Distortion of international trade by discriminatory government and private procurement policies

Governments are major purchasers of both commodities and services. Procurement policies may be established or applied in such a way as to discriminate against some bidders, particularly those from other countries. Bids may be solicited amongst a group of suppliers selected by the purchasing authority, or under single tender from one supplier only. As opposed to public tender, these methods are the most widely used, and lend themselves most easily to discriminatory practices. Discrimination may also be achieved against foreign firms by failure to provide adequate information concerning bidding opportunities; announcements of government purchasing intentions may not be widely publicized or may be placed in publications that are not well known to most foreign firms; furthermore, the time limit for submission of bids may be so short as to constitute a major barrier to foreign concerns.

Bids may be evaluated and contracts awarded in a discriminatory manner on the basis of non-economic criteria, particularly in order to favour domestic producers. Little information on the reasons for accepting or rejecting bids may be made available after the contract is awarded (partly in order to avoid the possibility of collusion between bidders). Foreign participation in public procurement negotiations is also inhibited by factors such as special residency requirements, and special technical requirements may also be used, with government encouragement, by major private firms. Developing countries may also be obliged to restrict the manner in which they spend aid funds in foreign markets. Bilateral aid may be fully tied to procurement in the donor country, even when the lowest prices are available elsewhere.