NAFTA Negotiations: Whither Procurement?

The United States and Mexico reached agreement on August 31 to modernize the North American Free Trade Agreement (NAFTA). USTR fact sheets describing the results made no mention of government procurement. However, according to Politico’s Morning Trade, Mexico’s chief negotiator outlined the procurement results: the U.S. dropped its proposed restriction on Mexico’s access to the U.S. procurement market; and the two sides agreed to maintain “the same level of access” as in the current NAFTA. He also indicated that the U.S. still wants to reduce Canadian access, while Canada seeks expanded U.S. procurement commitments. This post considers the status of the procurement negotiations, in particular, in the context of prior commitments, including in the Trans-Pacific Partnership (TPP), as well as Canadian and Mexican agreements with the European Union.

In the NAFTA negotiations in 2017, the U.S. proposed capping Canadian and Mexican access to U.S. procurement at the level of the combined procurement that they open to the U.S. That proposal was one of the “poison pills” that obstructed agreement on a revised NAFTA. As described in a prior post, resorting to a dollar-for-dollar match would drastically alter the approach that the U.S. has used to gain access to procurement markets under free trade agreements (FTAs) and the WTO Government Procurement Agreement (GPA). Because of the large U.S. procurement market, a capping approach would likely limit Canadian and Mexican participation in federal procurement to only the first couple months of a fiscal year.

In a September 17 letter, three leading U.S. business groups (Business Roundtable, U.S. Chamber of Commerce and the National Association of Manufacturers) set out their priorities for the NAFTA negotiations. At the top of their list was an agreement that includes both Canada and Mexico. Another priority called for expansion of access for U.S. firms to the procurement markets in Canada and Mexico, rather than limiting it with the “dollar for dollar” proposal. They noted that “American businesses secure billions of dollars in business opportunities” in the two countries.

If Mexico maintains the status quo on the procurement that it covers under a new agreement, it will be replicating its approach in the TPP agreement in which it did not offer any new procurement. By contrast, in its recently announced agreement in principle with the European Union, Mexico will open more procurement to EU suppliers than under any other FTA. Particularly significant is Mexico’s “first time” commitment to enter negotiations with its states to open their procurement to EU firms.

To be determined is the procurement that the U.S. will provide to Mexico under the new agreement. If the U.S. merely carries over its NAFTA coverage, Mexico will have less access than it would have had under the TPP.  Even though the president withdrew the U.S. from the TPP on his third day in office, that trade pact remains the benchmark for measuring NAFTA results, as it reflects the most recent U.S. procurement commitments.

In the NAFTA negotiations, the U.S. and Canada could go beyond their current GPA commitments to include the procurement that they offered under the TPP. For the U.S., that would include the U.S. electric utilities (Tennessee Valley Authority and Bonneville and other power administrations), which it denies Canada under the GPA and NAFTA. Under the TPP, the U.S. offered its broadest entity coverage by adding one more federal entity than it covers under the GPA.

In the TPP agreement, Canada added nearly 20 more federal entities than its GPA coverage, as well as 12 other entities. In its FTA with the EU, which was implemented a year ago, Canada opened significantly more procurement to the EU than under the TPP. For the first time, it opened the procurement of its provincial utilities and its MASH sector, comprised of municipalities, school boards and publicly funded academic, health and social service entities. It would not be expected to offer that coverage to the U.S.

The U.S. and Mexico are making plans to conclude their agreement, with or without Canada, before the newly elected Mexican president takes office at the beginning of December. To that end, President Trump on August 31 notified Congress of his intention to sign an agreement by the end of November with Mexico “and with Canada if it is willing, in a timely manner, to meet the high standards for free, fair, and reciprocal trade contained therein”.

In order to sign an agreement by November 30, the U.S. must submit its text to Congress by the end of September to meet Trade Promotion Authority (TPA) requirements. To comply with another TPA directive, the USTR has requested the U.S. International Trade Commission to prepare a report “assessing the likely impact of the agreement” on the U.S. economy.

Jean Heilman Grier

September 25, 2018

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EU-Mexico Agreement in Principle: Procurement

NAFTA Procurement: Capping Access?

NAFTA Procurement: What’s at Stake?

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TPP Procurement: Mexico’s Commitments