In the negotiations of the TPP and TTIP, the United States will need to overcome the challenges of covering state procurement in trade agreements.
In current trade talks — the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), the United States is facing demands to open the procurement markets of states to its trading partners. However, the authority to satisfy those demands rests with the states — not the federal government. That means the United States must persuade each state of the merits of treating foreign suppliers the same as its local suppliers and following specified procurement rules when it makes purchases. Past experience illustrates the difficulties of fulfilling such demands.
Under the U.S. federal system of government, each state determines whether to cover its procurement under a trade agreement. The U.S. Trade Representative (USTR) seeks state authorization to cover procurement in a trade agreement on a state-by-state basis. Each state decides “whether to have its purchases covered in a U.S. trade agreement, and if so, what state purchases the agreement will cover.” USTR permits a state to limit the application of a trade agreement only to procurement by specified agencies and to exclude purchases of sensitive goods or services. Also, it allows a state to maintain preference programs for small businesses, distressed areas, minorities or women.
Even when a state agrees to participate in a trade agreement, it can limit the procurement that it opens to foreign suppliers to purchases of goods and services above $550,000 in value. That threshold is much higher than the one applied by most trading partners. To further facilitate state participation in trade agreements, the GPA and other trade agreements relax several procedural disciplines for states.
Despite the flexibilities allowed states that agree to cover procurement under the GPA or other agreements, state participation has been less than robust. When the United States added state procurement for the first time in the negotiations of the 1994 WTO Government Procurement Agreement (GPA), only 37 states agreed to open up some of their procurement to GPA Parties. Their commitments included a number of exclusions. Of the remaining 13 states, only three have agreed to open their procurement in specific agreements. Georgia signed on to the U.S.-Australia FTA and, in a bilateral arrangement with the European Union, North Dakota and West Virginia agreed to consider tenders from EU suppliers if the state opened up a procurement to non-state suppliers.
The last major U.S. effort to add states to free trade agreements (FTAs) — with Peru, Colombia and Panama – resulted in commitments from only eight states and Puerto Rico. These results were the lowest in any FTA, even though the United States tried a reciprocity policy to encourage state participation. Under that policy, a state’s suppliers were given rights to the foreign party’s sub-central procurement only if that state covered some of its procurement under the FTA.
In addition to the difficulty of persuading states of the benefits of covering procurement under trade agreements, the Administration faces another hurdle in states where the legislature has to approve a state’s commitment. In the past, USTR has sought authorization from the governor to cover a state’s procurement under a trade agreement. However, beginning in 2005, several states, including Hawaii, Maryland, Minnesota and Rhode Island, have enacted legislation that gives such authority to the legislature. In these states, the legislature decides whether to bind a state’s procurement under a trade agreement. Obviously, legislative action may lead to a longer and more complicated consultation and authorization process.
The Administration will need to find new ways to convince states of the value of covering their procurement under the TTIP and TPP. To do this successfully, it will need to demonstrate to states the benefits of opening their procurement markets to U.S. trading partners.
Jean Heilman Grier
December 16, 2013