US-EU Talks: Procurement Prospects

The United States and the European Union have issued proposals on the scope of their planned trade negotiations that reveal significant differences. On January 12, the U.S. Trade Representative (USTR) published negotiating objectives that call for a comprehensive trade agreement and go far beyond the narrow negotiating mandates adopted by the European Commission a few days later. This post considers the prospects of including procurement in any agreement with the EU in light of the U.S.’s exclusion of procurement of particular interest to the EU, the limited interest of U.S. industry in expansion of access to EU procurement markets and the procurement outcomes in the U.S.-Mexico-Canada Agreement (USMCA).

The U.S. negotiating objectives for an EU agreement closely track those recently published for an agreement with Japan. Covering more than 20 issues, including government procurement, the U.S. aims to “address both tariff and non-tariff barriers and to achieve fairer, more balanced trade in a manner consistent with the objectives that Congress has set out in [Trade Promotion Authority (TPA)]”.

In contrast, the EU focuses on implementing the joint statement agreed by President Trump and European Commission President Juncker in July. It proposes the negotiation of two agreements: one would be “strictly focused on the removal of tariffs on industrial goods, excluding agricultural products”; the other would facilitate the acceptance of conformity assessment results “to [make] it easier for companies to prove their products meet technical requirements on both sides of the Atlantic”.  The EU member states must approve the mandates before the EU can enter negotiations. Under TPA requirements, the U.S. could begin negotiations as early as mid-February.

The U.S. government procurement goals mirror its objectives for an agreement with Japan and the renegotiation of the North American Free Trade Agreement. They call for increased opportunities for U.S. firms and reciprocity in market access opportunities for U.S. goods, services and suppliers. At the same time, they take off the negotiating table sub-federal procurement and maintain a number of exclusions, in particular, “Buy America” requirements that are imposed on federally funded state and local projects.

It is not clear what “increased opportunities” the U.S. would seek in EU procurement markets. The two partners have exchanged extensive coverage under the WTO Government Procurement Agreement (GPA). In its 2018 trade barriers report, USTR cited the EU directive on procurement in the utilities sector, which covers purchases in the water, transportation, energy and postal sectors. The directive permits member states to reject bids with less than 50% EU content where the procurement is not covered by an international or reciprocal bilateral agreement.

Under the GPA, the EU only exempts the U.S. from the local content requirements in the electric utility sector, corresponding to the U.S. coverage of its federal electric utilities such as the Tennessee Valley Authority. In order for the U.S. to gain rights to participate in the other utility sectors, it would be expected to offer reciprocal access for EU firms in comparable U.S. entities, such as water authorities, ports and airports. The U.S. has not indicated any intention to pursue such expanded coverage.

Moreover, the U.S. has excluded the EU’s top procurement priorities in the Transatlantic Trade and Investment Partnership (TTIP) negotiations. In those negotiations, the EU sought expanded access to state and local procurement and removal of federal “Buy America” restrictions on highways and mass transit projects, or at least waivers for EU firms. The U.S. refusal to address those aims was one of the reasons the TTIP negotiations stalled at the end of 2016. There is little reason to expect a different outcome in any new talks.

The U.S. business community has shown limited interest in greater access to EU procurement, in contrast to their interest in expanded procurement obligations in an agreement with Japan. For example, in responding to USTR’s solicitation of comments on a proposed U.S.-EU agreement, the National Foreign Trade Council did not even mention procurement, unlike its call for a “strong procurement chapter” with Japan.

The U.S. Chamber of Commerce only sought the inclusion of “broad commitments on procurement of financial services”. That request was supported by the U.S. Council for International Business (USCIB) and the Coalition of Services Industries (CSI). CSI pointedly sought better treatment than was accorded in the USMCA, where government procurement was excluded from the financial services chapter, asserting that: “Unlike in USMCA, the financial services negotiations should ensure non-discriminatory treatment in government procurement”. The Internet Association focused on promoting “widespread and non-discriminatory access to commercial cloud services” through chapters on digital trade, procurement and good regulatory practices.

Finally, there is the precedent set by the USMCA, the only trade agreement negotiated to date by the Trump administration to include government procurement. By accepting the exclusion of Canada from the USMCA procurement chapter and duplication of Mexico’s NAFTA procurement coverage, the U.S. has demonstrated that expansion of procurement opportunities is a not a priority and that it will take a flexible approach to its negotiating objectives.

Jean Heilman Grier

January 23, 2019

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