I have recently had some interesting discussions on the role of Free Trade Agreements (FTAs) in liberalising procurement-related international trade. The standard analysis is that FTAs serve the purpose of reciprocally opening up procurement markets to the economic operators of the signatory parties, and that the parties negotiate them on the basis of reciprocal concessions so that the market access given by A to economic operators from B roughly equates that given by B to economic operators from A (or is offset by other concessions from B in other chapters of the FTA with an imbalance in A’s favour).
Implicitly, this analysis assumes that A’s and B’s markets are (relatively) closed to third party economic operators, and that they will remain as such. The more interesting question is, though, whether FTAs should also close procurement markets to non-signatory parties in order to (partially) protect the concessions mutually granted, as well as to put pressure for further procurement-related trade liberalisation.
Let’s imagine that A, a party with several existing FTAs with third countries covering procurement, manages to negotiate the first FTA signed by B liberalising the latter’s procurement markets. It could seem that economic operators from A would have preferential access to B’s markets over any other economic operators (other than B’s, of course).
However, it can well be that, in practice, once the protectionist boat has sailed, B decides to entertain tenders coming from economic operators from C, D … Z for, once B’s domestic industries are not protected, B’s public buyers may well want to browse through the entire catalogue offered by the world market—especially if A does not have the most advanced industry for a specific type of good, service or technology (and I have a hunch this may well be a future scenario concerning digital technologies and AI in particular).
A similar issue can well arise where B already has other FTAs covering procurement and this generates a situation where it is difficult or complex for B’s public buyers to assess whether an economic operator from X does or not have guaranteed market access under the existing FTAs, which can well result in B’s public buyers granting access to economic operators from any origin to avoid legal risks resulting from an incorrect analysis of the existing legal commitments (once open for some, de facto open for all).
I am sure there are more situations where the apparent preferential access given by B to A in the notional FTA can be quickly eroded despite assumptions on how international trade liberalisation operates under FTAs. This thus begs the question whether A should include in its FTAs a clause binding B (and itself!) to unequal treatment (ie exclusion) of economic operators not covered by FTAs (either existing or future) or multilateral agreements. In that way, the concessions given by B to A may be more meaningful and long-lasting, or at least put pressure on third countries to participate in bilateral (and multilateral — looking at the WTO GPA) procurement-related liberalisation efforts.
In the EU’s specific case, the adoption of such requirements in its FTAs covering procurement would be aligned with the policy underlying the 2019 guidelines on third country access to procurement markets, the International Procurement Instrument, and the Foreign Subsidies Regulation.
It may be counter-intuitive that instruments of trade liberalisation should seek to close (or rather keep closed) some markets, but I think this is an issue where FTAs could be used more effectively not only to bilaterally liberalise trade, but also to generate further dynamics of trade liberalisation—or at least to avoid the erosion of bilateral commitments in situations of regulatory complexity or market dynamics pushing for ‘off-the-books’ liberalisation through the practical acceptance of tenders coming from anywhere.
This is an issue I would like to explore further after my digital tech procurement book, so I would be more than interested in thoughts and comments!