TPP Procurement: Harmonizing FTAs

The United States agreed to revise procurement provisions in two free trade agreements (FTAs) in side letters to the recently concluded Trans-Pacific Partnership (TPP). One side letter will replace the procedures that apply to procurement covered under the North American Free Trade Agreement (NAFTA) with the TPP’s procurement procedures. Two other letters will align thresholds that apply to procurement covered by NAFTA, with respect to Canada, and thresholds that apply to procurement under the U.S.-Australia FTA with TPP thresholds. The agreements in the side letters will contribute to the harmonization of international procurement obligations.

NAFTA: Two side letters apply to NAFTA procurement commitments. One sets out the agreement of Canada, Mexico and the U.S. to update NAFTA’s procurement procedures by replacing them with the provisions in the TPP Government Procurement Chapter. This agreement is significant because it will align NAFTA with the government procurement chapters of other U.S. FTAs, as well as the recently revised WTO Government Procurement Agreement (GPA).

Beginning with the 2004 U.S.-Chile FTA, FTAs have included up-to-date procurement procedures, which closely follow the GPA. NAFTA, however, has been the outlier, representing an older generation agreement that did not include the more modern procurement standards. For example, FTAs and the GPA allow agencies to use shorter tendering periods when they purchase commercial (off-the-shelf) goods and services. They also permit procuring entities to reduce tendering periods when they publish notices of intended procurement and tender documentation electronically. Federal agencies have not been able to take advantage of such provisions since they are not included in NAFTA. With the update in NAFTA’s procedures, agencies will be able to apply the more up-to-date provisions.

Under a second NAFTA-related side letter, Canada and the U.S. will apply their TPP thresholds to procurement covered by NAFTA. That will increase their current NAFTA thresholds for the procurement of goods ($25,000) and of services ($77,533) to $191,000 for both. For construction services, the application of the TPP threshold of $7,358,000 will result in a significant decrease from the NAFTA threshold of $10,079.365. As a consequence of the alignment of thresholds, both Canada and the U.S. will apply the same thresholds in NAFTA, the TPP and the GPA. (The $25,000 goods threshold is the lowest threshold that the U.S. applies in any trade agreement. It was carried over from the earlier U.S.-Canada FTA.)

Australia-U.S. FTA: Based on a TPP side letter, Australia and the U.S. will apply the TPP procurement thresholds to procurement covered by their 2005 FTA. That change will more than double the FTA threshold that currently applies to goods and services purchased by central government entities from $77,533 to the TPP threshold of $191,000. That is the same threshold that the U.S. applies under the GPA. As a consequence, when Australia completes its negotiations to accede to the GPA, expected later this year, and both countries implement the TPP, their central government entities will be able to apply the same threshold to goods and services covered by the FTA, the TPP and the GPA.

Effects of Agreements: Increasing the thresholds under both NAFTA and the Australia FTA will remove a disparity in effective access to central government procurement. The disparity results from the U.S. exclusion from both agreements of procurement that it sets aside for U.S. small businesses. Since the U.S. reserves virtually all of its federal procurement below $150,000 for its small businesses, Australia and Canada have, in effect, only had access above that amount, notwithstanding the lower thresholds in the agreements. At the same, the U.S. has had access to procurement below $150,000 in both countries.

In addition to removing the disparity in access with the increase in central government thresholds, the agreements in the side letters will further contribute to harmonization of international procurement standards by replacing the older NAFTA procedures with the TPP procurement procedures. The convergence of procurement procedures and thresholds will simply the implementation of obligations in trade agreements.

The side letter agreements will become effective when the respective parties to those letters implement the TPP.

Jean Heilman Grier

January 12, 2016

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