The Short-Run Effects of CETA on Municipal Procurement in Canada

Prof. Saul Schwartz
Dr. Elizabeth Schwartz

The purchase of goods and services from the private sector by all levels of government represents 15 to 20 percent of GDP in developed countries. It is widely thought that there is a pervasive “home bias” in government procurement – that is, that governments favour local firms in awarding such contracts. Many countries have explicit local content requirements, and even in the absence of such requirements, most contracts are won by local companies. In this context it is not surprising that gaining access to Canadian local government procurement markets was an important goal of European negotiators of the Comprehensive Economic and Trade Agreement (CETA) concluded between Canada and the European Union in 2014.

Are international trade agreements an effective means of reducing home bias? This paper argues home bias in municipal government procurement will not be eliminated by non-discrimination provisions in trade agreements. Focusing on the Canadian case, we use multivariate analysis to show a preference for local firms across several municipalities. We then combine analysis of the international and internal trade agreements that include local government procurement provisions with data from interviews with municipal procurement officials and municipal government documents to suggest that this preference does not arise due to the formal exclusion of foreign firms from competitive procurement processes. This study demonstrates that the relative absence of non-local contract winners in Canadian local procurement processes is related to other difficulties faced by firms that are not covered in trade agreements, namely how business is conducted and regulated in particular municipalities.