Procurement Waivers in a NAFTA Withdrawal

The re-negotiations of the North American Free Trade Agreement (NAFTA) are entering their 9th month with no clear indication of when or how they might be concluded. President Trump has alternated between supporting the negotiations and threatening to withdraw the United States from the Agreement. There has also been talk of a “skinny” NAFTA, the scope of which is unknown. An earlier blog post explored how withdrawal from NAFTA would affect the ability of  U.S. suppliers to participate in Mexican government procurement. This post examines the likely effect on Buy American waivers for products manufactured in Mexico or Canada in the event that the U.S. withdraws from NAFTA or concludes a pared-down NAFTA that does not include procurement provisions.

The Trade Agreements Act of 1979 (TAA) authorizes the president to waive discriminatory purchasing requirements where he determines a county will provide appropriate reciprocal competitive government procurement opportunities to U.S. products and services under a free trade agreement (FTA) or the WTO Government Procurement Agreement (GPA). The president in an executive order in 1980 delegated the waiver authority to the U.S. Trade Representative (USTR). Although the TAA provides broad authority for the waiver of discriminatory purchasing requirements, it has been applied narrowly, limited to the Buy American Act of 1933 and the Department of Defense’s Balance of Payments Program.

Based on TAA authority, when the U.S. enters a new FTA or a country joins the GPA, USTR publishes in the Federal Register a determination that the FTA or GPA country will provide reciprocal procurement opportunities to U.S. products and services and a waiver of the domestic purchasing requirements for that country. Based on the USTR action, the federal agencies revise the Federal Acquisition Regulation (FAR), which governs executive branch procurement. Based on a Federal Register notice, they add the new FTA or GPA partner to the list of countries in the FAR for which the Buy American Act will be waived. Federal contracting officers rely on the FAR to determine the countries that are eligible for waivers.

To fulfill U.S. procurement obligations under NAFTA, USTR issued a waiver for goods from Canada and Mexico above the thresholds established in that Agreement. For Canada, the threshold is set at $25,000, which was carried over from the U.S.-Canada FTA. The threshold for Mexico is $50,000, which as a consequence of biannual inflation adjustments has risen to $80,317. Under the GPA, the U.S. applies a $180,000 threshold for goods and services purchased by federal agencies for GPA parties, including Canada.

If the president were to order the U.S. to withdraw from NAFTA, that order alone would not likely affect the Buy American waivers for goods produced in Mexico or Canada. However, the legal basis for Buy American waivers for goods manufactured in Mexico (and in Canada between the NAFTA and GPA thresholds) would no longer exist as the two countries would have no obligation to provide reciprocal opportunities for U.S. goods.

To implement the president’s order, the administration would need to take appropriate measures to change federal regulations. USTR would be expected to reverse its earlier determination and withdraw its waiver for Mexico and Canada. Publishing such actions would provide the relevant federal agencies with the necessary direction to modify the FAR, removing Canada and Mexico from the list of FTA countries eligible for waivers. For Canada, the only procurement that would be affected would be purchases with values between $25,000 and $180,000.

The same consequences could result if the NAFTA countries conclude a “skinny” NAFTA that does not include procurement provisions, unless the existing procurement provisions were to continue to apply. This could be the situation, for example, if a slim renegotiated NAFTA merely replaced parts of the original agreement and allowed the procurement provisions to continue in effect.

Jean Heilman Grier

May 25, 2018

Related Posts

NAFTA Procurement: What’s at Stake?

Trade Agreements Act of 1979: Broad Authority, Narrow Application