2018 Government Procurement: Preview of Issues

In its first year, the Trump administration provided a broad indication of its approach to government procurement in international agreements, calling for a report aimed at strengthening Buy American requirements and revising the U.S. determination of reciprocity in procurement commitments. While the United States focuses on reviewing and revising existing trade agreements, its trading partners are moving forward with negotiations of new trade agreements. This post previews key procurement issues that will determine whether the international procurement arena sees progress in 2018.

Buy American Report: In April, the President directed the Commerce Secretary and USTR to assess the impact of free trade agreements (FTAs) and the WTO Government Procurement Agreement (GPA) on the operation of Buy American laws. He also directed the Secretary of Commerce to submit a Buy American report by November 24 with  recommendations on strengthening implementation of Buy American Laws. Of particular concern to the international procurement community is whether this report will recommend that the U.S. renegotiate or withdraw from existing procurement agreements, such as the GPA. To date, that report has not been released to the public. It is not even clear whether it was submitted on schedule.

North American Free Trade Agreement (NAFTA): Negotiations to revise NAFTA resume later in January, as the three countries target an agreement by the end of the first quarter. The overarching question is whether they will reach an agreement that satisfies President Trump or whether he will pull the U.S. out of the Agreement. For procurement, a key issue is whether the U.S. will modify or withdraw its proposal to cap Canadian and Mexican access to U.S. procurement at the level that both open their procurement to the U.S. How that issue is resolved in the NAFTA negotiations may well have ramifications for future agreements – both those that are renegotiated and new agreements.

U.S.-Korea FTA Renegotiations: This week the U.S. and Korea will begin negotiations on “potential amendments and modifications” of the U.S.-Korea Free Trade Agreement (KORUS FTA). With the talks, the U.S. aims to resolve market access issues and “most importantly, to address the significant trade balance”, reflecting the administration’s continued focus on trade deficits. The KORUS FTA’s procurement obligations are limited to federal and central government entities and largely reflect commitments both parties have made under the GPA. In the FTA, Korea covers several more entities and the U.S. slightly fewer entities than under the GPA. The bilateral pact also applies a lower threshold for goods and services ($100,000), in comparison to the GPA threshold of $180,000. The Agreement does not apply to any government enterprises or sub-central entities. A key issue is whether the U.S. will seek to cap the procurement to which Korea has access under that agreement as it has in the NAFTA negotiations.

GPA Accessions: In 2017, no new WTO members were added to the GPA roster. The WTO procurement committee in its 2017 annual report expressed the hope that Australia, the Kyrgyz Republic and Tajikistan would complete their accession negotiations in 2018. The committee also urged progress on the accession negotiations of China and the Russian Federation, recognizing that both would be significant additions to the GPA. Both committed to seek GPA membership when they became WTO members. Russia applied for accession in 2016 and has submitted an initial offer. China’s accession negotiations have now entered their 11th year. It submitted its sixth and latest offer at the end of 2014. While China has indicated its intention to submit another revised offer, it has not indicated when it would so do.

European Union FTAs: In 2017, the European Union came close to completing negotiations of FTAs with Mexico and Mercosur, the South American trade bloc comprised of Argentina, Brazil, Paraguay and Uruguay. It hopes to finalize both agreements early in 2018. In those negotiations, the EU is expected to seek ambitious procurement commitments, as it did in its recent agreements with Canada and Japan. Of particular interest is whether the EU will be able to persuade Mexico to cover the procurement of its states. Mexican state procurement is not included in the current NAFTA and not likely to be included in any renegotiated agreement. To implement its agreements with Singapore, Vietnam and Japan, the EU will be seeking the approval of the Council of the EU and the European Parliament in 2018.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): Following President Trump’s withdrawal of the U.S. from the Trans-Pacific Partnership agreement at the beginning of his term, the remaining 11 TPP partners are moving ahead with Japan playing a central leadership role. They reached a ministerial agreement on the core elements of a renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership in November. The CPTPP countries have agreed to suspend several of the TPP provisions, but those do not include government procurement. The most significant elements of that Agreement for government procurement will be opening the procurement markets of Malaysia and Vietnam.

Brexit: As the EU and United Kingdom aim to reach a trade agreement this year, one of the issues will be the handling of government procurement.

Jean Heilman Grier

January 5, 2018

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