I'm often surprised by how much support there is for "Buy National" provisions (see, e.g., the proposal of many U.S. Democratic house members here). WTO DG Pascal Lamy, in his 2009 annual report on trade and trade-related developments, discusses the issue in the context of the recent stimulus measures, and then presents a brief critique of such policies:
70. Annexes 2 and 3 provide factual information on the general economic stimulus measures and the specific measures for financial institutions. Most of these measures were undertaken at the beginning of the review period. Monitoring the impact on trade of fiscal stimulus programmes and industrial and financial support programmes presents a particular challenge because of the paucity of data available, in particular on the specifics of how these programmes are being implemented. Concerns have been raised by some governments and businesses about "buy/invest/lend/hire local" requirements that have been attached officially or unofficially to some of these programmes. Because of their evident nationalistic appeal in current circumstances, there is a particular danger that these programmes could become targets for retaliation and proliferate. Several new cases of "buy local" campaigns, usually at local government levels, have been reported in the press throughout the year.
139. The importance of the GPA was seen clearly in the framing of the American Recovery and Reinvestment Act of 2009 (i.e. the U.S. "stimulus legislation"). The U.S. legislation (Pub. Law 111-5, enacted by Congress and signed into law in February of 2009) introduced two new "Buy American" requirements, one relating to the procurement of iron, steel, and manufactured goods for construction and related projects concerning public buildings and works (section 1605 of the legislation), and the other involving the procurement of specified items of clothing or equipment for the Department of Homeland Security (section 604). In both cases, the stimulus legislation addresses the potential conflict with the WTO Agreement on Government Procurement (GPA) and other U.S. international trade commitments by including a further provision stipulating that: "This section shall be applied in a manner consistent with United States obligations under international agreements" (section 604(k) and section 1605(d) of the legislation). Subsequently, a notification by the United States to the WTO Committee on Government Procurement (GPA/98 of 24 April 2009) provided details of interim implementing measures relating to the two requirements. These measures have been an important topic of discussion in the Committee during the year.
140. "Buy National" requirements raise concerns for trade and the international trading system in three main ways. First, they can exclude foreign suppliers from markets in which they could otherwise hope to compete, either by reserving the market completely for domestic suppliers or by introducing administrative complexities that make procurement procedures less easily accessible for foreign suppliers. Second, paradoxically, in some cases they may even raise the costs or impede the operations of domestic companies in the countries implementing the relevant measures, if such companies experience difficulties in sourcing domestically and cannot easily obtain waivers for purchases abroad. Third, as in other economic sectors, the implementation of discriminatory government procurement measures in one country may engender pressures for the adoption of similar measures by other countries. In this context, following the adoption of the U.S. stimulus legislation, China reinforced its own "Buy Chinese" regulations and there were press reports of pressures building for the adoption of "Buy Canadian" procurement measures particularly at the sub-central government level.
In a nutshell, such programs make procurement more expensive for the purchasing government, and lead to domestic companies losing business as other countries copy the discrimination.