines of job creation and sustainable growth (OECD, 2024[4]).
Results from the 2024 Public Procurement Survey show that only four responding countries (10% of OECD and accession countries) reported having adopted policies explicitly using public procurement as a strategic tool for re-industrialisation (see Figure 1.3) However, in practice, different measures not labelled as “industrial policies” or “re-industrial policies” are also implemented with the aim of strengthening domestic economies and resilience to external shocks in an increasingly interconnected world (OECD, 2025[2]). While some measures are procurement related, such as the support of SMEs, others are non-procurement measures but have a clear impact on procurement outcomes, such as the use of subsidies.
Source: (OECD, 2024[19]) Survey on the implementation of the OECD Recommendation on Public Procurement.
Note: Response to the question: Which of the following strategic policy objectives are reflected in procurement-specific policy document(s)?: Support for re-industrialisation”.
The use of public procurement measures to achieve economic objectives raises the question of impact evaluation – a key principle of the 2015 OECD Recommendation on Public Procurement. Robust evaluation frameworks provide an objective basis for understanding costs and benefits, what works, why, for whom, and under what circumstances, thereby informing the design of more effective and evidence-informed procurement policies (OECD, 2025[2]). Conversely, the absence of performance measurement frameworks and indicators can hinder the ability to assess the efficiency and effectiveness of procurement systems over time. When it comes to public procurement and industrial policies, it is essential to assess whether instruments such as giving preferences to domestic firms genuinely improve value creation within national economies. However, few countries systematically assess the broader impacts of public procurement. Only about 23% of respondents report evaluating its effects on the economy, and 10% on the environment (e.g. carbon footprint or emissions savings), or society (e.g. social inclusion) (see Figure 1.4. At the same time, many countries are working on developing a methodology to measure the impact of public procurement, in particular on the environment.
Note: Data are shown for 40 Respondents
Source: (OECD, 2024[19]), Survey on the Implementation of the Recommendation on Public Procurement.
This report explores the role of public procurement in industrial policy as a lever to strengthen national economies, while exploring the linkages and dynamics between public procurement, industrial policies, and international trade. It takes stock of policies, regulations and examples based on desktop research conducted until October 2025.
Chapter 2 discusses the measures countries have implemented which favour domestic products and firms that use or impact public procurement and trade. Measures discussed are classified into two categories:
1. Direct measures that may explicitly pursue the stated objective of strengthening national economies (i.e. granting advantages to domestic firms in the bidding process, requirements such as imposing joint ventures to foreign bidders with domestic firms, requiring commercial presence to participate in public procurement processes, or forcing technology transfer, explicit exclusion of bidders from public procurement, for example on the ground of national security or safety concerns, subsidies to domestic products).
2. Indirect measures that pursue other goals but ultimately may result in favouring domestic products or domestic suppliers over foreign economic operators (i.e. specific requirements in terms of environmental performance or social conduct, promotion of innovation).
Chapter 3 explores how international trade policies and measures interact with public procurement and industrial policy objectives and impact global value chains. First, it looks at the crucial role played by trade in enabling governments to deliver public services effectively through public procurement, and international agreements established to facilitate cross-border procurement, create a predictable regulatory framework, and address barriers that hinder equal access and fair competition between domestic and foreign firms. It also discusses the potential of new technologies and digital procurement platforms to lower trade barriers and facilitate broader international participation in procurement markets. Then, this chapter explores how growing concerns on unfair competition induced by some industrial policies colliding with trade in public procurement has led many countries to adopt measures aimed at ensuring reciprocity and fair competition.
These efforts seek to create a level playing field between domestic and foreign firms by promoting reciprocal market access and the equal application of competition rules. Finally, beyond the exchange of final goods and services, the section also looks at government value chains and discusses their resilience and stability, which can represent strategic priorities for governments to ensure secure and reliable sources of supply for public contracts.
Chapter 4 provides a conclusion to the report and highlights that further analytical work and research are needed in this area to support the policy dialogue and support evidence informed decisions.
Several of the measures discussed in Chapter 2 and 3 have already been referenced in the Taxonomy of Measures Affecting Trade in Government Procurement Processes developed by the OECD Trade and Agriculture Directorate in 2017 and presented in Annex A (OECD, 2017[20]). The taxonomy aims at identifying barriers to entry faced by foreign firms in public procurement. The present report revisits some of these measures within a broader framework of industrial policies aimed at strengthening the national economy and, in doing so, creating entry barriers that may ultimately alter international trade.
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