TPP Procurement: Mexico’s Commitments

In the Trans-Pacific Partnership (TPP), Mexico essentially replicated its government procurement commitments under the North American Free Trade Agreement (NAFTA), including its transitional measures. This post, similar to earlier posts on Brunei, Malaysia and Vietnam, describes Mexico’s procurement undertakings under the TPP.

Thresholds: In the TPP, Mexico will apply the same thresholds that it uses for procurement covered by NAFTA, which for its central government entities are $79,507 for goods and services and $10,335,931 for construction services. In contrast, its NAFTA partners, Canada and the United States, will apply a higher threshold for goods and services ($191,000), but a lower threshold for construction services ($7,358,000), the same thresholds both apply under the WTO Government Procurement Agreement, and which they agreed in a side letter to the TPP, to apply to their procurement under NAFTA.

Coverage of Entities: In the TPP, Mexico duplicates its NAFTA coverage of entities and, as in NAFTA, does not cover any sub-central entities. Mexico withholds coverage of its Other Entities from Brunei, Malaysia, New Zealand and Vietnam.

Coverage of Goods and Services: Mexico covers all goods, but, like most TPP parties, uses a positive list for the goods purchased by its Ministry of National Defense and Ministry of Navy. For its coverage of services, Mexico did not follow the initial approach that it used under NAFTA, where it opened only the services it listed. In 2005, it converted its NAFTA services coverage to a negative list, with a long list of excluded services. Mexico excludes the same services under the TPP.

Mexico covers all construction services, but excludes coverage of build-operate-transfer (BOT) contracts or public works concessions. Under the TPP, as in all U.S. FTAs except NAFTA, BOT contracts and public works concessions are covered as a type of contract, unless expressly excluded by a party.

Transitional Measures: Mexico has carried into the TPP the same transitional measures that it applied under NAFTA between 1994 and 2002.

  • Set-asides: For the first nine years after it implements the TPP, Mexico may set aside from its TPP obligations: (i) specified percentages, beginning at 50% and declining to 30% in Year 9, of the total value of contracts for goods, services and construction services procured by Petróleos Mexicanos (Pemex) and Comisión Federal de Electricidad (CFE), as well as construction services procured by entities other than Pemex and CFE; and (ii) US$1.34 billion of its total procurement, which may be allocated by all entities, except Pemex and CFE.
  • Pharmaceutical Exclusion: For the first eight years after Mexico implements the TPP, it may exclude procurement by several entities (Ministry of Health, Mexican Social Security Institute, Institute for Social Security and Services for Government Employees, Ministry of National Defense) of drugs that are not currently patented in Mexico or whose Mexican patents have expired.

Mexico’s TPP transitional measures do not apply to Canada, Japan and the U.S. since similar measures were applied under NAFTA and the Japan-Mexico Economic Partnership Agreement (EPA). It is not clear why Mexico needed to repeat in the TPP the transitional measures that it had applied earlier since such measures are intended to facilitate a country’s first-time opening of its procurement.

Permanent Measures: As with its transitional measures, Mexico has carried over from NAFTA permanent measures that favor its domestic industry.

  • Offsets: A Mexican procuring entity may impose local content requirements up to 40% in labor-intensive turnkey or major integrated projects and 25% in capital-intensive turnkey or major integrated projects.
  • Set-asides: Beginning in the 10th year of the TPP, Mexican entities may set aside contracts up to US$2.23 billion annually, of which the contracts set aside by PEMEX or CFE may not exceed US$892 million in a calendar year.

Mexico applies equivalent provisions to Canada and the U.S. under NAFTA, Japan under the EPA and Chile and Peru under an Additional Protocol to the Pacific Alliance Agreement.

In addition to opening the same procurement under the TPP as it does under NAFTA, Mexico, and its NAFTA partners, will apply the TPP rules to their NAFTA-covered procurement, based on a side letter to the TPP.

Jean Heilman Grier

April 26, 2016

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