TPP Procurement: Initial Assessment of Agreement

This post outlines the major elements of the Government Procurement Chapter in the just-released text of the Trans-Pacific Partnership (TPP), in comparison to procurement covered in existing agreements. The United States already has procurement commitments with all but three of the TPP partners through free trade agreements (FTAs) with six countries (Australia, Canada, Chile, Mexico, Peru and Singapore) and the WTO Government Procurement Agreement (GPA) with Japan and New Zealand (as well as Canada and Singapore). For these nine parties, the key issue is the extent to which they have expanded their procurement commitments. For the three countries with which the U.S. does not yet have agreements (Brunei, Malaysia and Vietnam), the consideration is to what extent, and when, they will open their procurement. This initial look at the procurement in the TPP focuses on the primary coverage elements: thresholds, three types of entities, goods and services, as well as transitional and other special measures.

Thresholds: One of the key elements in determining access to procurement under a trade agreement is the thresholds (monetary values) above which procurement is opened under the agreement. Unlike other FTAs, where the parties apply the same thresholds, in the TPP, there is little uniformity as the parties apply a broad array of thresholds, based on other agreements.

Coverage of Central Government Entities: The parties cover a wide variety of ministries and agencies. Most will open procurement of goods and services by central government entities at the GPA threshold of 130,000 Special Drawing Rights (SDRs) ($200,000). But, three will do so only after applying higher transitional thresholds. Brunei will reduce its starting threshold of 250,000 SDRs over four years. Malaysia will lower its initial threshold for goods of 1.5 million SDRs over 7 years and its 2 million SDRs threshold for services over nine years. Vietnam will have 25 years to reduce its threshold of 2 million SDRs. Mexico will apply its NAFTA threshold of $80,000 and Japan, Chile and Peru will apply thresholds up to 100,000 SDRs.

Coverage of Sub-central Government Entities: Half of the parties with sub-central government entities cover them under the TPP: Australia, Canada, Chile, Japan and Peru; but, they generally do not extend that coverage to the parties that do not provide such coverage in the Agreement (Malaysia, Mexico, New Zealand, the U.S. and Vietnam). The TPP requires the parties to commence negotiations with a view to expanding sub-central coverage no later than three years after entry into force of the Agreement. The parties covering sub-central entities apply one of the two thresholds used in the GPA: 355,000 SDRs for Australia and Canada and 200,000 SDRs for Chile, Japan and Peru. (Brunei and Singapore do not have any sub-central entities.)

Coverage of Other Entities: For other entities, the parties apply nine different thresholds for goods and services, with the highest set at 400,000 SDRs, except Malaysia and Vietnam, which are allowed to apply much higher thresholds. For the goods and services purchased by its 38 covered entities (Vietnam New Agency, three national academies and 34 hospitals), Vietnam will reduce an initial 3 million SDRs threshold over 5 years to 2 million SDRs, its permanent threshold. Malaysia will start with a 2 million SDRs threshold and lower it to 150,000 SDRs after 7 years for goods and nine years for services. It will apply those thresholds to four entities: Malaysian Investment Development Authority, Malaysia External Trade Development Corporation, SME Corporation Malaysia and Malaysia Productivity Corporation.

One element of note is that the U.S. has given Canada access to the procurement of the Tennessee Valley Authority and the Bonneville and other Power Administrations, access that it had withheld in the GPA and NAFTA because Canada had refused to open the procurement of its provincial hydro utilities. In the TPP, Canada has added 12 more entities than it covers under the GPA or NAFTA, but it has not offered any electric utilities. Its new entities include several bridge and pilotage authorities, museums, PPP Canada Inc., Canada Development Investment Corporation and Canada Lands Company, Limited.

Goods Coverage: The parties cover the procurement of all goods except those they explicitly exclude, with the exception of defense procurement, where they limit their coverage to the goods each lists. Of particular note, Vietnam will be able to set-aside from the obligations of the Chapter procurement of pharmaceutical products on a annual basis as follows: 100% of the value of the contract in the first 3 years of the Agreement, 65% in the next 7 years, 60% in years 11-15 and then permanently 50%, beginning in the 16th year.

Services Coverage: Unlike other FTAs that base coverage of services on a negative list (all services are covered except those listed), the TPP does not apply a uniform approach. While seven parties use a negative list, Canada, Japan, Malaysia, Singapore and Vietnam only open listed services.

Construction Services: All the parties, except Singapore, cover the procurement of all construction services, except those that they list. In addition, the TPP applies to build-operate-transfer contracts and public works concessions, except for three parties (Malaysia, Mexico and Vietnam), which take exclusions for them. For procurement of construction services, most parties apply a threshold of 5 million SDRs ($7.9 million), but Mexico applies its higher NAFTA thresholds. Malaysia will reduce its starting construction services threshold of 63 million SDRs over 20 years to 14 million SDRs. Vietnam begins with a 65,200,000 SDRs threshold and after 15 years will drop to a 8.5 million SDRs threshold for its central government entities, and after 20 years to a 15 million SDRs threshold for its other entities, the same threshold applied by Japan.

Transitional and Other Special Measures: In addition to the phased-in transitional thresholds described above, Malaysia, Mexico and Vietnam will be permitted to maintain a wide array of offsets, set-asides, price preferences and other special measures, including Malaysia’s Bumiputera preferences.  Some apply during a limited period; others are permanent. In addition, Brunei, Malaysia and Vietnam will be permitted additional time to implement several obligations, including establishing an impartial domestic review authority. These measures will be examined in a subsequent posting.

Text: As expected, the text of the Government Procurement Chapter is closely aligned with the recently revised GPA, as well as earlier FTAs.

Subsequent posts will examine the coverage commitments and text in greater detail.

Jean Heilman Grier

November 5, 2015

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