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Global trade tensions have a new front: government contracts. President Donald Trump is said to be mulling America’s withdrawal from a decades-old pact known as the Government Procurement Agreement. Overseen by the World Trade Organization, the GPA is an agreement among a group of 48 WTO members that offers preferential access to contracts worth $1.7 trillion per year.

1. What is public procurement?

It’s the purchase by state bodies of goods or services from private companies. Examples include buying furniture or computers for schools, or building roads or hospitals. The WTO estimates public procurement constitutes 10% to 15% of gross domestic product globally. The benefits include increased competition, meaning governments get better value for their expenditures, and added transparency, meaning less corruption.

2. What’s special about the GPA?

It’s the largest international agreement covering public procurement, established in the early 1980s and overhauled several times since then. Members include the European Union, the U.K., Canada, Japan, Australia and South Korea. Ten additional countries, including Russia and China, are in the process of joining.

3. What’s not to like?

Trump administration officials privately say the agreement is imbalanced, helping other countries much more than it helps the U.S. and removing an important piece of leverage that could be wielded in trade negotiations. The U.S. offers GPA members access to an $837 billion procurement marketplace, which according to a U.S. Government Accountability Office report is more than double the approximately $381 billion reported by the next five largest GPA parties combined -- the EU, Japan, South Korea, Norway and Canada.

4. What’s the backdrop?

During the presidential campaign, Trump promised to enforce “Buy America” rules as a way to revive U.S. manufacturing. He signed an executive order shortly after taking office directing government agencies to review their compliance with laws requiring them to choose domestic materials for everything from roads to weapons systems. The order also asked the Department of Commerce to assess the GPA’s impact on the Buy America rules.

5. Is the GPA really imbalanced?

The U.S. awarded $12 billion worth of government contracts to foreign firms in 2015, according to the GAO report. Of that total, contracts valued at almost $5.3 billion went to companies based in the six other largest parties of the GPA -- the EU, Japan, South Korea, Canada, Norway and Mexico. In return, those six parties awarded about $1.8 billion worth of contracts to U.S. companies. A 2017 GAO report also found that foreign governments let American companies bid on contracts far less than the U.S. allows international firms to bid.

6. What would happen if the U.S. withdrew from the GPA?

It would spell chaos for foreign companies. GPA members would lose their preferential access to most non-defense U.S. contracts and instead become subject to the Buy American Act, which bars most foreign access to U.S. government contracts without a specific waiver. At the same time, scores of U.S.-based companies would lose their preferential access to the nearly $900 billion procurement marketplace offered by the GPA’s other 47 members. A decline in competition may drive up public spending in the U.S., too.

To contact the reporter on this story: Bryce Baschuk in Geneva at bbaschuk2@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Grant Clark

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