Does the WTO government procurement agreement influence steel imports?

• Published date: 20 June 2016
• DOI: https://doi.org/10.1108/JITLP-07-2016-0015
• Pages: 153-167
• Date: 20 June 2016
• Author: Benjamin Liebman
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade

Does the WTO government

procurement agreement

inuence steel imports?

Benjamin Liebman

Economics, St. Joseph’s University, Philadelphia, Pennsylvania, USA

Abstract

Purpose – Government procurement policies containing domestic content requirements have faced

increasing attention, as more traditional forms of trade discrimination have declined in recent decades.

The most important effort to reduce discriminatory government procurement policies is the plurilateral

Agreement on Government Procurement (GPA), in which a subset of WTO countries has agreed to

provide increased access to imports from fellow signatory countries. This paper focuses on the Buy

American policy, which mandates domestic content for all US Federal government purchase above the

micro-purchase level. The author tests whether steel imports from GPA and US Free Trade Agreement

(FTA) partners, both of which receive preferential access to US federal procurements, increase as the

value of federal construction contracts rise.

Design/methodology/approach – The author tracks federal construction contracts and seeks to

determine whether there is a link between these contracts and construction grade steel imports from

GPA and US FTA members. The author uses two-stage least squares to regress the import quantity of

steel from GPA and US FTA countries on the value of US federal construction contracts. Imported and

domestic steel prices as well as macroeconomic variables such as industrial production and

non-residential construction are controlled for. A panel data set is used that includes three different

construction-grade steel products and covers years 2004-2013.

Findings – The results indicate that increased federal construction contracts increase imports of

construction-grade steel from GPA and FTA partners. This effect is relatively small, however, which

may be due to the fact that federal construction is a small share of overall US construction. In general,

the results suggest that the primary determinant of US import sourcing behavior is the business cycle

as well as the price of steel. Nevertheless, the ndings indicate that the preferences provided by the GPA

and FTAs do have some impact on where US construction rms source their steel.

Originality/value – Previous research has studied the effect of the WTO’s GPA on foreign access to

federal construction and other service contracts. This is the rst study, however, to investigate whether

these contracts impact the import sourcing behavior of the steel that is used in construction.

Furthermore, while previous research measures the impact of GPA membership on the overall trade of

goods and services, this paper is the rst to link a particular industry with the inputs that are restricted

by local content requirements such as the Buy American policy but freed up under the GPA. In general,

previous research on the GPA has tried to capture the broad effect of GPA membership on trade, while

this study focuses on the relationship between the GPA, federal procurement in a particular industry

(construction) and import behavior of a key input, construction grade steel.

Keywords WTO, Government procurement policy, International trade policy, Steel industry

Paper type Research paper

1. Introduction

An increasingly controversial area of global trade policy involves domestic purchasing

requirements in the government procurement of goods and services. Discriminatory

The current issue and full text archive of this journal is available on Emerald Insight at:

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WTO

government

procurement

agreement

153

Journalof International Trade Law

andPolicy

Vol.15 No. 2/3, 2016

pp.153-167

©Emerald Group Publishing Limited

1477-0024

DOI 10.1108/JITLP-07-2016-0015