Restricting procurement

13 February 2009

13 February 2009

The financial crisis and fear of industrial action have raised concerns over protectionism making a comeback. Paul Snell investigates the implications

British Prime Minister Gordon Brown has described protectionism as "the road to ruin". He has made clear his view that the global financial crisis is a problem governments must fix.But is this message falling on deaf ears? Some companies and governments show signs of raising their drawbridge to international trade.

India has banned imports of Chinese toys, the US is encouraging domestic steel purchases and workers at the UK's Lindsey oil refinery walked out when a contract went to an Italian vendor, who wanted to use foreign labour (Web news, 2 February).

But untangling yourself from international trade agreements is likely to prove very difficult.

The US government has been subject to strong condemnation from abroad and even large companies at home (Web news, 29 January), following its decision to stimulate the economy through the use of domestic steel in infrastructure projects.

The EU, Canada, Japan and Australia have written to the US administration asking them to reconsider the proposal. Simon Crean, the Australian trade minister, warns: "It will result in retaliatory action, it will result in a trade war."

Although politicians have since amended the steel stipulation to comply with its international obligations, some are still sceptical. European steel association Eurofer wants the European Commission to oppose the measure and refer the US to the World Trade Organisation (WTO) if necessary.

But will protectionist measures catch on with buyers? According to Chris Bovis, professor at the University of Hull Law School, protectionism appears in cycles, often when the economy worsens. He says procurement processes have been manipulated to become more restrictive in the past. These include suppliers having to fulfil a set of criteria before even being allowed to bid.

He adds its prevalence will depend on how organisations view procurement - as an economic driver often based on price, or as social driver, encouraging sustainability or stimulating employment. And for Martin Trybus, professor at Birmingham Law School, the main thing for buyers is to make it clear to suppliers how you are assessing tenders and make sure it is communicated to those bidding.

"The way to deal with it is transparency and equal treatment," he says.

While public sector buyers cannot issue tenders restricting bidders to domestic firms, or risk breaching EU procurement directives and the UK's membership of the WTO's Government Procurement Agreement, private sector buyers suffer no such restrictions.

But if protectionist actions become a larger problem, the EU may feel the need to step in, warns Sue Arrowsmith, professor at the University of Nottingham School of Law: "It would be a big step, very controversial, but not impossible. It's not inconceivable [procurement directives] could be applied to private firms. But it is nothing to worry about, it is just hypothetical and the possibility is remote."

SMfeb2009

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