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Abstract
In this paper I examine the extent to which preferential trade agreements (PTAs) limit the Australian government's ability to use public procurement for local industry development ends. I do so not only by examining Australia's PTA obligations, but also by examining how other governments with similar obligations—such as Korea—are using public purchasing policies to promote local industrial advancement. I find that the PTA obligations of the Australian and Korean governments leave them both significant scope to use public purchasing strategically. Interestingly, however, Australian policymakers have been standing still in the room that remains, and even abandoning PTA-compliant procurement-linked development policies. South Korean policymakers on the other hand have been capitalising on every inch of space left open to them—and even experimenting with new forms of strategic public purchasing that nonetheless comply with their international obligations. I conclude by offering some suggestions as to how we might explain these countries’ radically different approaches to procurement policy, despite their very similar international obligations.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1. In Australia's case, this was at least the first since its 1983 agreement with New Zealand.
2. The investigation was conducted by the Senate Finance and Public Administration References Committee (FPARC), which released its report in July 2014. The second recommendation of that report was that: ‘the Department of Finance provide a detailed explanation of the barriers to developing a preferencing scheme, which takes into account Australia's free trade obligations.’ (FPARC Citation2014, 19).
3. Australia is not currently a signatory to the World Trade Organisation's Government Procurement Agreement, having declined to sign upon its creation in 1996 for the reason that it was expected to impose significant obligations on Australia without delivering meaningful access to foreign markets. In late 2014, the Australian government announced its intention to seek accession, largely in response to China's decision to do the same, and began a process of public consultation on the idea. At the time of publishing, those consultations were ongoing.
4. Different thresholds apply at the federal and state levels, and to government enterprises. The thresholds are subject to re-negotiation (reduction) on a two-yearly basis and are published on the DFAT website: http://www.dfat.gov.au/about-us/grants-tenders-funding/tenders/procurement-policy/Pages/default.aspx
5. At the Federal level, the procurement of automobiles was exempt, and the Department of Defence and Defence Material Organisation had a large number of items exempted from coverage on national security grounds, such as ships, engines, turbines and various components such as wire. Most State governments exempted health and welfare services, education services, advertising services and automobiles.
6. AUSFTA Article 15.2 stipulates ‘National Treatment’ and ‘Non-Discrimination’ as follows:
1. Each Party and its procuring entities shall accord unconditionally to the goods and services of the other Party and to the suppliers of the other Party offering the goods or services of that Party, treatment no less favourable than the most favourable treatment the Party or the procuring entity accords to domestic goods, services and suppliers. 2. A procuring entity of a Party may not: (1) treat a locally established supplier less favourably than other locally established suppliers on the basis of degree of foreign affiliation or ownership; nor (2) discriminate against a locally established supplier on the basis that the goods or services offered by that supplier for a particular procurement are goods or services of the other Party.
7. See Australian Commonwealth Procurement Rules (Department of Finance, Australian Government 2014)
8. The AUSFTA defines Offsets as ‘any conditions or undertakings that require use of domestic content, domestic suppliers, the licensing of technology, technology transfer, investment, counter-trade, or similar actions to encourage local development or to improve a Party's balance-of-payments accounts’. Article 15.5.7 (Definitions). See: http://www.dfat.gov.au/about-us/publications/trade-investment/australia-united-states-free-trade-agreement/Pages/chapter-fifteen-government-procurement.aspx
9. For an overview of the AIPP program see: http://www.industry.gov.au/industry/AustralianIndustryParticipation/Pages/AIP-plans-required-Jobs-Act-2013.aspx
10. An upper limit of US$300,000 applies for procurements of items relating to chemical, nuclear, biological or radiological defence (see Canadian Trade Commissioner Service Citation2015)
11. On the lengths to which US government agencies typically go to make sure they are fulfilling their legally mandated set aside requirements and enforcing the rule of two, see McVay (Citation2009, chapter 11, and especially pg. 184).
12. For US definitions of small business see: http://www.sba.gov/content/what-sbas-definition-small-business-concern
13. Adam Creighton ‘SMEs crucial to economic strength’ The Australian, July 11, 2012, available at http://www.theaustralian.com.au/business/wealth/smes-crucial-to-economic-strength/story-fnerlcaq-1226423680334
14. Seddon cited in Senate Standing Committees on Finance and Public Administration, hearing on Commonwealth Procurement Procedures, Committee Hansard, April 28, 2014, p. 1. Available at: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Finance_and_Public_Administration/Commonwealth_procurement_procedures/Report/c02. Accessed November 11, 2014.
15. Senate finance and Public Administration Reference Committee Public Hearing, Monday, April 28, 2014, Questions Taken on Notice—Dr Nicholas Seddon.
16. For an extended discussion of these and other aspects of the SBIR program, see Weiss 2014, 59–64, 102–110.
17. See KORUS FTA Chapter 17: Government Procurement: p. 16. http://www.ustr.gov/sites/default/files/uploads/agreements/fta/korus/asset_upload_file2_12716.pdf
18. In the manufacturing sector. Different employee and capital levels apply in other sectors. See http://www.sbc.or.kr/sbc/eng/smes/definition.jsp
19. Small and Medium Business Administration (SMBA) (http://www.smba.go.kr/eng/index.do)
20. The Department of Defence introduced its Capability Technology Demonstrator program in 1997, followed by the Rapid Prototyping, Development and Evaluation (RPDE) program—both of which have been very successful (see Thurbon Citation2012a for details of these programs).
21. See the CPRs: http://www.finance.gov.au/sites/default/files/2014%20Commonwealth%20Procurement%20Rules.pdf
22. Australian Government. Budget 2013–2014. Accessed November 12, 2014. http://www.budget.gov.au/2013-14/content/bp2/html/bp2_expense-16.htm
23. Specifically, the Department of Finance claimed that around 90 percent of services and 70 percent of goods are currently sourced from Australian suppliers.
24. On the emergence of evolution of the developmental mindset in Korea and its implications for strategic activism (with a particular focus on financial activism), see Thurbon (forthcoming b)
25. For a recent examination of this pattern of industry policy in Australia see Conley and Van Acker (2011). For a detailed analysis of the evolution of procurement-linked industry development policies from the 1990s to the end of Kevin Rudd's Prime-Ministership in 2013 see Thurbon (2Citation012b).