This chapter looks at two types of measures impacting public procurement: i) direct measures aimed at strengthening the national economy affecting international trade and public procurement and, ii) indirect measures supporting national economies and impacting trade.
Public Procurement, Trade and Industrial Policies
Supporting National Priorities
Abstract
Several OECD countries have adopted public procurement-related measures to support domestic companies or production, launch or stimulate infant industries, create employment, support underdeveloped regions and develop a sustainable and resilient industrial base (World Bank Group, 2020[1]). However, such measures also have trade implications as they may restrict access for foreign companies or products to domestic public procurement markets, while simultaneously affecting the ability of domestic firms to compete internationally.
Throughout this report, reference is made to domestic, national, and local companies or production. For clarity, these terms are defined as follows:
Domestic companies/firms include all companies established within the country where the procurement takes place. This term therefore encompasses both national and local companies.
National companies/firms refer broadly to any domestic companies operating anywhere within the national territory and therefore refers to a subset of domestic companies.
Local companies/firms, by contrast, represent a subset of domestic companies operating within a specific region or locality of the national territory.
Domestic production designates all inputs (goods, services, and labor) necessary for the execution of the contracts nationally or locally produced or sourced.
National production implies that all inputs (goods, services, or labor) required to perform a contract are produced or sourced anywhere within the country.
Local production implies that all inputs required to perform a contract originate specifically from a defined subnational area.
Most measures outlined in this chapter aim to support domestic firms and production, often at the expense of foreign competitors. Research shows that discriminatory practices in public procurement are widespread as countries leverage their purchasing power to strengthen national economies. Between 2009 and 2017, public procurement barriers ranked among the five most frequently used discriminatory trade instruments, with 533 interventions (World Bank Group, 2020[1]). A study from the International Monetary Fund (IMF) based on the New Industrial Policy Observatory (NIPO) database shows that during 2023, trade distortive industrial policy tools have risen in both emerging and developing economies (EMDEs) and advanced economies (AEs). As highlighted in Figure 2.1, public procurement measures are still significant, in particular for AEs (International Monetary Fund, 2024[2]).
To better understand these measures, the OECD proposed a taxonomy of policy measures affecting trade in government procurement in 2017, highlighting their impact on cross-border competition (OECD, 2017[3]).
As discussed above, industrial policies generally seek to shield domestic companies and production, promote emerging industries, stimulate job creation, and support underdeveloped regions. Some countries also use such policies to enhance control over value chains or to improve supply chain security, by giving preference to domestic firms and production so that imports can be substituted with locally produced goods, services and work (World Bank Group, 2020[1]).
While this report does not aim to assess the effectiveness of such policies in relation to their objectives, it is worth highlighting that these impacts are debated – and empirical evidence of their economic benefits is limited. The 2022 OECD paper “Are industrial policies effective? A review of the evidence in OECD countries” reviews the empirical literature on the effectiveness of industrial policy instruments and underlines the limited evidence of supply-side interventions. Conversely, the paper showcases a large body of evidence showing that instruments shaping the business environment – in particular competition and trade policies – are key in enabling the most productive firms to grow, channel structural change and incentivise firms to innovate. (Criscuolo et al., 2022[4]). Other studies identify positive impacts of these policies, for instance when domestic firms benefit from preferential pricing treatment: in such cases, foreign competitors may be compelled to submit better offers in terms of price or quality, which can result in reduced costs or enhanced quality for the contracting authority (World Bank Group, 2020[1]; McAfee and J. McMillan., 1989[5]). However, other studies highlight potential adverse effects of such policies. Discriminatory procurement practices could result in excessive costs for public buyers and value chain inefficiencies that outweigh any potential gains (World Bank Group, 2020[1]; Cox and Furlong, 1997[6]; Deltas and S. Evenett., 1997[7]). By sheltering domestic firms from international competition, such policies can reduce their incentives to innovate or to improve efficiency, ultimately limiting product quality and choice for public buyers. Reduced competition in procurement processes may also increase risks of collusive behaviour, eroding the purchasing power of public buyers and limiting the government’s capacity to deliver public goods and services (World Bank Group, 2020[1]).
Governments use a variety of measures involving or impacting public procurement to pursue industrial policy and support domestic production, relocation of production or domestic firms, affecting trade. It is worth mentioning that some global actors such as multilateral development banks play a key role in shaping procurement rules in some economies, including measures discussed in this report.
The concept of “national economy” is used in this report encompassing both domestic firms and domestic production. These measures have been divided into two categories: Direct measures aimed at strengthening the national economy affecting international trade and public procurement (see Section 2.1) and indirect measures supporting national economies and impacting trade (see Section 2.1.3). This chapter takes stock of public procurement measures which favour domestic products and examines the impacts of these measures on trade.
Countries have taken measures directly aimed at strengthening national economies affecting international trade and public procurement. While some are strictly public procurement measures – leveraging government’s purchasing power to favour domestic firms and domestic production (See Section 2.1.1) or small and medium enterprises (SMEs) (see Section 2.1.2) – others do not constitute public procurement measures per se but have an impact on the access, competitiveness and opportunities granted to domestic firms or production in public procurement procedures – such as subsidies (See Section 2.1.3). These different types of measures are presented in Figure 2.2.
2.1.1. Favouring domestic production and companies in public procurement procedures
Public procurement can be leveraged to support national economies through measures targeting domestic production or domestic firms. While some measures aim to promote the purchase of domestically produced products, others provide domestic firms with advantages, through procurement award criteria, price preferences, explicit exclusion of foreign bidders, and sometimes forced technology transfer. Overall, these measures are designed to stimulate employment, competitiveness and economic growth. Figure 2.3 describes measures aiming at favouring or empowering domestic productions and companies in procurement procedures.
Source: Adapted from OECD (2017[3]), OECD taxonomy of measures affecting trade in government procurement procedures.
Using public procurement to promote domestic production
Several countries use public procurement as a tool to promote domestic production. Such measures aim to stimulate national economy by supporting firms that produce nationally or locally, encouraging reshoring, and fostering national employment. For some large economies, promoting domestic production also aims to strengthen the resilience of economies to external shocks by reducing strategic dependencies (European Commission, 2025[8]). To achieve these objectives, governments use different mechanisms, including i) domestic content requirements, and ii) preferences for bids offering domestic content.
These measures are also highlighted in the OECD taxonomy of measures affecting trade in public procurement processes (OECD, 2017[3]).
Domestic content requirement
Through domestic content requirement, bidders must source a share of their contract inputs – such as goods, services, intermediate products, or labour – nationally or locally, therefore favouring domestic products (OECD, 2017[3]; OECD, 2019[9]). This is the case in several countries, including OECD countries such as Korea and the United States (Republic of Korea, 2020[10]). Box 2.1 provides an example of requirements in the United States (US) to devote a certain percentage of their purchases to domestic production.
The European Union generally does not allow for preferential treatment of European products in public procurement procedures. However, Directive 2014/25/EU – concerning procurement in the water, energy, transport and postal services sectors – provides an exception (European Union, 2014[11]). Under this provision, public buyers may reject offers in which the proportion of products originating from non-EU countries exceeds 50% of the total value of the products included, unless the EU has concluded an agreement with the relevant third country guaranteeing “comparable and effective access” for EU businesses to the public procurement markets of those countries.
In France, the Council of State (the Administrative Supreme Court) ruled in 2019, that public buyers may consider the criterion of local job creation when evaluating bids (Conseil d'État - France, 2019[12]). However, this is only permitted for high-value contracts of great importance to the local economy. The ruling therefore implies a case-by-case assessment and precludes the systematic promotion of local employment in French public procurement. Consequently, only service and works contracts that would require a significant workforce appear to be eligible for such consideration (Linditch, 2020[13]). In Ukraine, a 2021 government decree amending the general Public Procurement Law introduced domestic content requirements into the public procurement framework establishing mandatory local content thresholds for a wide range of machinery products. For tenders with an estimated value above UAH 200 000 (approximately USD 4 900), offers should include at least 10% of local content in 2022. The percentage increases every year from 15% in 2023 to 40% in 2028.
The Buy American Act (BAA), adopted in 1933, applies to federal government contracts worth more than USD 3 000. It requires the government to give preference to goods and services made in the US. The BBA was amended in 2022 to reflect the 2021 Executive Order ‘Ensuring the Future is made in All of America by All of America's Workers’ which mandates that “Federal procurements should maximize the use of goods, products, and materials produced in, and services offered in, the United States”.
The amendment raised the threshold of the cost of domestic components from at least 55% of the total cost of all components to 65% on 1st January 2024, and to 75% in 2029. The BAA includes several exemptions for not applying the domestic preference requirement: i) When justified by reasons of public interest; ii) When the cost of US products is unreasonable compared to equivalent foreign products; iii) When the products are not manufactured in the US in sufficient commercial quantities and quality; and iv) When there is a trade agreement between the US and other countries requiring equivalent treatment for suppliers and products.
To further strengthen domestic value chains, promote high labour standards, and safeguard the US’ strategic autonomy, the US Build America, Buy America Act (BABA) was adopted in November 2021 as part of the Infrastructure Investment and Jobs Act (IIJA). It establishes a national procurement preference for all federal financial assistance allocated to infrastructure projects initiated after May 2022. Under this framework, all iron, steel, manufactured products and construction materials used in covered projects must be produced in the US1. If this condition is not met, no grant from a federal programme can be awarded. The infrastructure covered include structures, facilities and equipment relating to for example, roads, highways, bridges, dams, ports, freight and intermodal facilities, airports, water systems, electric transmission systems, utilities, broadband infrastructure. While certain categories – such as highways, intercity passenger rail, airports, and water systems – were already subject to the BAA, the BABA extends the domestic preference framework to new areas, particularly energy and broadband facilities.
Other countries also require public buyers to buy domestic production, such as China where the public procurement law mentions that “public buyers must purchase domestic products” and that procuring imported products can be allowed when it's “really necessary,” in specific cases including i) when what is needed is not available in China or cannot be acquired on reasonable commercial terms; ii) where the items to be procured are for use abroad; (European Commission, 2025[17]). Even in such cases, the law commands that purchasing imported goods must be conducive to innovation or absorption of core technologies by domestic companies and requires that priority be given to purchasing goods supporting technology transfer. In addition, domestic content requirement combined with other measures and policies such as in-house procurement or forced technology transfer discussed later in the report further impact the access of foreign companies to the Chinese market.
To promote domestic production through public procurement, some countries, including developing ones, may require the performance of contracts using domestic labour or workforce (OECD, 2017[3]). In this context, countries are leveraging their procurement power to ensure economic benefits through domestic employment opportunities. For example, in Morocco, work and service contracts must include a clause requiring the contractor to use local labour to perform the works and services covered by the contract (Royaume du Maroc, 2023[18]). At least 20% of the labour engaged in performing the contract must come from the municipality, province or region where the contract is to be performed. Similarly, in Algeria, in international competitive bidding, foreign bidders and subcontractors must meet a minimum threshold for the inclusion of national labour. This requirement aims to promote job creation and skills development and facilitate the acquisition of practical experience (Secrétariat général du gouvernement algérien, 2023[19]). Here, national employment is understood as employment within the entire national territory. In the Philippines, all private contractors who are awarded national, provincial, city, municipal, or barangay public works projects funded by the national or local government must employ a specific share of local labour for contract performance (At least 50% of the unskilled and 30% of the skilled labour requirements from the unemployed bona fide and actual residents in the province, city and municipality in which the projects are to be undertaken) (Republic of the Philippines, 1988[20]).
Multilateral development banks such as the World Bank are also supporting employment and job creation through operations procurement in their procurement regulations. According to the World Bank, the benefits of using local labour in procurement operations may include: i) economic empowerment and poverty reduction, ii) skill development and capacity, iii) community engagement and social stability, better project legitimacy (World Bank, 2025[21]).
While domestic content requirements aim primarily at supporting national economies, it is worth mentioning that it does not prevent foreign companies, including multi-national enterprises (MNEs) from participating in procurement processes if they comply with the legal requirements. This can be done for instance by hiring local workforce, directing supply chains to national economies and using local input, even partially.
Preferences for bids offering domestic content
In addition, public procurement frameworks may also introduce preference mechanisms for bids offering domestic products or services. These mechanisms operate by awarding extra points to bids with domestic content or applying an artificial price adjustment at the bid evaluation in favour of tenderers that incorporate domestically sourced inputs, which grants those bids a competitive edge over bids relying on foreign content. This approach incentivises firms to integrate national production into their supply chains, reinforcing domestic industrial capacity.
For example, in Colombia, Law No.816 of 2003 concerning the support provided to domestic industries through public procurement establishes preference factors consisting primarily of: i) the incorporation of national goods, ii) the use of domestic labour, and iii) the promotion of domestic industry participation. In practice, these elements are reflected in the award criteria. (Congreso de Colombia, 2003[22]). In addition, Article 35 of Law 2069 of 2020 mentions that in case of tie in the evaluation of bids, preference must be granted in accordance with the tie-breaking criteria which prioritise, among others, bids that incorporate domestic goods or services (Congreso de Colombia, 2020[23]). In Mexico, as part of the “Plan Mexico” industrial strategy announced in January 2025, a new Public Sector Acquisitions Law was adopted in April 2025 to strengthen domestic supply chains and support national industry. The law raises the minimum domestic content requirement for government procurement from 50% to 65%. Bids meeting this 65% threshold receive a price preference of up to 15% compared to imported alternatives from countries with which Mexico has not signed international treaties containing a public procurement chapter, explicitly favouring Mexican-produced goods and services in public tenders (Gobierno de México, 2025[24]). Furthermore, in the same year, Mexico reformed the Public Works Law, which mandates that, under equal conditions, preference must be given to the employment of national human resources and the use of domestic or regional goods and services, without prejudice to international commitments. Additionally, this law allows for the establishment of a domestic content percentage in public works procurement procedures, which must be reflected in the materials, machinery, and permanent installation equipment used.
In Australia, at the subnational level, state and territory governments have their own procurement frameworks, which may give price preferences for bids containing domestic content in tender evaluations. For example, the ‘Western Australian Buy Local Policy’, launched in 2020 and updated in 2022, applies a 20% price increase to the portion of a bid that comprises goods, services or items sourced from overseas, excluding New Zealand (Government of Western Australia, 2022[25]). In Argentina, Law No. 27,437 establishes that bids comprising at least 60% domestically manufactured products are eligible for a price reduction of up to 8% of the original price (Congreso de la Nación Argentina, 2018[26]).
In India, the Public Procurement Preference to “Make in India” Order of 2017 aims at promoting Indian-made products and services in government purchases. The purpose of this order is to support domestic industries, reduce reliance on imported goods, and create more job opportunities in India. This order is a part of the “Make in India” initiative launched in 2014 to encourage companies to manufacture products in India. The policy ensures that Indian businesses, especially SMEs, get priority when government departments and public sector undertakings buy products or services. By giving preference to locally manufactured goods, the government aims to strengthen the economy, improve self-reliance, and boost industrial growth (Office of the Principal Scientific Adviser to the Government of India, 2025[27]).
Using public procurement to support domestic companies
To support national economies, some governments use public procurement to support domestic firms by providing them with advantages that may, in practice, constitute barriers to entry for foreign companies (OECD, 2017[3]). The OECD taxonomy of measures affecting trade in government procurement processes identified some of these measures, which are presented in Figure 2.4.
Source: Adapted from (OECD, 2017[3])
Preferences for bids submitted by domestic companies
Some countries include provisions that confer advantages to domestic companies during the bid evaluation stage, which at the same time penalise foreign bidders. Preferences mechanisms, which generally take two forms: i) awarding domestic firms extra points in the bid evaluation or ii) penalising foreign companies in the bid evaluation. In Canada, for example, the Government of Ontario adopted in March 2022 a law providing price preference for local companies (see Box 2.2).
The Government of Ontario launched the “Building Ontario Businesses Initiative’ (BOBI), aimed at strengthening supply chain resilience and fostering economic growth at the provincial level.
This initiative is underpinned by the Building Ontario Businesses Initiative Act, which requires public sector entities to give preference to Ontario-based businesses when awarding contracts for the procurement of goods or services below certain thresholds: CAD 30 300 (USD 21 700) for goods and, CAD 121 200 (USD 88 000) for services. The preference may translate into a price advantage of approximately 10% in the evaluation of bids submitted by Ontario-based firms.
Under this legislation, a business is considered Ontario-based if it has its head office or principal place of business in Ontario or employs at least 250 full-time staff in the province at the time of the procurement process.
The government’s objective is to ensure that by 2026, at least CAD 3 billion (USD 2.17 billion) in public contracts are awarded annually to companies based in the province.
Source: (Government of Ontario, 2022[28]).
The 2014 EU Public Procurement Directives prohibit any preference based on nationality, primarily due to the principle of non-discrimination (European Union, 2014[29]). This framework is currently under review, an evaluation was concluded in 2025, and a potential revision is scheduled for 2026 (European Commission, 2025[30]). In its Communication A Compass for EU Competitiveness, published in January 2025 (European Commission, 2025[31]) following the conclusions of the “Draghi Report” on competitiveness issued in 2024 (European Commision, 2024[32]), the European Commission announced that the forthcoming revision would allow public buyers to introduce a European preference “in public procurement for strategic sectors and technologies” (European Commission, 2025[31]). This proposal is aligned with the measure outlined in the Commission’s Clean Industrial Deal, released in February 2025, which foresees the establishment of “European preference criteria” in EU public procurement “for strategic sectors” under the forthcoming directives (European Commission, 2025[33]).
As part of the revision of EU procurement framework, discussions have emerged on this topic. For example, a report from the French Senate released in 2025 expressed a strong support for establishing a general European preference mechanism in public procurement, extending beyond specific strategic sectors (Sénat français, 2025[34]). Conversely, Finland’s Ministry of Economic Affairs and Employment considers that the Commission should carefully assess the sectors, domains and products to which a European preference might be applied in a targeted and proportionate manner, as well as the modalities for its implementation (European Commission, 2025[35]). Finland has raised concerns about the potentially adverse effects of European preference in public procurement on competition and market resilience. It notes that introducing such a preference could reduce the number of bids in EU public procurement markets, which already face limited competition. In sectors where foreign suppliers currently play a significant role, such a policy could further narrow the supplier base – potentially leading to higher prices, lower quality, and reduced innovation (European Commission, 2025[35]).
Some research underline that introducing a European preference criterion aimed at supporting European firms may only have limited effect. Indeed, in practice, EU public procurement is already strongly oriented toward domestic bidders, despite the non-discrimination rules enshrined in both the EU Public Procurement Directive and the WTO Government Procurement Agreement (GPA) (Guillou, G’sell and Lechevalier, 2024[36]). According to a 2023 study by the European Court of Auditors, only 5% of procurement contracts between 2011 and 2021 were awarded by EU Member States to companies located outside their national boundaries (European Court of Auditors, 2023[37]).
In Morocco, beyond the bids containing domestic or local workforce, preference is given to tenders submitted by domestic companies. The preference takes the form of a penalty applied to bids from foreign companies, which increases the price by a percentage up to 15% (Royaume du Maroc, 2023[38]).
The precise definition of what constitutes a “domestic company” varies across jurisdictions, reflecting differences in national regulatory frameworks and ownership criteria.
Mandatory joint ventures with domestic supplier to participate in a public procurement process
Some governments require foreign companies to form joint ventures with domestic firms to participate in national call for public tenders. These measures are often justified to promote technology transfer (see section below) and to develop domestic industrial capacity, but they can also act as barriers to market access for foreign competitors. In China, for example, only companies with majority Chinese participation and full ownership of the intellectual property rights necessary for project implementation can bid for rolling stock tenders. Therefore, foreign companies wishing to participate must form joint ventures with domestic companies, in which they cannot hold the majority share. These measures reserve the Chinese rolling stock public procurement market for domestic companies (OECD, 2023[39]).
In Indonesia, Presidential regulation No.16/2018 concerning the procurement of goods and services by the government requires foreign companies participating in a national tender to establish commercial cooperation with a domestic company through a consortium, subcontracting agreement, or other form of partnership. As a result, foreign bidders are obliged to collaborate with the domestic industry for the manufacture of components and the provision of after-sales services (Indonesian Treasury, 2018[40]).
Forced technology transfers in procurement processes
The OECD defines forced technology transfer as a situation in which the owner of a technology from a third country is compelled, in order to participate in a national public procurement process under the same conditions as domestic companies, to transfer its technology so that competing domestic firms may gain access to it (OECD, 2024[41]). Such requirements could strengthen national economies by enabling domestic companies to access foreign technologies and enhance their competitiveness without bearing research and development costs. This practice can also affect trade and undermine fair competition by granting domestic firms an artificial advantage in technological capabilities.
Identifying cases of forced technology transfer is complex. International technology transfer (ITT) is considered as a major source of knowledge and economic growth worldwide – as shown by the increasing focus on policies aimed at attracting and retaining international business. However, there is a blurred line between voluntary and mutually agreed upon technology transfer and that which is perceived to be, or is in fact, compelled – through for instance measures that restrict market access and ultimately lead to a forced technology transfer as a condition for market access (Andrenelli, Gourdon and Moïsé, 2019[42]). It can also be difficult to gather information on practices which are generally hidden and that companies may be reluctant to report publicly, including for fear of losing access to valuable markets.
The 2019 OECD paper ‘International Technology Transfer Policies’ discusses the continuum of measures qualifying as international technology transfer (ITT), ranging from policies aimed at creating an appropriate supporting environment for ITT, to policies which clearly result in a forced transfer of technology categories that are relevant for public procurement contracts. This paper also highlights the role of the State in the economy and the general lack of regulatory transparency as key factors that can influence the degree to which a given measure can be viewed as forced technology transfer. Measures become of greater concern when transfer of technology is a precondition to establish or operate in a foreign market. However, evidence is often difficult to obtain, particularly when transfers result from implicit behaviours that exert pressure to transfer technology rather than explicit legal obligations (Andrenelli, Gourdon and Moïsé, 2019[42]).
In addition, government-induced technology transfers may stem from oral communications or behind-closed-door agreements, which might be difficult to trace. Detection is further hindered by companies’ reluctance to report these practices, as they may fear retaliatory actions that could jeopardise their access to the market (OECD, 2024[41]).
Policies requiring the establishment of joint ventures with domestic companies as a condition for participating in national procurement procedures may be regarded as an indirect means of imposing technology transfers (OECD, 2024[41]; Andrenelli, Gourdon and Moïsé, 2019[42]). As mentioned in the previous section on Mandatory joint ventures with domestic supplier, Chinese authorities have conditioned the right to bid for rolling stock tenders in China on the formation of joint ventures with Chinese firms in which the Chinese party was required to be the main shareholder. It is difficult to prove that mandatory joint venture requirements, or other requirements relating to the structure of companies in China, constitute forced technology transfers. However, previous OECD studies found that public allegations of forced technology transfers mainly concern China (OECD, 2024[41]). Similarly, the European Commission investigated the existence of discriminatory measures against European companies in the public procurement of medical devices in 2025. It found that Chinese procurement law commands that purchasing imported goods must be conducive to absorption of core technologies by domestic companies (European Commission, 2025[17]).
Commercial presence required to participate in public procurement process
Governments may require companies to have legal representatives in the territory if they wish to bid for public contracts. This requirement may have a dissuasive effect on foreign companies, in particular SMEs, as it represents an additional expense and oftentimes cumbersome administrative processes. In Brazil, for example, the Civil Code provides that a foreign company authorised to operate in the country must have a permanent authorised representative in Brazil (Presidência da República Casa Civil - Brasil, 2002[43]). While this provision is not specific to public procurement, it applies to companies bidding in public procurement processes. In Chile, Article 4 of the Public Procurement Law (Law No. 19886) provides that contracting entities may require the successful bidder in a goods or supply procurement to establish a Chilean company or organisation when the contract is awarded (Ministerio de Hacienda - Chile, 2003[44]).
Reserved contracts below thresholds to domestic companies
Countries may reserve public contracts below certain thresholds for domestic companies, thereby restricting access to these contracts for foreign companies. This is the case in the United Kingdom, where the government has published a Procurement Policy Note (11/20) setting out information and guidance for central government departments on how to “reserve” low-value contracts to suppliers in geographical regions from 1 January 2021. The note specifies that these geographical areas may refer to the whole of the United Kingdom “in order to support national supply chains and promote resilience and capacity” (Cabinet Office of the United Kingdom, 2020[45]).
In Australia, the Commonwealth Procurement Rules also allow contracting entities to directly select an SME, without competitive procedures, for procurements valued up to AUD 500 000 (USD 321 370) providing that value for money can be demonstrated. In Ontario (Canada), with the 2022 ‘Building Ontario Businesses Initiative’ (see the section on Preferences for bids submitted by domestic companies) public buyers can choose between giving price preferences to the bids of Ontario-based firms or reserving access to procurement procedures to Ontario-based firms, in public procurement procedures below defined thresholds (CAD 30 300 or USD 21 700 for goods and CAD 121 200 or USD 88 000 for services) (Government of Ontario, 2022[28]).
Exclusion of foreign firms from procurement processes for national security or safety reasons
The explicit exclusion of foreign bidders from public procurement on the ground of national security or safety concerns reserves specific procurement opportunities exclusively to domestic businesses, which can directly reinforce their market position, expand their operational capacity, and enhance their competitiveness to the extent it contributes to the development of scale. For example, in Japan it has been argued by foreign companies that Operational Safety of Transportation Clause (OSTC) contained in Japan’s Annexes to the WTO Government Procurement Agreement (GPA) has been used to effectively exclude them from public tenders in the railway sector. However, since 2 February 2020, the EU-Japan Economic Partnership Agreement has opened to EU suppliers the procurement of goods and services covered by the OSTC (OECD, 2023[39]).
One of the challenges is how to define “security or safety concerns”, as some countries may tend to broaden the scope of these exemptions with the aim of closing public procurement markets to foreign companies. The broad definition of “security and safety concerns” may: i) weaken the non-discrimination principle that guides most public procurement frameworks, ii) reduce predictability for the supply side, increase the overall costs of procurement items, impacting how taxpayers’ money is spent.
Regulations on investment screening also fall into this category of potential barriers, as these regulations are likely to have an impact on the procedures for awarding procurement contracts. They require preliminary checks on investments entering the country which thereby implies potentially limited access for companies from third countries to public procurement markets. In the EU for example, a 2019 regulation established a framework for the screening of foreign investments (European Union, 2019[46]). This practice allows EU Member States to introduce a minimum level of harmonisation of procedures and criteria for investment screening. It recognises that each European state can control foreign investments that present risks to national security which includes the potential effects of investments on “critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure” (article 4) (European Union, 2019[46]). Therefore, in the case of contracts awarded in the form of concessions, the regulation allows national authorities to check the strategic risks that may be involved in a bid from a third country (De La Rosa, 2025[47]). These regulations, which can potentially restrict foreign companies' access to European public procurement markets, stemmed in part from growing security concerns (UNCTAD, 2020[48]; OECD, 2020[49]).
Beyond the explicit exclusion of foreign firms on national security grounds and investment screening, some countries use labels as a tool for ensuring that supplies, services, and works meet security and safety requirements set by public buyers. While these standards are generally open for all to meet and constitute legitimation standards for safety, in some cases, requiring certain security labels may create regulatory barriers to entry for foreign suppliers. For instance, France has introduced the SecNumCloud certification for cloud services hosting sensitive data. This certification is only granted to companies headquartered within an EU Member State and excludes by design non-EU companies, which may constitute a discriminatory measure. Although the European public procurement framework allows companies to use equivalent certifications, some foreign bidders may be structurally unable to meet these conditions due to their national legislation. Box 2.3 provides more details on this certification.
The French government has introduced in 2016 the SecNumCloud certification for cloud services that outlines the technical and legal requirements that a cloud service must meet to ensure a high level of security. The certification is, based on the ISO 27001 standard, and was defined by France’s National Cybersecurity Agency (ANSSI). The certification is mandatory for public procurement involving the hosting of sensitive data and the provision of essential services.
This certification is only granted to companies headquartered within an EU Member that do not have more than 24% of their capital shares or voting rights held by a single non-EU entity. If non-EU entities do hold shares, they are prohibited from having veto rights or to appoint the company’s executives.
In terms of technical requirements, the SecNumCloud label mandates that certified cloud providers must store and process data exclusively within the EU to shield hosted data from foreign government access under non-EU legal frameworks. While the European public procurement framework allows companies to use equivalent certifications to compete for public contracts in the EU, some countries may be structurally unable to meet the requirements of to SecNumCloud due to their national legislation. For example, US law allows public authorities to compel domestic companies to transfer data for national security purposes; since SecNumCloud strictly prohibits the transfer of hosted data to non-EU public authorities, US companies face significant barriers to participating in public cloud procurement markets in France.
Note: Circular from the Prime Minister dated 31 May 2023, which defined ‘sensitive data’ as ‘data that fall under legally protected secrets.
Source: Adapted from (ANSSI, 2023[50]).
In-house procurement and preference to state-owned enterprises (SOEs) in public procurement procedures
Competition is widely recognised as a powerful mechanism for achieving value for money in public spending. Research consistently demonstrates that competitive procurement procedures can lead to lower prices and better-quality products and services (OECD, 2025[51]). However, all competitors in each procurement procedure should be subject to the same competition rules. Yet, in some countries, public entities can intervene as market players, through state-owned enterprises (SOEs), and bid on tenders launched by other public entities, including SOEs, while benefiting from exemptions under competition law. Such exemptions are not competitively neutral and negatively impact markets’ efficiency, thus preventing them from reaping the benefits of competition. The 2021 OECD Recommendation on Competitive Neutrality (OECD, 2021[52])] calls governments to ensure that all enterprises face a level playing field, regardless of factors such as their ownership (OECD, n.d.[53]).
To achieve neutrality in public tenders, the OECD Guidelines on Corporate Governance of State-Owned Enterprises also state that “‘when SOEs engage in public procurement, whether as bidder or procurer, the procedures involved should be competitive, non-discriminatory and safeguarded by appropriate standards of transparency” (OECD, 2024[54]). By ensuring that all companies can compete on their own merits, regardless of their ownership, nationality or legal form, governments can guarantee ‘competitive neutrality’ between private and state-owned companies.
Most OECD countries have adopted competition rules that apply in the same way to public and private companies bidding in procurement procedures (OECD, 2024[41]). However, even in countries that guarantee equal competition in public procurement, SOEs may enjoy certain competitive advantages through preferential treatment. These measures may strengthen the national economy by enhancing the market power and competitiveness of state-owned enterprises domestically, which could also strengthen their competitiveness in international public procurement. At the same time, it could also disadvantage private domestic enterprises in national procurement processes and constrain their ability to grow.
Such preferential treatment may occur through explicit legal provisions. This is the case for countries that reserve certain segments of their public procurement markets for one or more SOEs. These practices are, for instance, permitted within the European Union, where EU Member States may grant SOEs exclusive rights to produce or supply specific goods or services.
These exclusive rights protected by Article 106 of the Treaty on the Functioning of the European Union constitute legal monopolies that provide an exception to the application of the EU Public Procurement Directives. These exclusive rights are most often granted in connection with the provision of essential services that must be accessible to all citizens like energy, telecommunications or postal services (OECD, 2021[55]; Bartha, 2024[56]). These legal and sometimes economic monopolies de facto exclude foreign companies from public procurement (OECD, 2021[55]).
Beyond these exclusive rights, some countries have established specific procurement provisions for SOEs, thereby conferring them competitive advantages over foreign and domestic private firms. Indeed, in some countries, public entities can enter into “agency-to-agency” or “in house” contracts with SOEs to avoid requirements for public tenders, as illustrated in Box 2.4 for the Philippines. These “in-house” exceptions are present in certain OECD countries such as Colombia, Costa Rica or EU Member States. Costa Rica provides that the requirement for public tenders contained in Law No. 9986 do not apply to contracts between public entities and SOEs (República de Costa Rica, 2021[57]). Although the effects of these rules on national economies are not well understood, these “in-house” measures can affect trade. The US, for example, considers the Costa Rica “in-house” exception rule to be a barrier to trade for US firms in public procurement (United States Trade Representative, 2024[58]).
In the Philippines, SOEs are referred to as government-owned or controlled corporations (GOCCs). GOCCs must participate in public tenders to be awarded public contracts. To be eligible to participate, the rules prescribe that GOCCs must: 1) be legally and financially autonomous; 2) operate under commercial law; and 3) not be attached agencies of the procuring entity. In practice, GOCCs have three main advantages in public tender:
Unlike private companies, GOCCs are not required to register with the Philippine Government Electronic Procurement System (PhilGEPS).
The government and a GOCC can enter a simplified “agency-to-agency” contract under the flexibility granted by the Government Procurement Reform Act and thus avoid the general requirement for a public tender.
A well-functioning, dedicated mediation process under the Secretary of Justice exists for disputes between GOCCs or between a GOCC and the government.
These advantages may significantly reduce costs (including of potential disputes) for GOCCs and may offer an incentive for government agencies to source services from GOCCs using “agency-to-agency” contracts, rather than through public tenders that allow participation from private providers.
Source: (OECD, 2025[59]).
Preferential treatment may also occur through implicit behaviour i.e., behaviour that does not stem from written rules. Identifying such behaviour is particularly difficult, especially when it results from informal government policies and practices (OECD, 2024[41]). For instance, China has large SOEs in key sectors of its economy, which can give rise to implicit local content requirements in procurement. There are several examples where both the procuring and the providing entity are SOEs and benefit therefore from preferential treatment in several sectors, including the railway sector and the shipping sector. To illustrate this example, COSCO Shipping, a state-owned multinational marine transportation service conglomerate procures mainly ships from its own shipyards or other state-owned shipyards (Center for Strategic and International Studies, 2020[60]).
2.1.2. Facilitating SME's access to public procurement to support national economies and resilience affecting trade
Across OECD countries, Small and Medium-sized Enterprises (SMEs) represent around 99% of all firms, are a main source of employment and generate 50% to 60% of value added on average (OECD, 2023[61]). SMEs play a significant role in various economic sectors, including services, agribusiness, construction, retail and wholesale trade, and manufacturing, which are relevant to public procurement (Akenroye et al., 2020[62]). Given their significance, facilitating SMEs' participation in public procurement is crucial for promoting resilience against external shocks, economic growth and fostering a greater entrepreneurial ecosystem (OECD, 2023[89]. Although SMEs are, on average, less innovative than large companies, some of them, mainly start-ups, are often the source of radical innovations and constitute the bulk of high-growth firms (OECD, 2018[63]).
However, SMEs face significant challenges in accessing public procurement markets, including increased competition from large international operators or larger and better-established companies (Abdellatif and Zaky, 2015[64]; OECD, 2018[63]). As large firms have greater resources, experience and networks, which gives them a competitive advantage over SMEs. As a result, SMEs may struggle to secure contracts and get integrated into structured public procurement value chains, despite their ability to provide innovative and cost-effective solutions (Mphela and Shunda, 2018[65]). The complexity of public procurement procedures and systems also represents a major barrier to SMEs participation due to their internal limitations in terms of technical and administrative capacity (OECD, 2018[63]). The underperformance of SMEs in public procurement could be considered as evidence of a market failure justifying public intervention (Nicholas and Fruhmann, 2014[66]).
Therefore, facilitating SMEs’ access to public procurement enables a more competitive public market structure, which reduces the market power of major players and can thereby bring better value for money for the goods or services that public buyers purchase (OECD, 2018[63]). Promoting SMEs’ growth through public procurement can also have other benefits such as stimulating employment and job creation (OECD, 2018[63]). Easing SME’s access to procurement opportunities could also strengthen their capacity to export and to compete in foreign markets. In this context, the Government Procurement Agreement (GPA) Committee of WTO has decided in 2024 to compile best practices aimed at supporting the participation of SMEs in government procurement opportunities (World Trade Organization, 2024[67]). However, the link between procurement access and export performance remains debatable. For example, while a study conducted in Brazil, Colombia and Peru in 2016 found that SMEs benefiting from public procurement contracts showed a higher propensity to expand internationally, studies conducted in China in 2014 and in Italy in 2022 suggests however that access to public procurement is not necessarily a significant driver of SMEs’ international expansion (Cardoza et al., 2014[68]; Ballerini et al., 2023[69]).
Countries that responded to the 2024 OECD Public Procurement Survey indicated that they had integrated support to SMEs in procurement policy, including dividing contracts into lots, the simplification of procurement procedures through a wide set of measures described in Figure 2.5 (OECD, 2024[70]). While some measures target SMEs in general, independently of their nationality, to improve their access and participation in public procurement markets, it is worth mentioning that most measures to support SMEs in public procurement in general are primarily targeting domestic SMEs (Trybus and Andrecka, 2017[71]). This section focuses on measures that are directly targeting domestic SMEs, namely: set aside clauses, preferential treatments and targets for domestic SMEs, which are directly linked with the scope of this report.
Note: The measures in the blue boxes are the ones developed in this section
Source: Adapted from (OECD, 2018[63]).
Set asides for domestic SMEs
Public contracts can be reserved for SMEs to ensure their access to public procurement opportunities. These programmes are referred to as ‘set asides’ and exist in many countries. They can target all domestic SMEs or specific groups of domestic SMEs. In Colombia for example, Decree No. 1082 of 2015 allows certain contracts to be reserved for SMEs as well, if their value is under USD 125 000 and if at least two micro, small, or medium enterprises express interest (OECD, 2018[63]; Governement of Colombia, 2015[72]). Box 2.5 provides an example of set asides in the United States.
The Small Business Act, enacted in 1953, defines a “small business” as an enterprise with its place of business located in the US, which operates primarily within the US or makes a significant contribution to the US economy through the payment of taxes or the use of American products, materials or labour, that is independently owned, and does not hold a dominant position in its field of activity. In general, most small manufacturing enterprises employing up to 500 people, and non-manufacturing enterprises with annual revenues of no more than USD 7.5 million (EUR 6.5 million), are considered small businesses. However, regulations establish specific size standards for each industry and sub-industry.
Recognition as a small business grants access to procurement opportunities reserved exclusively for this category of enterprise. Pursuant to Section 19.501 of the Code of Federal Regulations, set-aside contracts limit participation in certain tenders to small businesses only. It is mandatory to fully reserve a supply or service contract for small businesses if its value lies between the micro-purchase threshold (set at USD 10 000) and the simplified acquisition threshold (set at USD 250 000). This limits access to these markets for enterprises of equivalent size that do not principally operate within US territory or that do not have their tax residence in the United States.
Certain small businesses facing greater socio-economic disadvantages benefit from additional dedicated programmes. For example, the Code of Federal Regulations establishes a special assistance program for small businesses located in economically underdeveloped areas: the HUBZone (Historically Underutilized Business Zone) programme. This programme aims to support small businesses while increasing employment, investment and economic development in historically disadvantaged areas. The programme also creates additional set-aside opportunities within federal procurement.
Measures promoting transparency and competition in public procurement are essential to significantly reduce contract costs (OECD, 2025[51]). As such, regulatory frameworks that establish set-asides could potentially hinder competition, leading to decreased cost-efficiency through higher unit prices (Cravero, 2017[75]). However, the actual impact of these frameworks on competition remains unclear.
Some studies suggest that preferential treatment for SMEs can increase procurement costs by reducing competitive pressure, and that governments may not always obtain the lowest price or the best value for money when awarding contracts to preferential groups (Liao, Orser and Riding, 2017[76]). Conversely, other studies dispute the negative impact of these policies, highlighting that such programmes may lead to an increase in the number of bids submitted without necessarily incurring higher costs (Kashin, Vinogradov and Shadrina, 2020[77]; Gegam Shagbazian et al., 2024[78]). Moreover, some research argue that set-aside can result in public savings, as the increased competition among SMEs can offset production inefficiencies, ultimately reducing procurement costs (Liao, Orser and Riding, 2017[76]). In Japan, these measures have been showing to effectively encourage SMEs’ participation in public procurement from April 2005 to March 2009, where 40% of SMEs would have exited the procurement market without the government’s set-aside programme devoting half of the procurement budget to SMEs (World Bank, 2020[79]; Nakabayashi, 2013[80]).
Targets for awarding contracts to domestic SME
In addition to the use of set-asides of specific contracts to SMEs, other countries have introduced targets in their regulatory or strategic frameworks to award a share of contracts to domestic SMEs.
For instance, in Australia, from July 2024, the Government committed to sourcing 25% of the total value of public procurement from SMEs, for contracts below AUD 1 billion (USD 643 million), and 40% for contracts valued below AUD 20 million (USD 13 million) (Australian Government, 2025[81]; 2024[82]). For the purposes of these targets, SMEs are defined as Australian or New Zealand businesses with fewer than 200 full-time equivalent employees, including associated entities. These reforms represent an increase compared to the previous 20% and 35% targets respectively, with the aim of providing broader and more predictable support for SMEs. In Indonesia, the 2020 Job Creation Omnibus Law mandates that central and local governments allocate at least 40% of procurement to local micro, small, and medium-sized enterprises (MSMEs) (United States Trade Representative, 2023[83]). In the Philippines, the Government is asked to procure at least 10% of its total purchases from SMEs (OECD, 2018[63]). Morocco also requires public buyers to “reserve thirty percent (30%) of the estimated value of the contracts they intend to award, for each financial year, for very small, small and medium-sized enterprises established in Morocco, including young innovative enterprises, cooperatives and self-employed entrepreneurs” (Folliot Lalliot and Yukins, 2024[84]).
Preferential treatment for domestic SMEs in procurement procedures
Some countries grant preferential treatment to SMEs in public procurement procedures by providing them with price preference or preference in case of tie. For instance, SMEs may be awarded additional points during the evaluation of bids. In Mexico, for example, the public procurement law (Ley de Adquisiciones Arrendamientos y Servicios del Sector Público) (Article 18) stipulates that when bids are evaluated using a point-based or percentage-based system, public buyers must give extra points not only to micro and small enterprises but also social sector organizations (Cámara de Diputados del Congreso de la Unión - México, 2025[85]). Box 2.6 provides an example of preferences granted to national SMEs in procurement procedures in Argentina.
In Argentina, under the procurement Law No. 27.437 adopted in April 2018, all levels of government – national, provincial, and municipal – are legally empowered to establish preference regimes in public procurement for goods and services of domestic, provincial, or municipal origin. The Law introduced a number of explicitly discriminatory provisions favouring domestic enterprises, goods, and services, with a particular focus on SMEs. A central feature of the reform is the establishment of a preferential regime for domestic SMEs in public procurement procedures. Specifically:
Bids from SMEs including goods of national origin may benefit from a 15% price preference when compared to offers involving goods of foreign origin. For other (non-SME) enterprises, the applicable preference is capped at 8%.
In addition, SMEs supplying goods of national origin are granted a statutory “right of improvement” in binding procurement processes. When their initial offer is priced no more than 20% above the lowest bid in the procedure, they are permitted to revise and improve their offer in order to remain competitive.
2.1.3. The impact of subsidies on public procurement
To make national enterprises more competitive and strengthen the national economy, some governments subsidise (1) domestic products or (2) domestic producers. Although subsidies do not constitute public procurement measures, their use can have a direct impact on public procurement and trade by boosting the competitiveness of specific firms or products in both national and foreign procurement procedures. This creates significant distortions of competition between subsidised domestic companies or products and unsubsidised ones (European Commission, 2021[86]). Indeed, by subsidising domestic companies or products, governments may also aim to help them obtain public contracts abroad and thus stimulate national economies (European Commission, 2021[86]). Recent OECD evidence shows industrial subsidies to have a causal positive impact on firms’ global market shares, which appears to come mainly from subsidies giving firms the ability to undercut competitors by lowering prices (OECD, 2025[87]).
(1) Subsidies for domestically produced goods
Countries can support domestic products through subsidies granted to companies using materials or products manufactured or extracted on the national territory. These advantages can take several forms. They can be direct, i.e. in the form of direct cash payments, interest-subsidised loans, guarantees, bonuses, capital contributions and the provision of logistical and commercial assistance. They can also be indirect, for example in the form of tax exemptions (OECD, 2025[88]). By providing these subsidies, governments enable companies that use the domestically produced goods to lower their production costs compared to companies that use products of foreign origin. Companies receiving this support can offer lower prices than their competitors in public tenders as part of their costs (investment, R&D, raw materials, labour, financing) are covered by the government (European Commission, 2021[86]).
As a result, in a national or international public tender, a subsidised company can offer lower prices than those offered by a competitor who does not use domestic products and is therefore not receiving state support (European Commission, 2021[86]). This competitive advantage is even more critical in procedures where price is a heavily weighted criterion (European Commission, 2021[86]). Therefore, subsidised companies may have better access to the public procurement market. From an industrial policy perspective, this could eventually encourage competitors to produce on national soil to also benefit from state support and thereby be able to compete in tendering procedures again. Due to the advantages it confers to companies in obtaining public contracts, subsidies based on the nationality of the products used can be a way of boosting domestically produced goods.
(2) Subsidies to domestic producers
Subsidies may be granted to companies solely based on their nationality and sector of activity. These subsidies alter the behaviour of beneficiary enterprises by enabling them to pursue activities they would not otherwise undertake, or to expand them in scope and scale (European Commission, 2022[89]). They encourage domestic firms to conquer larger markets, and in the context of international public procurement procedures, they allow companies to offer lower prices than foreign competitors, since part of their production costs is borne by the state (European Commission, 2022[89]). Box 2.7 provides an example of large subsidy programmes granted to domestic companies in China in different industries, including the medical sector, electric vehicles and the rolling stock market. These subsidies distort competition and may create an “unfair” competitive environment.
The “Made in China 2025” plan
Launched in 2015, Made in China 2025 was designed to secure technological self-sufficiency and enhance the competitiveness of Chinese industry in high-tech sectors. Its milestones extend over three decades: transforming China into an industrial power by 2025, into an innovative industrial power by 2035, and into the world’s leading industrial and innovation hub by 2049. The plan entails massive state investment, including through subsidies, in ten industries deemed strategic by the Chinese government, including information technology, aerospace, medical products, clean energy and EVs and rolling stock.
Although the precise volume of subsidies under Made in China 2025 is difficult to quantify, the US Chamber of Commerce has documented the range of measures deployed to bolster domestic firms through direct and indirect state support. These include financial support through public funds, with a minimum estimated allocation of USD 330 billion.
The overall balance sheet of Made in China 2025 appears favorable in certain industries, most notably in electric vehicles (EV). China’s share of the global EV market expanded from 3% in 2015 to 40% in 2024. Domestic manufacturers accounted for 52% of sales of EVs in China in 2023, increasing by 17 percentage points since 2020. BYD (the largest Chinese EV’s producer) alone held 35% of the national market and 15% of the global market. The Centre for Strategic and International Studies notes that Chinese EV manufacturers received USD 230.9 billion in government subsidies between 2009 and 2023, with USD 45 billion in 2023 alone.
In the medical devices sector, domestic producers benefit from reduced corporate income tax rates, where R&D expenses incurred by these producers for the development of new technologies, products, or techniques are eligible for a tax deduction of 100%. Specifically, 122 Chinese companies in the sector saw their public support – including direct subsidies – quintuple between 2017 and 2022, rising from CNY 5 billion (USD 696 million) to between CNY 20 and 27 billion (USD 2.78 billion to USD 3.76 billion).
Regarding the railway sector, the Chinese equipment manufacturing sector is structured as an oligopoly composed of two state-owned enterprises, one of which is the China Railway Rolling Stock Corporation (CRRC). Estimates from the OECD MAGIC database suggest that total government subsidies for China's railway equipment manufacturing sector amounted to more than USD 1 billion annually between 2020 and 2024.It has enabled CRRC to submit highly competitive bids, which has translated into the award of numerous public procurement contracts in both the EU and the US.
Examples of the impact of subsidies on public procurement outcomes
In 2017, the Southeast Pennsylvania Transportation Authority (US) awarded a USD 137 million contract to CRRC for 45 commuter rail cars. SEPTA considered that the CRRC proposal, compared to the ones of Bombardier and Hyundai Rotem, offered the best value and was most advantageous. CRRC’s bid was USD 34 million less than the second-best bid.
In 2019, CRRC won a EUR 957 million (USD 1.11 billion) contract in Romania to deliver 80 regional trains. The price was the most significant evaluation criterion (80% of total points). The bid submitted by CRRC was 25% lower than those of Alstom and Siemens, which had a significant influence on the outcome of the procedure.
Legislation restricting subsidised companies' access to public procurement markets
Distortions resulting from subsidies could in theory enable companies benefiting from these subsidies to gain market share internationally. However, governments are increasingly introducing legislations that restrict subsidised companies' access to their public procurement markets, such as the EU’s 2022 regulation on foreign subsidies (FSR) (European Commission, 2022[89]) (see section 3.2.2). Thus, while granting subsidies may enable the development of national companies and national products, it could also have harmful effects on international competition by closing potential markets to companies, depriving them from opportunities for growth. To illustrate this, a US study anticipates that the FSR could become challenging for US companies active in EU markets in the next years (Friton, Klasse and Yukins, 2023[95]). This is notably due to significant subsidies granted by the US government to American companies and products during the pandemic in response to the difficult global situation, which provides US industries with billions of dollars in financial supports (Friton, Klasse and Yukins, 2023[95]). Although they aim to support domestic companies, these subsidies could ultimately close EU markets to American enterprises.
Countries are increasingly using public procurement to achieve government policy objectives such as stimulating innovation or advancing the sustainability agenda, including by promoting a sustainable economy and energy transition. In addition, in a complex and unstable environment, more countries are promoting security of supply in public procurement processes. In addition to price and quality, these policy objectives are increasingly considered as an integral part of the concept of ‘value for money’, the fundamental principle underpinning public procurement, guiding decisions and actions to focus on the “most advantageous combination of cost, quality and sustainability to meet defined requirements” (OECD, 2020[96]). The economic dimension – cost and quality – had long taken centre stage, driven by budget constraints and growing demands from citizens for accountability. However, for over a decade, public procurement in many countries has emphasised sustainability, often incorporating goals beyond cost and quality, such as social aspects, environmental protection or the development of a green economy (OECD, 2020[96]). Following numerous geopolitical shocks, security of supply is also increasingly integrated in the concept of value for money.
Research shows that although the strategic use of public procurement to achieve public interest goals such as sustainability or the security of supply does not primarily aim at strengthening national economy, it may indirectly do so by acting as non-tariff barriers - if not used proportionally and in a discriminatory way-, limiting the participation of foreign companies (Folliot Lalliot and Yukins, 2024[84]). Figure 2.6 provides examples of measures that might indirectly strengthen national economies and affect trade.
Advancing the sustainability agenda in public procurement can support the development of local economies
Social and environmental goals are among the key strategic objectives that countries pursue through public procurement. Used strategically, public procurement can contribute to the 2030 Agenda for Sustainable Development by supporting a more resource-efficient economy (OECD, 2024[97]). Pursuing these objectives involves transforming public procurement, which affects many phases of the process, such as needs identification, technical specifications, execution conditions, and award criteria (De La Rosa, 2025[47]). The 2025 report on implementing the OECD Recommendation on Public Procurement shows a growing recognition of the strategic potential of public procurement (OECD, 2025[98]). In 2024, all respondents reported integrating at least one strategic policy objective into procurement-specific policies, with the most common being environmental objectives (100% of respondents). Compared to environmental objectives, social objectives are less widely integrated2 into procurement specific policy documents (OECD, 2025[98]).
Research shows that public procurement can be leveraged to achieve different public interest goals, including sustainability without harming competition (Folliot Lalliot and Yukins, 2024[84]). However, in practice, the growing adoption of sustainable procurement policies – including the inclusion of social criteria, promotion of the circular economy, shorter supply chains, respect of human and labour rights and reliance on local labour – could indirectly favour domestic economies in some sectors and or for some specific policies.
To better understand the impact of such policies on public procurement outcomes and competition, public buyers need to pay a careful attention to the analysis of the market and to conduct a thorough market engagement including with foreign companies when relevant. The European Public Procurement Directives allow contracting authorities to take environmental and social criteria into account and promote the circular economy. In a globalized market, embedding circularity into global value chains, including through public procurement, can offer major sustainability benefits as it can help to reduce reliance on virgin raw materials, support innovation in recycling and product design, and strengthen supply chain resilience by diversifying sourcing options and lowering material risks (Bato V and Kašťáková E, 2025[99]). However, this requires several systemic enablers including harmonized environmental standards across borders, interoperable systems for tracking and exchanging value chain data and policy coherence across trade, industrial, and environmental governance structure.
In February 2025, the European Commission announced its new roadmap to support green industrialisation through the Clean Industrial Deal (European Commission, 2025[100]). This Deal outlines several forthcoming developments, including the proposed “Industrial Decarbonisation Accelerator Act”, which will introduce mandatory environmental criteria for public procurement procedures involving energy-intensive sectors.
In addition, while there is not always direct and systematic correlation between buying local and sustainability, some public buyers use sustainability requirements in their procurement processes to promote local industries potentially creating barriers to entry for suppliers from non-domestic markets (Folliot Lalliot and Yukins, 2024[84]). In public catering contracts for example, public authorities are increasingly encouraged to prioritise local purchasing to advance social and environmental considerations. Government or local authorities may include requirements related to the locality of products for catering services, to protect the environmental or public health. Locally sourcing food through public procurement is often considered to present environmental and economic benefits – for example, buying locally could reduce the need for packaging and hence waste, which could be one of the objectives of sustainability initiatives, as well as carbon emissions induced by transportation (Krishnan et al., 2020[101]). Finally, by procuring goods from geographically proximate suppliers with the aim to pursue sustainability or environmental goals, public buyers may seek to offer new market opportunities to local enterprises, thereby stimulating local economic growth (Tregear et al., 2022[102]). However, local production does not always mean “more sustainable”. For example, a locally grown tomato in a heated greenhouse during winter might have a higher carbon footprint than a conventionally grown tomato shipped from a warmer region. Furthermore, the contribution of local purchasing to reducing carbon emissions due to reduced transport distances is deemed minimal. This is because transport accounts for only a small proportion of the total emissions generated by the supply of meals to school canteens. The carbon footprint seems to depend more on the menu content, the production conditions and how food waste is disposed of, rather than where the food comes from (Tregear et al., 2022[102]). Ultimately, pursuing diverse sustainability goals through local purchasing to negotiate important trade-off, as some of these objectives might conflict with one another (for example, the production of organic food is often more carbon intensive than regular production; local production might not necessarily be organic, etc.).
Like environmental criteria, social criteria in public procurement can have similar effects on national economies. Contracting authorities may exclude companies that fail to meet certain social standards and thereby prevent them from gaining a competitive advantage. By integrating social criteria applied at the national level as entry requirements to public procurement, countries can ensure that domestic firms and products meet these standards and are not disadvantaged by their compliance with more stringent national standards. For example, in Switzerland, the public procurement law requires equal pay for men and women as a prerequisite for procurement participation, for both domestic and foreign firms. Government agencies conduct random compliance checks, and violations may result in sanctions, including penalties or exclusion from procurement to prevent distortions of competition (OECD, 2020[96]).
2.2.1. The indirect consequences of promoting security of supply on the national economy
Security of supply is a key concern for many countries and public buyers. Trade has proven to be essential in responding to some crisis, such as the COVID-10 pandemic by ensuring a rapid supply of medicines and vaccines across the globe. However, this crisis, as well as other including the Russian war of aggression on Ukraine, have exposed significant dependencies for the supply of essential goods in certain countries, affecting both populations and their industries. For example, the high concentration of some pharmaceutical production in specific regions has sometimes resulted in disruptions in the availability of some medicines – even prior to the COVID-19 crisis. As an illustration, 65% of the active pharmaceutical ingredients required for amoxicillin in Europe were sourced from China. For other medicines this share reached up to 80% (OECD, 2024[103]). OECD data show that the number of medicine shortages across 14 OECD member countries rose by 60% between 2017 and 2019 (Chapman, Dedet and Lopert, 2022[104]), some related to medicines produced in China. These shortages affected drugs availability for numerous diseases and pathologies (OECD, 2024[103]). While geopolitical risks pose are legitimate concerns, some studies found manufacturing and quality issues to be the most frequently reported reasons for shortages (50-60%), before commercial reasons, unexpected increases in demand, to regulatory issues, or unforeseen major events or natural disasters (OECD, 2024[103]).
In this context, public procurement can play an important role in bolstering resilience within the value chain by acting as a strategic lever to ensure access to essential and quality goods and services, including healthcare which represents over 30% of total procurement spending in OECD countries (OECD, 2025[105]). For instance, to secure strategic autonomy or ensure continuity of supply, countries with a significant industrial fabric may take procurement measures that indirectly affect trade by making access to public procurement markets more complex for foreign suppliers.
A first approach to improve resilience involves prioritising the “most economically advantageous tender” (MEAT) evaluation methodology, also referred as price/quality ratio or weighted criteria (OECD, 2024[103]). Considering factors beyond price can give greater weight to supply security in decision-making. Indeed, low prices for generic drugs is a key factor of the higher reliance on Chinese manufacturers and the lack of resilience of supply chains in OECD countries. Although MEAT criteria are not directly linked to national economic promotion, certain sub-criteria – such as the location of production within the national territory – could be employed to seek greater resilience to international supply shocks – while it may conversely increase the vulnerability to domestic shock. Tenders submitted by domestic firms or those containing domestic products could therefore get a better score. Canada, for example, launched an online consultation on improving access to medicines and other health products where professionals in the sector emphasised the need to strengthen domestic manufacturing and to prioritise supply security over price in procurement procedures (OECD, 2024[103]).
Beyond the location of the production, it is worth noting that one of the key elements for strengthening the security of supply lies in the predictability of demand, so that manufacturers can better adapt their production to needs (OECD, 2024[103]). However, one challenge highlighted by manufacturers of medicines is the difficulty to plan supply and anticipate demand as the time between the bid submission and the award of the contract does not enable companies to adapt their production capacity. This is particularly true when companies participate in tenders with high quantities and financial volume, sometimes covering the needs of the whole country.
Several countries are also supporting reshoring to improve value chain resilience (OECD, 2024[103]). Motivations for this include perceived better-quality control, enhanced environmental sustainability and closer proximity to consumers (OECD, 2024[103]). In the post-COVID-19 environment, reshoring policies are also driven by the need to prevent more frequent disruptions in global value chains and to address rising labour, transport, and insurance costs (OECD, 2024[103]).To support reshoring, countries are introducing criteria for domestic production in procurement processes that may indirectly limit the access of foreign suppliers to public procurement markets. For instance, the European Parliament and Council adopted the Net-Zero industry Act (Regulation (EU) 2024/1735) in June 2024 to ensure a guaranteed access to strategic “net zero” technologies.3 It requires public buyers to include a resilience criterion in public procurement procedures in cases where the level of dependence on a third country for a “net zero” strategic technology (or its components) exceeds 50%. Box 2.8 describes the proposal of the European Commission (EC) for a “Critical Medicines Act” which aims to strengthen the supply security and availability of medicines considered critical in the European Union (EU) (European Commission, 2025[106]).
In addition, responsible business regulations can also be linked to the promotion of security of supply as governments should ensure they are contracting with reliable and responsible partners throughout supply chains (see section 3.2.2).
The Critical Medicines Act was submitted in March 2025 by the EC. The objective of this regulation is to strengthen the supply security and availability of medicines considered critical in the EU.
Critical medicines are defined as medicines “for which a shortage of supply results in serious harm or the risk of serious harm to patients”. 299 critical medicines have been identified by the European Medicines Agency. Article 18 of the draft regulation states that EU Member States shall apply award criteria beyond price and use requirements that promote the resilience of supply in the EU in the procurement of critical medicines. When purchasing critical medicines with a high level of dependence on one or more third countries, the regulation requires contracting authorities to apply selection criteria that favour suppliers that produce a significant proportion of these medicines within the EU.
2.2.2. Bolstering innovation through public procurement could create comparative advantages for domestic firms and affect trade by stimulating exports
Innovation plays an essential role not only in boosting economic growth but also in responding and ensuring the resilience of economies to various shocks affecting value chains, particularly in strategic sectors. It does so by offering new companies opportunities to access the market and become internationally competitive, and by guaranteeing public buyers access to alternative suppliers in the event of disruption to global value chains (OECD, 2017[108]; Jaravel and Méjean, 2021[109]). However, research shows that market economies do not sufficiently invest in innovation. This is illustrated by the financial constraints that hold new market players back in their development phases, stunting their innovative aspirations (Chiappinelli, Giuffrida and Spagnolo, 2025[110]). Public action could therefore be leveraged through public procurement to strengthen the capacity of new companies to innovate and thereby remedy a market failure (Chiappinelli, Giuffrida and Spagnolo, 2025[110]; OECD, 2018[63]).
The 2025 report on the implementation of the OECD Recommendation on Public Procurement shows that in 2024, 94% of respondents to the survey included innovation as a strategic objective in their procurement policies. This underlines the fact that stimulating innovation has been identified as a key strategic objective that should be pursued through public procurement (Monteiro, Hlacs and Boéchat, 2024[111]). Governments are indeed major buyers in many sectors, and public procurement can therefore be leveraged to stimulate innovation by offering innovative companies’ opportunities to develop their activities (OECD, 2017[108]).
Empirical evidence confirms a strong correlation between innovation and export outcomes. Research shows that in France, for example, 95% of the firms that have filed at least one patent between 1995 and 2012 have exported (Aghion et al., 2018[112]). This relationship is evident along both the extensive margin – non-exporting firms rarely file patents – and the intensive margin – firms with higher export volumes also tend to be more innovative (Aghion et al., 2018[112]). These findings underscore the importance of a supportive innovation ecosystem to facilitate firms’ integration into global markets. This ecosystem includes not only individual firms and their supply chains but also knowledge partners. While the role of public procurement of innovation in stimulating export is not directly established by research, it does however show that it is an important factor in the competitiveness and productivity of businesses, which could have indirect effects on their exports and thereby impact trade (Shin and Lee, 2021[113]; Aghion et al., 2018[112]). By developing new products, processes or services, firms strengthen their position vis-à-vis foreign competitors, enabling them to access new markets and boost their export performance.
The strategic role that public procurement can play in innovation has been further underlined in the “Draghi report” published by the European Commission on the future of European competitiveness (European Commision, 2024[32]). The report highlights the fundamental role of innovation procurement in the green transition, the EU’s competitiveness and the resilience of the single market but finds that innovative procurement represents only 10% of total public spending. In response to these findings, the European Commission designed the “EU Clean Industrial Deal” a strategic plan aimed at supporting decarbonisation, reindustrialisation and innovation, including through public procurement.
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← 1. According to guidance from the Office of Management and Budget (OMB), to qualify as “produced in the United States” under the IIJA, manufactured products other than iron and steel must contain more than 55% domestic content
← 2. support to Indigenous people 20%, addressing long-term unemployment 28%, gender equality and responsiveness 53%, promoting accessibility 60%, supporting social enterprises 60%, and upholding human and labour rights at 75%
← 3. Article 4 stipulates that technologies involved in energy production such as wind turbines, solar panels, batteries, hydrogen, and nuclear power are covered. This also includes any form of technology involved in decarbonization.