This chapter explores trade measures involving public procurement that affect industrial policies and the resilience of global value chains. It first examines the key role of international procurement in delivering public services effectively. Then it discusses issues around the reciprocity of commitments in international trade agreements concerning public procurement. Last, it highlights the relevance of international trade for inputs or intermediate goods needed to produce the final goods and services procured by governments.
Public Procurement, Trade and Industrial Policies
Supporting National Priorities
Abstract
Given its significant economic weight, public procurement plays an important role in international trade. This is reflected in the emphasis that countries place on public procurement within international free trade agreements (FTA). Opening public procurement markets can enable governments to obtain goods and services with the best value for money. Likewise, countries aim to ensure that domestic companies can access foreign public procurement markets, providing them with greater growth opportunities. However, it is key to ensure a common understanding of what is meant by trade in public procurement, which measures countries are implementing to foster trade and their implication on national economies.
International trade has become essential for enabling governments to deliver public services effectively through public procurement. Given the limitations that countries might face in access to natural resources and the high costs associated with the domestic production of certain goods, most countries source some of the goods, services and works they deliver through international trade.
International trade can bring numerous benefits to public procurement, namely by increasing competition and facilitating offers’ benchmarking, which could lead to more competitive prices and an improved quality and value for money. In parallel, procurement market openness may offer more economic opportunities to domestic firms and products and present the potential to foster innovation through competition and larger markets (Griffith and Van Reenen, 2021[1]). The OECD Recommendation on Public Procurement recognises the role of trade in public procurement. It therefore encourages countries to facilitate trade in public procurement by treating bidders, including foreign suppliers, in a fair, transparent and equitable manner, considering Adherents’ international commitments (OECD, 2015[2]). Reflecting this principle, several international agreements have been negotiated to facilitate and provide a framework for trade in public procurement and to foster cross-border procurement. Mechanisms to address some of the remaining barriers to equal access and opportunities for domestic and foreign firms and products in procurement markets have also been established. Before exploring the various trade agreements involving public procurement and their impact on international trade, it is worth exploring the concept of cross-border procurement as there is no consensus among OECD member countries on the definition.
3.1.1. What do we mean by trade in public procurement?
In a globalised economy, government contracts act as a channel for cross-border exchanges between public buyers and foreign firms, foreign goods, services, and works. Public procurement may therefore involve imports and exports. Studies analysing cross border procurement characterise different types of transactions in international public procurement (European Commission, 2021[3]; US Government Accountability Office, 2019[4]; Cernat and Z. Kutlina-Dimitrova, 2020[5]) . The main types of situations involving cross-border procurement are outlined below. Two situations depicted in Figure 3.1 appear to be widely recognised: one as purely domestic public procurement that does not involve any cross-border element and the other as a commercial exchange:
The first refers to a case where an economic operator (EO) from Country A is awarded a public contract from Government A and uses, for the performance of the contract, goods manufactured in Country A or relies on subcontractors based in Country A (Domestic procurement).
The second refers to a case where an EO from Country B is awarded a public contract from Government A and uses, in the performance of the contract, goods manufactured in Country B or relies on subcontractors based in Country B (Direct cross-border procurement).
Note: EO: Economic operator.
Other situations illustrated in Figure 3.2 and the extent to which they constitute trade exchanges remain subject to debate:
The first refers to a case where an EO from Country A is awarded a public contract from Government A but uses, in the performance of the contract, goods manufactured in Country B or relies on subcontractors from Country B (Value-added cross-border procurement). In this case, the company from Country B that produces the goods imported for contract performance – or that is subcontracted by the main contractor – may be considered an indirect participant in the contract. As such, a cross-border transaction may be deemed to take place.
The second involves a situation where an EO from Country B is awarded a public contract from Government A but uses goods manufactured in Country A or engages subcontractors from Country A (Cross-border procurement involving domestic content). In this case, the contract gives rise to two types of cross-border exchanges: first, by virtue of a firm from Country B winning a contract from Government A; and second, because part of the contract’s value will be transferred to domestic producers in Country A, through purchases made by the foreign firm.
In the third situation, the EO awarded the contract is established in the same country as the contracting authority (Country A) but is a subsidiary of a parent company headquartered in Country B (Commercial presence procurement / Indirect procurement). In this case, the awarded company is a local subsidiary owned by a foreign parent firm. As a result, the value of the contract ultimately benefits a foreign entity, which may give rise to a cross-border economic relationship.
Note: EO: Economic operator.
The adoption of a broad or a restricted definition of what constitutes cross-border procurement, which may include or exclude indirect exchanges presented in Figure 3.2, has direct implications on countries’ assessment of their trade policies in relation to public procurement. Different methodologies are used by different countries, leading to different results. Box 3.1 presents an example of results from a study of the US Government Accountability Office (GAO) on cross border procurement with EU countries and the results of other studies conducted by EU countries.
The US findings on cross-border procurement
A study of the US Government Accountability Office (GAO) found that, in 2015, the United States likely procured more than twice as much from key trade partners (Mexico, Canada, the EU, Norway, Korea, and Japan) as these countries did from US firms. An estimated USD 5 billion in US procurement was awarded to firms with reported locations in these six main trade partners. Conversely, the central governments of those countries awarded approximately USD 7 billion in procurement contracts to foreign suppliers, of which only about USD 2 billion went to US-based firms.
The EU findings on cross border procurement
The methodology used in the GAO report has been challenged by several EU studies. In particular, a study focusing on the degree of openness of EU public procurement to American firms pointed out the limitations of the GAO’s findings – which indicated a relatively low share of EU public procurement contracts awarded to US companies, compared to a much higher value of US procurement awarded to EU firms. The study highlights that the GAO report only considered contracts awarded to firms physically located in the United States, thereby failing to capture commercial presence procurement as well as value-added indirect procurement. This omission likely led to an underestimation of the extent to which US firms penetrate the EU procurement market.
Based on a different methodology, the study concluded that while US-based firms were directly awarded EUR 1.6 billion (USD 1.9 billion) in contracts (direct cross-border procurement), an additional EUR 6 billion (USD 7 billion) was captured indirectly by US companies operating within the EU (Commercial presence procurement / indirect procurement). Furthermore, contracts involving the use of US-made products or subcontracting to US firms amounted to over EUR 3 billion (USD 3.5 billion) (Value-added cross-border procurement). These findings suggest that the real level of US participation in the European procurement market is significantly higher than what was initially reported.
A study conducted by the European Commission and published in 2021 using a similar methodology – including commercial presence and value added cross-border procurement – also found that the United States was one of the two main non-EU countries to which contracts from the EU and the United Kingdom were awarded. For contracts valued between EUR 1 000 and EUR 200 million (USD 1 150 to USD 233 million), US companies accounted for 7% of all direct cross-border procurement in the EU, representing approximately one-quarter of total awards made to non-EU suppliers. In the United Kingdom, the corresponding share was 4%. Moreover, US companies held a 12% share of total indirect cross-border procurement in the EU.
3.1.2. Public procurement related to trade agreements: a means to foster cross border procurement
To guarantee foreign firms the right to tender for procurement contracts, reduce barriers to entry, and ensure an equal treatment of foreign and domestic firms in these processes, several international agreements – both plurilateral, such as the Government Procurement Agreement (GPA), regional (between two or more partners) and bilateral– have been negotiated. These agreements are intended to maximise competition by facilitating the participation of foreign suppliers and prohibiting the use of offsets.
Ensuring market access has been a central rationale for including public procurement disciplines in trade agreements (Gourdon and Messent, 2017[6]). As a result, international trade agreements covering government procurement have helped eliminate not only tariff barriers, but also non-tariff barriers – such as excessively short tender deadlines that effectively exclude foreign bidders. However, despite the progress made through the implementation of these agreements, some non-tariffs barriers remain. Innovative tools and approaches such as the use of e-procurement can be leveraged to remove them.
Plurilateral government procurement agreement: Government Procurement Agreement of the World Trade Organisation
The most significant international agreement concerning public procurement is the World Trade Organisation’s (WTO) Government Procurement Agreement (GPA), originally signed in 1994, with the current revised version adopted in 2012 (WTO, 2012[7]). The GPA is a plurilateral agreement, meaning it is binding only on WTO members that have voluntarily signed and accepted it. Approximately three-quarters of the WTO members are not party to this agreement, and most parties are in fact OECD countries (31 OECD countries). Currently, there are 22 parties to the agreement, representing 49 WTO members including the EU and its 27 Member States (counting as one party) as well as Armenia, Aruba, Australia, Canada , Hong Kong, Iceland, Israel, Korea, Japan, Liechtenstein, Moldova, Montenegro, North Macedonia, New Zealand, Norway, Singapore, Switzerland, Chinese Taipei, Ukraine, the United Kingdom and the United States. In the first quarter of 2025, Albania and Costa Rica advanced their negotiations to join the GPA with the submission of “final” market access offers (ABS News Service, 2025[8]). Chile, Colombia and Türkiye are observers to the GPA. Mexico is the only OECD country that is neither a party nor an observer to the agreement. The agreement applies to procurement of goods, services, and works conducted by central and sub-national governments as well as public enterprises, provided the contract value exceeds specified thresholds which vary depending on the contracting entity and the nature of the procurement. Thresholds are reviewed and adjusted every two years. The GPA establishes the legal framework for public procurement within the WTO’s system and applies the three core principles of the WTO – non-discrimination, transparency, and fairness – to the procurement markets of its signatories (see Box 3.2).
The GPA sets three key rules that States parties must apply to ensure open, fair and transparent conditions of competition in the government procurement markets:
Non-discrimination: The GPA requires states parties to open their procurement markets to suppliers, merchandises and services from other GPA parties. It also requires states parties to ensure that goods, services, works, and suppliers from other countries that are parties to the agreement are treated in the same way as domestic goods, services, works, and suppliers.
Transparency obliges governments to publish their procurement laws and regulations, ensuring that foreign suppliers are informed of applicable rules.
Fairness is safeguarded through provisions for independent domestic review mechanisms to handle supplier complaints.
Source: (WTO, 2012[7])
Parties to the GPA are allowed to modify or adjust their commitments under the agreement by limiting access to certain types of contracts. For example, in Wyoming (United States), the GPA does not cover procurement of construction-grade steel, motor vehicles, or coal (WTO, 2025[9]; US Government, n.d.[10]). Notably, the GPA does not mandate reciprocal access to defence procurement markets.
The GPA is attempting to open national public procurement to cross-border procurement by pushing for more transparency, non-discrimination of foreign suppliers, setting minimum standards for procedural rules (e.g. time limits), and strengthening review procedures. It is expected to drive up the country’s public procurement exports in sectors where it has comparative advantages and enhance domestic public procurement efficiency through greater openness to foreign competition and better governance (Yukins and Fazekas, 2020[11]). Figure 3.3 illustrates the potential impact expected from the principles contained in the GPA.
The potential economic impact of reducing domestic preferences among GPA members is significant. First, the market access opportunities available under the 2012 revised version of the GPA are estimated to be worth more than USD 1.7 trillion annually, which can provide great growth opportunities for businesses (WTO, 2025[9]). Some studies have estimated that a 10% reduction in GPA members domestic preference could result in a 0.01% increase in the combined GDP of GPA parties, equivalent to approximately USD 3.8 billion (Z. Kutlina-Dimitrova, 2017[12]). Overall, reducing domestic preferences in government procurement could result in a 0.6% increase in total exports from GPA members, representing an estimated USD 75 billion in additional trade (Z. Kutlina-Dimitrova, 2017[12]).
However, only few studies have measured the impact of the effectiveness of GPA in reducing discriminatory measures. In 2017, an OECD study estimated that overall the GPA seems to have a significant impact on reducing domestic preferences in government procurement (Gourdon and Messent, 2017[6]), which supported similar findings of a 2011 research paper estimating that, from 1996 to 2008, GPA membership in 20 OECD countries significantly boosted trade in both goods and services among members, including growth in imports, exports, and foreign affiliate services sales (Chen and Whalley, 2011[13]). However, a more recent study conducted by the European Commission seems to indicate that it is in practice difficult to assess the impact of GPA on cross-border procurement. The study asserts that, although the majority of EU cross-border procurement contracts awarded between 2016 and 2019 were covered by the GPA, this does not seem to have influenced cross-border activity (European Commission, 2021[3]).
Growing debates have focused on the GPA. Some OECD countries, mainly the US and EU member countries, have criticised the non-reciprocal opening of public procurement markets by other parties to the GPA. The 2025 White House report on Buy America policy states that, according to a 2019 GAO report (US Government Accountability Office, 2019[4]), the US reported USD 837 billion in public procurement contracts covered by the GPA in 2010 while the next five largest GPA parties (the EU, Japan, Korea, Norway, and Canada) only reported USD 381 billion despite the fact that total US procurement market value was less than the total value of the procurement market of these five partners combined (The White House, 2025[14]). The same report underlined the fact that GPA partners open their procurement markets to third countries who are not parties, forcing US suppliers to compete for the preferential market access they are entitled to under the agreement. To address this lack of reciprocity and unfair competition, the White House report recommends that the GPA should be modified or renegotiated.
The European Commission also argues that many GPA countries are reluctant to open fully their procurement markets (European Commission, 2025[15]). In the working paper accompanying the second proposal for the European regulation on access for economic operators from third countries to European public procurement market, the International Procurement Instrument (IPI), the European Commission estimated that half of the global procurement market was closed to foreign bidders but that greater access could more than double EU procurement exports, adding EUR 12 billion (approximately USD 14 billion) to the existing EUR 10 billion (approximately USD 11.7 billion) in exports (tenders won by EU companies abroad) (European Economic and Social Committee, 2016[16]). According to the same document, the value of procurement markets accessible to foreign bidders was EUR 178 billion (approximately USD 208 billion) in the US and EUR 27 billion (USD 31.5 billion) in Japan, compared to EUR 382 billion (USD 446 billion) in the EU (European Union, 2016[17]).
Regional and Bilateral free trade agreements involving reciprocal access to public procurement
Many regional and bilateral free trade agreements (FTAs) include provisions on public procurement (Folliot Lalliot and Yukins, 2024[18]). In addition to traditional commitments to reducing tariffs and non-tariff barriers to the trade of goods and services, these agreements often cover other trade-related areas, including public procurement. As such, many FTAs provide mutual access to public procurement markets.
A 2017 OECD study showed that an increasing number of bilateral trade agreements include chapters on government procurement (Gourdon and Messent, 2017[6]). While only seven international agreements covered government procurement prior to 1990, this number increased to 20 by 2000 and closer to 70 by 2010.The same OECD study include an analysis of 60 FTAs which suggests that more than 78% of those agreements involve at least one party to the GPA while the other 22% agreements reviewed were between parties with no WTO GPA commitment (Gourdon and Messent, 2017[6]).
These agreements mainly provide reciprocal access to public procurement markets to companies from countries that are not parties to the GPA, or establish bilateral access to specific markets that fall outside the scope of the GPA to GPA parties. One such example is the Economic Partnership Agreement (EPA) between the European Union and Japan. This agreement stipulates that the restriction under the GPA that limits access by foreign suppliers to Japanese railway procurement does not apply to European firms for contracts exceeding a specific threshold set in the treaty (EU-Japan Centre for industrial Cooperation, 2025[19]). In the EPA, the Operational Safety of Transportation Clause (OSTC) is removed for procurement of goods and services from railways contracts by Sub-Central Government Entities and other specific entities above specific thresholds mentioned in the EPA and procurement by contracting entities such as Tokyo Metro will be open to suppliers from the EU (EU-Japan Centre for industrial Cooperation, 2025[19]).
Other bilateral FTAs have recently been established. For example, the EU-Chile Interim Trade Agreement (ITA) entered into force on February 2025 effectively replacing the 2002 EU-Chile Association Agreement. Under this upgraded FTA, the EU and Chile exchanged improved access to their government procurement markets. Chile notably offered a better coverage of its subnational governments, covering all municipalities, in contrast to the listing of such entities in the earlier agreement. Both parties opened their public works concession contracts and confirmed coverage of their ports and airports.
Similarly, Canada’s agreement with the European Union, the Comprehensive Economic and Trade Agreement (CETA) is built on earlier trade agreements (including the GPA) but includes new provisions on procurement, such as a commitment by Canada to match European practice by publishing procurements at all levels of Canadian government (national, provincial and local) (Yukins and Fazekas, 2020[11]).
Other bilateral agreements grant access to defence procurement markets, which are excluded from the GPA. This is for example the case for agreements concluded by the United States with 28 trading partners, including the United Kingdom, Germany, and Japan (US Government Accountability Office, 2024[20]). The largest regional agreement with substantial procurement provisions is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP parties are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United Kingdom, and Vietnam. In 2024, the CPTPP parties accepted Costa Rica as its next candidate for accession and established an Accession Working Group for it (Government of Canada, n.d.[21]). Procurement provisions under the CPTPP largely mirror the provisions in the GPA regarding non-discrimination, transparency and procedural fairness for the covered procurement activities. However, it also gives members of this agreement privileged access to markets that are not accessible under the GPA, such as the Malaysian or the Vietnamese markets (Government of Canada, n.d.[21]).
Despite progress made to open public procurement markets to international trade, non-tariffs barriers to cross-border procurement remain
Although free trade agreements with public procurement components aim at opening public procurement markets, removing tariff barriers and encouraging the reduction of discriminatory measures, non-tariff barriers to cross-border procurement remain, which may have the effect of distorting the potential impact of these agreements.
A 2021 study conducted by the European Commission found that the most relevant barriers perceived by companies to participate in non-domestic procurement were “burdensome administrative requirements” (45.1% of respondents) and “difficult access to procurement information” (40.9% of respondents), followed by “language barriers” (37.6% of respondents) (European Commission, 2021[3]). Similarly, according to bidders from non-EU countries, the most significant barriers to cross-border procurement within the EU were “unknown legal framework" (selected by 61.8% of respondents), followed by “Insufficient linguistic competences” (55.5%) and "higher cost to operate abroad" (51.7%).
More broadly, the study suggests that economic and cultural linkages between countries seemed to influence bilateral relationships in cross-border procurement (European Commission, 2021[3]). Indeed, language and geographical proximity are important factors to foster cross-border procurement. The study showed that around 40% of direct cross-border procurement took place within 500 km between the contracting authority and the successful bidder and 30% occurred between 500 and 1 000 km, while a very low percentage of direct awards showed an average distance greater than 2 000 km. Companies from smaller countries seem also to gravitate towards their largest economic partner. For example, 30% of the public procurement won by Luxembourgish companies were awarded by French contracting authorities. These barriers could be considered as “natural barriers”.
In addition to these barriers, the 2017 OECD taxonomy of measures affecting trade in government procurement processes also highlighted the lack of transparency in the procedure as constituting a non-tariff trade barrier. The taxonomy reflected the lack of transparency in different subcategories such as limited access to procurement information, language barriers during the procurement process, and a complex legal framework (see Figure 3.4) (OECD, 2017[22]).
Source: Adapted from OECD (2017[22]), OECD taxonomy of measures affecting trade in government procurement procedures.
Research also highlighted legal and institutional constraints that may hinder the effective implementation of trade agreements, noting that these challenges may be exacerbated by a hypothetical lack of political will at the subnational level to promote trade (Yukins and Fazekas, 2020[11]), which, in 2023, represented 62.5% of OECD countries’ procurement spending (OECD, 2025[23]). Political and bureaucratic incentives at the local level may, in certain cases, reduce the motivation to support cross-border procurement. In particular, the tendency of local politicians to use public procurement as a tool for local economic development – often driven by electoral considerations – may represent a structural barrier to cross-border competition (Yukins and Fazekas, 2020[11]). Furthermore, corruption, to which public procurement is particularly vulnerable, is frequently cited in the literature as an additional impediment to the effective enforcement of international trade commitments (Yukins and Fazekas, 2020[11]).
According to the same study, barriers to trade in the field of public procurement also stem from weaknesses in regulatory instruments and the limited effectiveness of legal remedies (Yukins and Fazekas, 2020[11]). International legal standards are, in many cases, poorly transposed into national legislation, making it difficult for bidders who have been subject to discrimination to seek effective redress. As a result, the enforcement of non-discrimination principles in procurement remains uneven across jurisdictions. At the same time, intergovernmental dispute settlement mechanisms – such as those established under the GPA – are reported to be rarely used (World Trade Organization, 2025[24]). This underutilisation is likely due to the relatively limited commercial value of individual public contracts, which may not warrant the political or legal costs associated with initiating a formal dispute between governments (Yukins and Fazekas, 2020[11]).
To overcome some of the challenges related to non-tariffs barriers, countries like Colombia have taken specific actions. For instance, ProColombia, the national organisation dedicated to promoting exports, encouraging business expansion, attracting foreign investment, positioning tourism and strengthening Colombia's image internationally has been supporting the participation of domestic companies in international tenders by for instance organising a series of seminars on the topic. Colombia Compra Eficiente (ProColombia, 2022[25]), the national public procurement agency has also released guidelines for trade agreements in procurement processes which aim at reducing regulatory complexity (Colombia Compra Eficiente, 2024[26]).
3.1.3. Digital tools, a key tool to enhance cross-border procurement
In response to some of the non-tariff barriers to cross-border procurement identified, the use of digital tools as e-procurement or digital technologies in public procurement is a way of increasing transparency of information, reducing transaction costs that might be prohibitive for foreign companies and therefore facilitating their participation in cross-border procurement. Indeed, digital technologies have radically reshaped public procurement over the past few decades from the early adoption of digital tools in the late 1970s to the widespread application of e-procurement solutions in the mid-2000s (OECD, 2025[27]). The OECD Recommendation on Public Procurement (OECD, 2015[2]) [underscores the critical role of digital tools and solutions in fostering competition and streamlining processes (OECD, 2015[2]).
Indeed, e-procurement can enhance transparency, reduce some barriers to entry and the administrative burden of national and foreign companies by for instance: i) Automatically publishing tender notices on centralised platforms, ii) providing tender documents in an open and accessible way, iii) providing information about upcoming opportunities, iv) providing historical information about past procurement processes to allow potential foreign bidders to analyse and plan their possible participation in the market, and v) enabling firms to submit their bids online (see Figure 3.5) Moreover, the digital traceability of procurement decisions produces an easily accessible electronic audit trail about the decisions leading to contract award (bid evaluation), facilitating managerial oversight and audit which increases the risk of detection for rent-seeking behaviour (Blum et al., 2023[28]). Publishing tenders in a standardised format on a central platform also ensures free, timely, and equitable access to information, irrespective of geographical location which better advertise tender opportunities (Blum et al., 2023[28]).
Furthermore, the OECD underlined the importance of the publication of information related to the procurement planning providing concrete information on upcoming procurement opportunities (e.g. procurement plans) (OECD, 2023[29]). Procurement planning has indeed two key benefits:
Ensuring a better management of time and resources for all stakeholders; and
Improving market engagement by providing economic operators with enhanced visibility on upcoming procurement opportunities (when the procurement plans are published), therefore increasing access to public tenders and ultimately promoting more competition (OECD, 2023[29])
Hence, publication of procurement information is key to ensure transparency and foster greater market openness (OECD, 2025[30]).
Finally, the electronic submission of tenders is an essential element in increasing the number of foreign competitors in procurement procedures, as it allows foreign companies to participate in the tender process (OECD, 2021[31]). The 2021 OECD report on Public Procurement in the State of Mexico showed, for example, that e-submission allowed bidders from outside the State of Mexico, such as Mexico City or even foreign companies, to participate in the tender process (OECD, 2021[31]).
E-procurement therefore has the potential to lead to increase the number of bidders in procurement procedures, lower prices, and improve quality of the goods purchased, and ultimately increase value for money. Studies corroborate these affirmations. A study conducted in Indonesia and India on the impact of e-procurement finds evidence that e-procurement increased the share of non-local winners in public procurement (Lewis-Faupel et al., 2016[32]). It finds nevertheless no evidence that e-procurement increased the number of bidders or lowered prices, contrary to theoretical predictions. A more recent study examining the implementation of e-procurement in Bangladesh also shows that digital procurement systems enhance open and equitable access to public markets (Blum et al., 2023[28]). The introduction of e-procurement led to an increase in the number of bidders, a decline in single-bid procedures, and a growing market share for non-local firms. In addition, the study also found that the greater number of bidders significantly intensified competition, resulting in better value-for-money outcomes for public buyers.
Most respondents to the 2024 OECD Survey on the Implementation of the OECD Recommendation on Public Procurement reported having adopted transparency requirements on the tendering stage (OECD, 2025[33]). Data highlights that efforts have been made to make public procurement documents and data publicly available, contributing to fostering transparency. Notably, almost all respondents publish tender notices (100%), technical specifications (98%), evaluation criteria (98%), procurement plans (83%), clarification to bidders’ questions (93%) or bidding documents (80%) on e-procurement systems (see Figure 3.6).
Source: (OECD, 2025[33]).
While publishing data enhances transparency, its value to stakeholders highly depends on the existence of a centralised platform or access (OECD, 2025[33]). Decentralised publication can indeed limit visibility of existing and future opportunities if key documents are scattered across multiple sites instead of centralised (OECD, 2025[33]). Most respondents to the survey, however, use an online central platform to share procurement information (39 out of 40, or 98%). The survey also indicates that 28 of the 40 respondents (70%) use innovative technologies such as cloud storage of procurement data, artificial intelligence, and machine learning blockchains to improve transparency, which can potentially have the effect of improving the openness of public procurement. In addition, to reap the full benefits of digitalisation and use of data, it is important to highlight the relevance of training and support strategies to prevent the digital exclusion of providers with limited technological capabilities.
In the context of a renewed wave of industrial policies, issues around the reciprocity of commitments in international trade agreement concerning public procurement are gaining prominence in several OECD countries. In response, initiatives have been introduced to address the lack of reciprocity in trade exchanges involving procurement. These initiatives aim to ensure fair competition and to strengthen domestic economies. First, promoting more reciprocity in access conditions to public procurement could contribute to larger international market openness which could help strengthen domestic economies by enlarging the addressable market for domestic firms, thereby enhancing their growth potential (OECD, 2023[34]). Open markets also support other industrial policy goals, such as fostering sustainable, low-emissions industries. The OECD highlights that broader market access can drive innovation by intensifying competition and reducing R&D costs (OECD, 2023[34]) (OECD, 2023[34]). In green technology sectors for example, where R&D is essential, broader markets could enable firms to spread research costs across more units, creating economies of scale (OECD, 2023[34]; Griffith and Van Reenen, 2021[1]) and therefore lead to higher competitiveness and greater export capacity for firms (Aghion et al., 2024[35]).
Second, ensuring reciprocity in competition conditions between domestic and foreign bidders in procurement procedures may increase the chances of domestic companies competing effectively with international companies (European Commission, 2021[36]).
3.2.1. Regulations ensuring reciprocity in access conditions to public procurement markets for businesses
As previously shown, several countries have implemented policies that effectively restrict access to their public procurement markets for firms from third countries. These measures have intensified concerns about the lack of reciprocity in global procurement markets. The issue of reciprocity in procurement market access is becoming increasingly prominent in trade policy (De La Rosa, 2025[37]). Companies from countries that are not parties to reciprocal procurement agreements often benefit from de facto access to certain foreign procurement markets, while their governments are not granting equivalent access in return. In the European Union, for instance, firms from non-GPA countries had before 2022 de facto access to public procurement market and could therefore freely participate in European public tenders. This openness has increasingly been criticised, especially when countries such as China maintain legislation that restricts access for European suppliers (European Parliament, 2022[38]).
This asymmetry presents two key challenges. First, by offering third-country firms’ access to domestic markets that are not reciprocated abroad, governments may disadvantage their own companies and weaken domestic competitiveness. Second, it might undermine the incentives for countries to participate in international procurement agreements, as signatory countries lose the preferential advantages such frameworks are designed to deliver. Hence, ensuring reciprocity in public procurement access is becoming a central component of trade strategies in OECD members, particularly in the European Union, the United States or in Canada. Without mechanisms to address unbalanced market-closure practices, national competitiveness cannot be guaranteed. Accordingly, measures have been developed to promote reciprocity in market opening and safeguard against unfair restrictions in public procurement markets. One example is the EU's adoption of the International Procurement Instrument (IPI) in 2022 (see Box 3.3).
The International Procurement Instrument (IPI) aims to promote greater reciprocity in access to international public procurement markets and to enhance market opportunities for EU suppliers, goods, services and works.
To achieve these objectives, the regulation empowers the European Commission, following an investigation, to apply remedial measures against firms from third countries that restrict access for EU firms to their own procurement markets. These measures may include either a score adjustment reducing the competitiveness of bids from third countries firms – consisting of up to 50% of the evaluation score of the tender, or up to 100% where price or cost is the only contract award criterion – or the exclusion of bids. The IPI applies to contracts with a minimum value of EUR 15 million (USD 17.5 million) (excluding VAT) for works, and EUR 5 million (USD 5.8 million) for supplies and services, within the EU Member States.
Before implementing any IPI measures, the Commission must assess its proportionality, especially taking into account the availability of alternative sources of supply to avoid causing overly negative consequences such as shortages and excessive price increases for public buyers. The Commission must also assess all EU interests at stake. This includes not only those of European economic operators and public purchasers, but also broader economic interests, such as the strategic objective of reciprocity aimed at opening up third-country markets and improving EU companies' access to foreign public procurement markets.
The regulation also requires the successful bidder not to subcontract more than 50% of the total value of the contract to economic operators originating in a third country that is subject to an IPI measure. More specifically, regarding the supply of goods, the regulation requires successful tenderers not to use more than 50% of goods originating in a third country that is subject to the IPI. In case of breach of these restrictions, the successful bidder would have to pay a proportionate charge of between 10% and 30% of the total value of the contract.
Source: (European Union, 2022[39]).
The IPI regulation is not intended to apply to companies from countries parties to the GPA or to companies from countries parties to bilateral agreements with the European Union that involve public procurement market access. However, the regulation may still apply to companies from these countries if they participate in public procurement or concession contracts not covered by these agreements. Thus, GPA and bilateral agreement parties could be subject to an IPI measure if the European Union determines that discriminatory practices are in place against EU suppliers in public procurement markets outside the scope of these agreements (Heilman Grier, 2024[40]).
The regulation was first applied in response to practices implemented by China that limited EU firms' access to its public procurement markets for medical devices. This action followed an investigation launched by the European Commission in 2024. Box 3.4 provides a detailed description of the first investigation under EU IPI in response to measures and practices in the Chinese procurement market for medical devices.
The investigation launched by the European Commission in 2024 confirmed in January 2025 the existence of discriminatory measures against EU businesses in China’s public procurement markets. It also identified additional restrictive practices aligned with the “Buy China 2025” policy.
Medical devices are among the ten strategic sectors targeted under the “Made in China 2025” strategy, which sets explicit domestic content targets in hospital procurement: 50% by 2020, 70% by 2025, and 95% by 2030. In line with this objective, China’s Public Procurement Law requires purchasers to procure domestic products including medical devices. Imported products may only be procured when:
The required goods, works, or services are unavailable domestically.
Exceptions are provided under specific laws or administrative.rules.
The Commission analysed a significant amount of Chinese procurement notices for medical devices issued between January 2017 and May 2024, identifying explicit restrictions on market access in 87% of cases (e.g. bans on foreign products, requirements for local production, obligation to transfer technology to domestic firms). The Commission concluded that these measures affect “all categories of medical devices in a way that seriously and recurrently impairs access for Union economic operators and products manufactured in the Union to China’s public procurement market for medical devices”.
In June 2025, based on the results of the investigation, the European Commission decided to exclude Chinese companies from EU public procurement procedures for medical equipment. Based on the regulation the Commission:
i) first assessed whether the introduction of a general exclusion measure might result in shortages or a significant increase in prices for public buyers. It concluded that inflationary effects would be limited and that the EU did not appear to be depending on Chinese exports in this sector. On the contrary, it enjoyed a substantial trade surplus in medical devices, which would allow exports to be redirected to the domestic market. Any potential shortfall could also be offset by imports from other third countries.
ii) second assessed the compatibility of the exclusion measure with the interests of the Union, taking particularly into account those of European producers. It concluded that a reduction in Chinese imports would likely benefit European manufacturers, who already account for 60% of total consumption within the EU. Regarding public buyers’ interest, the Commission expects minimal budgetary impact.
From a broader economic perspective, the Commission considers that the leverage effect created by the IPI measure could encourage China to remove its discriminatory procurement practices against EU suppliers and products. It would thereby foster reciprocal opening of its public procurement market, improving access for EU companies to the Chinese medical devices market.
Source: Adapted from (European Commission, 2025[41]; 2025[42]);.
Beyond the IPI regulation – which applies to high-value contracts (EUR 5 million for goods and services, EUR 15 million for works, amounting respectively to USD 5.8 million and USD 17.5 million) and requires a lengthy investigation to demonstrate the existence of discriminatory measures against EU companies in public procurement market – the Court of Justice of the European Union (CJEU) has provided further clarification on market access conditions for foreign firms.
In its 2024 “Kolin” ruling, the CJEU held that companies from countries not party to the GPA or to any reciprocal market access agreement with the European Union do not have guaranteed access to EU public procurement markets, regardless of the contract value (CJEU, 2024[43]). The case concerned a Croatian public procurement procedure for the construction of railway infrastructure. Following the loss of the contract, the Turkish company “Kolin” brought legal action, claiming that the award decision violated the EU principle of equal treatment under the EU directives. The CJEU however ruled that firms from non-covered countries (e.g. countries that are neither members of the GPA nor of any agreement with the EU involving the reciprocal opening of public procurement markets) cannot invoke EU public procurement law – nor the principles of equal treatment, proportionality, non-discrimination or transparency – as their situation falls outside the scope of EU legislation. The CJEU ruled that it is for national authorities to decide whether such companies may participate in their procurement procedures. However, it emphasised that such exclusions must be assessed on a case-by-case basis: automatic debarment based on nationality may only be introduced by the European Union through a common commercial policy act. As such, national laws mandating the automatic exclusion of companies based on nationality are therefore incompatible with EU law.
This interpretation was reaffirmed in the 2025 “Qingdao” ruling concerning a Romanian procurement procedure for the acquisition of 20 interregional electric trainsets and related maintenance services. In that case, a consortium of Chinese companies had been excluded under national legislation that automatically barred firms from countries lacking reciprocal procurement agreements with the European Union. The CJEU restated that only the European Union may legislate and adopt legally binding acts concerning access to public procurement procedures for non-covered bidder. Therefore the Court ruled that the Romanian legislation infringed EU law (CJEU, 2025[44]).
In the absence of international agreement, contracting authorities from EU member states retain discretion, on a case-by-case basis, to decide whether a company from a third country may participate in a procurement procedure. If participation is authorised, contracting authorities are not required to treat such companies on an equal footing with EU or GPA members companies and may for example apply differentiated evaluation criteria. The CJEU further noted that when a contracting authority decides to allow the participation of a tenderer from a third country, the treatment of such operators may still need to comply with certain fundamental requirements, such as transparency and proportionality. However, the judges clarified that any legal challenge brought by these operators alleging a breach of such principles must be assessed under national law, not under EU law.
Thus, national contracting authorities may lawfully grant less favourable treatment to companies from countries that are neither GPA signatories nor parties to bilateral trade agreements (BTAs) involving the reciprocal opening of public procurement markets with the European Union. This applies across all contract types and values and does not require prior proof of discriminatory practices against EU firms in procurement procedures that take place in the company’s home country as it is required in the IPI regulation.
Yet, although this issue was not addressed directly by the CJEU, the mere fact that a tender is submitted by an operator from a non-GPA or non-BTA country cannot automatically justify exclusion, as this could conflict with the European Union’s international obligations, particularly under the GPA. The GPA establishes a non-discrimination principle applying not only to suppliers but also to goods and services from any GPA party. Therefore, a bid that includes goods, services or works originating from a GPA country – provided these are covered under the Agreement – cannot be lawfully rejected without breaching GPA commitments. Figure 3.7 illustrates the process that EU contracting authorities could follow before deciding to exclude tenderers from non-covered third countries.
Significant uncertainties remain regarding the access of foreign economic operators to EU public procurement markets:
With respect to judicial oversight, courts may face considerable challenges in distinguishing between autonomous domestic rules that non-covered bidders can legitimately invoke, and provisions transposing EU procurement law, which fall outside their legal standing (SIGMA, forthcoming[45]).
Moreover, the Court’s reference to national law places contracting authorities under procedural complexities that may in practice encourage them to systematically exclude bidders from non-covered third countries (de La Rosa, 2025[46]).
The limited legal safeguards provided by the CJEU’s rulings, combined with the implementation challenges faced by contracting authorities, risk leading to de facto automatic exclusions of foreign operators – even though such exclusions are explicitly prohibited by the Court. The admissibility of goods originating from non-covered countries, when used by companies established within the European Union or in a partner country, remains legally uncertain. The Kolin judgment clarified the rules governing the participation of economic operators but did not address the origin of goods or services supplied in public procurement procedures. In an interpretative communication, the European Commission confirmed that this issue remains unresolved under current EU law (European Commission, 2025[47]). The absence of clear legal guidance creates uncertainty for both contracting authorities and companies regarding the eligibility of goods sourced from third countries not covered by reciprocal access agreements. The United States has also implemented a reciprocity policy related to the access to its public procurement markets, included in the US Trade Agreements Act described in Box 3.5.
In the United States, the Trade Agreements Act (TAA) is a mechanism to ensure reciprocal access for foreign economic operators to national public procurement market. The Act authorises contracting authorities to derogate from any domestic public procurement rule that would otherwise discriminate against goods, services or works from certain designated countries, thereby allowing the United States to fulfil its commitments under various multilateral trade agreements to which it is a party.
To operationalise this framework, the implementing regulation of the TAA defines the concept of “eligible products”, originating from “designated countries” that are legally entitled to equal treatment with US domestic goods. Pursuant to Section 25.400 of the Code of Federal Regulations, the designated countries include:
Parties to the WTO GPA;
Countries that have concluded a free trade agreement (FTA) with the United States providing for reciprocal public procurement market access.
Under Section 25.402 of the Federal Acquisition Regulation (FAR), the TAA applies only to procurement exceeding specific thresholds which are revised biennially by the Office of the United States Trade Representative (USTR). As of the latest update, these thresholds for GPA countries are USD 174 000 for public procurement of goods and services, and USD 6.7 million for public works contracts.
Thus, as with EU legislation, US law guarantees equal treatment with domestic products only to goods, services and works originating in countries that are parties to free trade agreements providing for reciprocal access to public procurement markets.
In July 2025, Canada introduced a reciprocal procurement policy aimed at ensuring balanced market access between Canada and its trading partners. Under this policy, access to federal procurement opportunities is limited to suppliers from Canada and from partner countries that provide reciprocal access to Canadian suppliers through trade agreements. According to the new framework, foreign companies may participate in or be awarded a federal contract only if the procurement is covered by a trade agreement between Canada and the supplier’s country. The objective of this policy is to “ensure that countries denying equivalent access to Canadian suppliers, goods and services do not unduly benefit from access to Canada’s federal procurement market” (Government of Canada, 2025[50]).
It is important to note that the growing number of regulatory frameworks promoting reciprocity with the aim of ensuring fair competition in the public procurement market, coupled with other protectionist measures (including domestic preference) may lead to an intensification of retaliation measures, impacting global value chains, cross-border procurement and the implementation of international agreements like the GPA.
3.2.2. Ensuring fair competition conditions in global public procurement markets
The globalisation of public procurement markets allows foreign companies to compete with domestic firms in procurement procedures. While this openness can benefit procuring entities by stimulating competition, it also carries the risk of unfair competition. Foreign companies may indeed benefit from state subsidies, as part of policies aimed at strengthening their market shares, thereby gaining significant competitive advantages over domestic companies in procurement procedures. Similarly, foreign companies in some cases, when not fully operating in the relevant country, are not necessarily subject to the same regulations as domestic firms in environmental or social matters, for example. These asymmetries can once again confer an unfair advantage, an issue that countries seek to address.
Control of foreign subsidies in public procurement
Public subsidies remain a central instrument of industrialisation policies, often aimed at reinforcing domestic market shares and supporting strategic sectors. Subsidies can take several forms: they may be direct – such as cash transfers to companies – or indirect, in the form of low-interest loans or tax exemptions, for example (OECD, 2021[51]).
The role of subsidies in public procurement has already been explained in Section 2.1.2. The subsidies granted to companies provide them with a price advantage, allowing them to submit bids at lower prices or better quality than their competitors. Countries may indeed subsidise their domestic companies to enhance their competitiveness not only in domestic procurement procedures but also in foreign public procurement markets.
Research indicates that public subsidies may have short-term benefits for public buyers by lowering purchase prices and by potentially pushing other bidding companies to become more efficient and offer lower prices or better-quality products and services to remain competitive (European Commission, 2021[36]). However, these gains are often offset by distortionary effects in the medium and long-term (European Commission, 2021[36]). When public subsidies are used to sustain inefficient firms that could not remain economically viable without such aid, they distort competition, reduce market efficiency, and may lead to losses for public buyers and taxpayers – as well as efficiency losses for the wider economy (European Commission, 2021[36]).
Furthermore, in the long term, subsidies granted to incumbent firms can deter market entry and innovation. By increasing the incumbents demand for skilled labour and other production factors, they raise input costs, reducing potential profits for new entrants and discouraging them from competing. This reallocation effect may slow technological renewal and efficiency gains within the market (Acemoglu et al., 2018[52]; Bucci, 2022[53]).
Despite the rules established under the WTO Agreement on Subsidies and Countervailing Measures (SCM) to which all 166 members of the WTO are parties – requiring parties to notify to the WTO Secretariat all subsidies granted within their territories – compliance remains low (European Commission, 2020[54]). The European Commission noted that in 2019, fewer than half of the WTO Members had properly notified their subsidies (European Commission, 2020[54]). This lack of transparency makes it increasingly difficult for public buyers to detect market distortions resulting from foreign subsidies (European Commission, 2020[54]). The OECD is at the forefront of global efforts to identify, quantify, and analyse industrial subsidies and their impact on markets through the work undertaken by different Committees such as the Trade Committee, the Steel Committee and the Committee for Industry, Innovation and Entrepreneurship. In this context, the OECD has created the OECD MAnufacturing Groups and Industrial Corporation (MAGIC) database to shed more light on the level and types of subsidies received by the largest companies operating globally across 14 key industrial sectors from all levels of government (OECD, 2025[55]).
Ensuring reciprocity in competition is central to the implementation of industrial policies. By addressing the distortions caused by foreign subsidies, governments can safeguard the competitiveness of their domestic economies while promoting innovation and sustainability objectives (European Commission, 2021[36]). Fair competition fosters a virtuous cycle of innovation, encouraging firms to invest in greener and more efficient production methods, thereby contributing to structural transformation required for the green transition (OECD, 2023[34]).
Hence, countries are implementing measures aimed at controlling the market-distorting effects of state subsidies and enforce reciprocity in competition rules. For example, the European Union has conditioned access to its public procurement markets on the absence of competitive distortion caused by foreign subsidies received by companies bidding in EU public procurement. Box 3.6 presents the foreign subsidies regulation (FSR) adopted by the European Parliament and Council in 2022, which aims at ensuring equal treatment of bidders and to proactively exclude companies that have been unlawfully subsidised by third countries from being awarded public contracts.
Foreign subsidies are defined broadly as any financial contribution granted directly or indirectly by a non-EU state. These contributions must confer a benefit to a company engaged in economic activity within the EU internal market and be selective in nature, meaning they are limited in law or in fact to one or more companies or sectors. This definition covers a wide range of support mechanisms, including direct transfers of funds or liabilities (such as subsidies, loan guarantees, tax incentives, or compensation for operating losses), foregone revenues normally due to the state (such as tax exemptions or the granting of special or exclusive rights without adequate remuneration), and the provision or purchase of goods or services under preferential terms.
The Regulation establishes notification obligations for companies participating in tenders valued above EUR 250 million (amounting to approximately USD 291 million). Bidders must declare to the contracting authority all foreign financial contributions above EUR 4 million (USD 4.7 million) received in the preceding three years. Failure to comply – whether through omission or refusal – may lead to a finding of irregularity by the contracting authority, thereby excluding the bidder from the procurement process.
These obligations apply to the main bidder but also to subcontractors and suppliers involved in more than 20% of the value of the offer. Once the bidder submits the notification, the contracting authority must forward it to the European Commission. The Commission then assesses whether the subsidies distort competition. If so, the companies concerned may propose commitments to eliminate the distortion (such as repaying subsidies or divesting certain assets). In the absence of satisfactory commitments, the Commission may prohibit the award of the contract to the subsidised bidder.
Source: (European Commission, 2022[56]).
The FSR applies to subsidies granted by all non-EU countries, without distinction. It does not differentiate between countries that have concluded free trade agreements with the European Union and those that have not. As a result, companies based in countries that are parties to the GPA may still face restricted access to EU procurement markets if they have received subsidies from their home governments (Friton, Klasse and Yukins, 2023[57]). The United States for example expressed concerns that foreign subsidies may disadvantage US products in EU procurement markets (Heilman Grier, 2024[40]).
The United States announced its intention to take inspiration from EU legislation on foreign subsidies. Indeed, the executive summary of the White House report issued on 3 April 2025, titled On the America First Trade Policy, notes that the Office of Management and Budget (OMB) had “assessed the value of the FSR and other policy measures designed to level the playing field for US producers by strengthening domestic procurement preferences and closing existing loopholes”, opening the door to new US regulations in this area (The White House, 2025[14]).
Ensuring the competitiveness of domestic companies subject to specific regulations including responsible business conduct
Governments should lead by example and cascade responsible supply chain requirements to their suppliers, encouraging them to implement Responsible Business Conduct (RBC) objectives throughout their supply chains if they want to conduct business with the public sector (OECD, 2022[58]). This objective is reflected in international commitments such as the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights and the 2030 Agenda for Sustainable Development. To comply with these international commitments, many countries have developed regulatory or strategic frameworks to enhance the uptake of RBC objectives in public procurement operations. In this context, several countries have introduced national due diligence laws or proposals – including France, Germany, the Netherlands, Norway, the United Kingdom, and the United States – generally aligned with OECD recommendations but varying in scope. For example, the German law applies to companies with over 1 000 employees (Bundesministerium der Justiz, 2021[59]), while the French law applies only to those with more than 5 000 employees in France or 10 000 elsewhere (République française, 2017[60]).
The implementation of RBC requirements throughout supply chains is particularly relevant in a globalised economy as foreign companies are not necessarily subject to the same regulations as domestic companies in environmental, social or security matters. These policies may have indirect consequences on trade as companies seeking to participate in public procurement markets with due diligence requirements may reorganise their supply chains and relocate production to countries considered as non-risk. Conversely, it could increase the difficulty of accessing those markets for products originating from countries deemed high or standard risk. There is a debate about the costs borne by companies of regulations covering environmental protection, human rights, labour rights, minority rights, disability, long-term unemployment, gender equality, and integrity (Dechezleprêtre and Sato, 2017[61]), and the impact of asymmetries across regulations. For example, the Dutch proposal faced criticism for applying to all companies operating in the Netherlands without thresholds, potentially encouraging relocation to countries with less stringent human rights or environmental rules (Adviescollege Toetsing Regeldruk, 2021[62]).
For instance, in the area of environmental policies, there is a general debate about their potential impact on the competitiveness of affected firms. A theory based on trade theory predicts that more stringent environmental policies will increase compliance costs and, over time, shift pollution-intensive production toward low abatement cost regions, creating pollution havens and causing policy-induced pollution leakage. On the other hand, other theories argue that more stringent environmental policies could have a net positive effect on the competitiveness of regulated firms because such policies promote cost-cutting efficiency improvements, which in turn reduce or completely offset regulatory costs, and foster innovation in new technologies that may help firms achieve international technological leadership and expand market share. (Dechezleprêtre and Sato, 2017[61]).
In some sectors, firms from countries with stricter regulations could face reduced competitiveness compared to foreign companies subject to less stringent standards. This can hamper reindustrialisation, as highlighted in the European industry competitiveness report, which calls for easing financial reporting and due diligence obligations for European firms (European Commision, 2024[63]). To harmonise EU due diligence rules and ensure fair competition within the single market, the Corporate Sustainability Due Diligence Directive (CSDDD) was adopted in 2024 (European Commission, 2024[64]). This directive imposes obligations on large EU companies and foreign firms generating over EUR 450 million (USD 535 million) in net turnover in the European Union during the previous financial year. They must address actual or potential adverse human rights and environmental impacts linked to their own activities, subsidiaries, and business partners in their value chains. They are also required to adopt and execute a climate transition plan aimed at aligning their business model and strategy with a sustainable economy and limiting global warming to 1.5°C in line with the Paris Agreement.
The directive is also seeking to combat unfair competition from foreign companies resulting from asymmetrical rules on due diligence in EU public procurement. It allows EU Member States to consider due diligence obligations as environmental and/or social criteria when awarding public contracts or concessions, or to set such criteria for contract performance, in line with EU procurement directives. It also provides for excluding companies failing to comply with their due diligence obligations from procurement procedures. By applying these obligations to large companies seeking to operate in the EU regardless of nationality, and by conditioning access to public procurement on compliance with due diligence requirements, the directive helps ensure fairer competition in the internal market (Ho-Dac, 2024[65]) and prevents EU firms from losing competitiveness to foreign companies not subject to due diligence rules.
In this context, different countries are implementing risk management strategies considering the risks associated with, for instance environmental matters or human rights. While public buyers must perform risk management activities, economic operators should conduct due diligence processes through which they can identify and address the actual or potential risks of contributing to adverse impacts associated with their activities and sourcing decisions. The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct set out requirements for businesses to conduct due diligence to identify, prevent, mitigate, and account for how they address their adverse impacts (OECD, 2023[66]). In some countries such as Sweden and Norway, risk assessments consider different parameters including a “country risk value” (OECD, forthcoming[67]). In Sweden, above a certain risk value, the contracting authority should require that the supplier fulfil the contract in accordance with the International Labour Organisation (ILO) core conventions if Swedish labour law is not applicable. In case of non-compliance, different measures can be implemented, including some impacting value chains’ location.
While the previous sections of this report focused on the relevance of trade for the procurement of final goods and services, this section highlights the relevance of international trade for inputs or intermediate goods needed to produce the final goods and services.
3.3.1. International trade and global value chains play an important role in public procurement
International trade, supported by multilateral and regional agreements, increasingly organises production through global value chains (GVCs). These fragment the manufacturing process: intermediate goods and services often cross multiple borders before reaching their final form. According to the OECD, nearly 70% of global trade involves such intermediate goods and service (OECD, 2025[68]). Thus, a single public procurement contract, whether for infrastructure, medical equipment, or IT systems, may rely on a vast network of suppliers across supply chains spread across numerous countries (see Figure 3.8).
While GVCs improve the efficiency and cost-effectiveness of trade, they also expose production to value chain shocks (OECD, 2025[69]). A disruption at a single link in the chain can have cascading effects across the entire system and cause significant disturbance to public procurement. This vulnerability is particularly significant when the production of an input is highly concentrated in a single region or in a small number of firms (Berthou, Haramboure and Samek, 2024[70]). This is the case, for example, for semiconductors (Haramboure et al., 2023[71]) or rare earths elements (OECD, 2025[69]) whose production is geographically concentrated.
For example, the COVID-19 crisis highlighted the fragility of GVCs. Export restrictions, factory shutdowns, and port blockages disrupted the supply of medical equipment. These disruptions led to supply difficulties for public buyers, including increases in contract costs, delays in contract execution, or even non-performance of contracts (Folliot Lalliot and Yukins, 2024[18]).
Some GVCs are increasingly threatened by growing geopolitical tensions which are impacting international trade and could therefore also impact public procurement. This includes for example raw materials critical to the low-carbon energy transition, such as cobalt, lithium, and nickel. The high concentration of their production provides producing states with significant economic and strategic leverage (OECD, 2025[69]). Export restrictions on these inputs are increasingly used), including to stimulate local processing industries, but at the expense of trading partners (OECD, 2025[69]). Such measures can reduce global supply, drive prices up, and prompt other countries to adopt similar restrictions, thereby amplifying market instability (OECD, 2025[72]). Although these materials are often not procured directly by governments, they represent key input for many final goods they are procuring. Therefore, for the public procurement market of some economies, export restrictions may result in higher costs, longer delivery times or supply difficulties.
3.3.2. Ensuring resilient value chains to ensure the delivery of public services
A range of policies and tools can be implemented to strengthen supply chain resilience. These tools need to be balanced to ensure they do not unduly compromise the benefits of global trade for competition, innovation, productivity, efficiency and ultimately growth. Among these policies, promoting transparency of supply chains, enhancing public-private cooperation and supply diversification are among the first and less invasive measures (OECD, 2025[69]). However, some policies which are considered as more trade restrictive have also been considered in the last years by many economies. This section outlines some of the restrictive policy approaches governments are using to secure global value chains and increase the resilience of public procurement contracts.
One set of measures aims directly to bring production of strategic products such as semi-conductors back to the domestic market (reshoring) (OECD, 2025[69]) or relocate production closer to home (near-shoring). This is, for example, the case of the European regulation on critical raw materials (regulation 2024/1252) which sets intra-EU production targets to reduce industry dependence on imports of strategic and critical materials by 2030. It sets targets for extracting at least 10% and processing at least 40% of the EU's annual consumption of these materials on European soil (European Commission, 2025[73]). To achieve these objectives, the EU requires Member States to establish, within two years of the regulation’s entry into force, programmes that promote the use of secondary critical raw materials (recycled raw materials). These programmes could include measures such as integrating recycled content into public procurement award criteria. Other OECD countries like Korea and Japan have been implementing policies aiming at reshoring the activities of domestic companies. For instance, in Korea, the government introduced the "Reshoring Support Strategy 2.0" in May 2024, offering financial support to reshore advanced industries (Korean Ministry of Trade, 2024[74])
Countries can also relocate production of strategic products to economic or political partners or allies (friend-shoring). Friend-shoring describes policies designed to encourage the relocation or sourcing of production and inputs to countries that are political and economic partners or allies – and recently gained political appeal1 . The core objective is to reduce exposure to geopolitical risk, ensure continuity of trade with reliable partners, and thereby protect the supply of critical intermediate goods and finished products (Crowe and Rawdanowicz, 2023[75]). Friend-shoring is therefore about choosing suppliers in markets with aligned standards, dependable logistics, and predictable legal and regulatory frameworks or those perceived as geopolitically more “reliable”. Governments pursue friend-shoring through a mix of diplomatic, trade and industrial policy tools including preferential procurement rules through bilateral, regional or plurilateral trade and other agreements but also investment incentives for firms that set up or shift value chains to allied countries. For example, the Inflation Reduction Act (US Government, 2022[76]), which allows electric vehicles and related parts manufactured in Mexico to benefit from consumer tax credits it creates, led to a change in investor behaviour by stimulating investment in Mexico. Thus, the overall value of investment projects announced in Mexico by foreign investors reached a record USD 40.2 billion in 2022, with the United States in the lead (41% market share), followed by Asia and Europe (27.9% each). In contrast, US investors are increasingly reluctant to place their funds in China (Daniel S. Hamilton and Joseph P. Quinlan, 2024[77]). Japan, for instance, has adopted a “friend-shoring” strategy to strengthen the resilience of semiconductor supply chains. The Japanese Government has provided financial support to Japanese companies seeking to relocate their supply chains to countries from the Association of Southeast Asian Nations (ASEAN), India and Bangladesh. Between May 2020 and April 2023, the Japanese Ministry of Economy, Trade and Industry selected 446 relocation projects, spanning diverse sectors such as medical equipment, automotive parts, electronics and semiconductors. In parallel, the Ministry of Economy, Trade and Industry (METI) is supporting 124 projects, with a maximum limit of JPY 5 billion (USD 33 million) per project (Ministry of Economy, Trade and Industry of Japan, 2026[78]).
Friend shoring can also take the shape of general negotiated trade or industrial partnerships between countries. For example, the Minerals Security Partnership (MSP) has been established between countries including Australia, Canada, India, Italy, Japan, Korea, Norway, the United Kingdom, the United States, and the European Union to strengthen their independence in the critical materials sector and to reduce or eliminate reliance and dependence on critical mineral supply chains controlled by China, Russia and Iran (US Government, 2025[79]; US Department of State, 2022[80]).
In addition, the due diligence measures discussed above, aimed at strengthening the resilience of global supply chains by requiring companies to map, monitor and remediate human rights, environmental and other risks across their suppliers may also indirectly result in the shifting of value chains, although they do not directly pursue this objective. Indeed, dealing with supply chains, particularly those based in markets with strong suspicions of non-compliance with sustainability laws, could ultimately lead companies to reorganise their supply chains (OECD, 2025[69]). By concentrating production within a network of trusted partners, such policies may enhance the reliability and predictability of supplies on which public procurement relies. In turn, it could facilitate the delivery of public services by reducing the likelihood of disruptive shortages. However, recent studies underlined the need to accompany the debate on trade dependency and risk reduction in global value chains with a rigorous assessment of the costs and benefits associated with different strategies. The OECD highlights that policy responses to risks linked to international supply chains – such as nearshoring, reshoring or friend-shoring – may increase the complexity of global value chains and hinder economic growth, without necessarily guaranteeing greater resilience (OECD, 2025[69]).
The OECD compared two scenarios: a fully interconnected global trading system, and a more localised system (Arriola et al., 2020[81]). The results show that policies aimed at reshoring production could reduce global trade (imports and exports) by 18% and lead to a decline of more than 5% in global real GDP. Individual country losses could range from 1.1% to 12.2% of GDP, depending on the degree and nature of their integration into global value chains. Economies highly integrated into specific industries, such as Canada and the United Kingdom in the automotive sector, would face particularly sharp declines (Canada: -13.1%; United Kingdom: -12.2%). In addition, the same study shows that in the event of supply shocks (rising costs of exports and imports), GDP, output and consumption stability do not improve significantly in a localised system compared to an interconnected one. Finally, reshoring or nearshoring may prove impossible for many natural resources, where extraction remains geographically concentrated (Crowe and Rawdanowicz, 2023[75]). The friend-shoring strategy also presents several limitations. Its implementation is complex, notably due to the uncertainty surrounding the long-term identification of countries considered as “friends.” This ambiguity heightens uncertainty for firms and can hamper investment (Crowe and Rawdanowicz, 2023[75]). Friend-shoring also entails additional costs: dividing the global economy into two trading blocs could reduce global GDP by between 0.6% and 4.6% in the medium term (Javorcik et al., 2023[82]). Moreover, so-called “friendly” countries may face resource constraints (labour, capital, infrastructure and technological capacities) that limit their ability to absorb new investment (Every and van Harn, 2022[83]).
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← 1. Friend shoring came to prominence after a 2022 speech by the US Treasury Secretary Janet Yellen (Yellen, 2022[84]), where she identified objectives of friend-shoring as ensuring free but secure trade and preventing countries using their market position to cause economic disruption or exercise geopolitical leverage. It has been subsequently evoked by Canadian and European politicians.