The Office of the U.S. Trade Representative (USTR) recently issued the 2019 National Trade Estimate Report on Foreign Trade Barriers (NTE), its annual tally of foreign trade and investment barriers. Government procurement, including “buy national” policies and closed bidding, is one of the 11 categories surveyed. This post highlights developments noted in the NTE relating to government procurement.
As detailed in the 2018 NTE report, a number of countries, including Algeria, Angola, Argentina, Bolivia, Brazil, Ecuador, the European Union, Ghana, India, Indonesia, Israel, Jordan, Kenya, Kuwait, Malaysia, Nigeria, Paraguay, Philippines, Qatar,Russia, Saudi Arabia, South Africa, Thailand, Turkey and the United Arab Emirates, continue to apply domestic preferences. They include restrictions on foreign participation in government tenders, price preferences, offsets, set-asides, preferential treatment of domestically sourced goods and services and of firms that are domestically owned or controlled; and requirements for domestic workers in government contracts.
The 2019 NTE took note of new developments, relating to government procurement. Most involve barriers but a few show positive measures.
Argentina allows application of a national domestic preference for most procurement. In May 2018, it issued Law 27,437, which gives additional priority to Argentine small and medium-sized enterprises (SMEs) and requires foreign companies to subcontract 20% of the value of government contracts to domestic companies. A similar measure applies at the sub-national (provincial) level. To implement the new requirements, the government issued Decree 800/2018 in September 2018.
Cambodia: In a positive development, the NTE reported that the Cambodian government, in February 2018, issued a new regulation on procedures to resolve complaints about irregularities in its government procurement. The regulation covers all procurement conflicts except those already being addressed through arbitration, those involving military secrets, and concession projects that are regulated separately.
Canada: In October 2018, the Government of Canada issued a draft Request for Proposal (RFP) for its Future Fighter Capability Project. The draft RFP included an Economic Impact Assessment (EIA) in its evaluation criteria. The EIA noted that any bid by a firm that was involved in a “trade remedy action” against a Canadian product would be subject to the EIA, which could reduce its final bid score. According to the NTE, “the move was broadly interpreted as a response to Boeing’s 2017 trade remedy action against Canada’s Bombardier, and a warning to other companies that might pursue trade remedy actions against Canadian firms”. If the EIA were included in the final RFP, it could disadvantage U.S. firms bidding on future Canadian defense procurement.
China: The Report focuses on China’s negotiations to join the WTO Government Procurement Agreement (GPA), recognizing that it has made progress but its latest offer in December 2014 still “fell short of U.S. expectations and remains far from acceptable” to the United States.
Egypt: In July 2018, the Egyptian Parliament enacted a law on government procurement (No. 182), which together with its regulations, requires procurement decisions to be made in a competitive and transparent manner and meet technical factors and price as well as sustainable development goals. Under the new law Egyptian small and medium-sized enterprises continue to have the right to obtain up to 20% of government contracts annually.
Ghana: In December 2017, Ghana introduced regulations requiring local content and local participation in the power sector. The Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations, 2017 (L.I. 2354) specify minimum and target levels of local content in engineering and procurement, construction works, post construction works, services, management, operations and staff. In addition, beginning January 1, 2019, security services are subject to a 100% local content mandate.
Indonesia encourages domestic sourcing and maximize local content in government procurement through special preferences. In addition, MOT Regulation 82/2017 requires importers of items for government procurement and exporters of coal and crude palm oil, importers of rice to use Indonesian national shipping and insurance companies, with an exception where there is limited availability of Indonesian owned maritime transport or insurance companies. In July 2018, the Minister of Trade postponed implementation of the domestic shipping requirement until May 1, 2020 and the national insurance requirement until February 1, 2019.
Japan:During 2018, U.S. industry raised concerns that Japan’s technical specifications were designed to exclude U.S. products and services, or direct contracts towards a specific Japanese company.
Nigeria: Nigeria maintains various domestic preferences. In January 2018, its president in Executive Order 5 added restrictions and obligations for public procurement related to science, engineering, and technology. It directs government offices to grant preferences to indigenous professionals and the Ministry of Interior to stop giving visas “to foreign workers whose skills are readily available in Nigeria”.
Saudi Arabia is reforming its procurement system to incorporate new Saudi employment and localized production goals. In 2018, the Saudi government shifted from its use of offsets to “localization” of purchases of goods and services and “Saudization” of its labor force. Foreign contractors must subcontract 30% of the value of any government contract, including support services, to firms that are majority-owned by Saudi nationals, unless no Saudi-owned firm can provide the necessary goods or services. Foreign suppliers must also establish a training program for Saudi nationals.
Tunisia: The NTE described elements of Tunisia’s procurement system. The High Committee on Public Procurement within the Prime Ministry represents the highest authority for examination, auditing, recourse, and assistance in all public procurement operations. As of September 2018, all such operations are conducted electronically through a bidding platform called Tunisia Online E-Procurement System (TUNEPS). Bids must be evaluated on the basis of the lowest bid that meets specifications. However, that does not apply to procurements by the ministries of Defense and Interior, the three major state banks and other ministries when their procurement relates to security.
United Arab Emirates maintains set-asides and price preferences. In 2018, the Dubai government announced that 20% of government procurement would be sourced from SMEs.
As in prior years, the NTE noted that “corruption is an impediment to trade”, including in the award of government contracts. It pointed to requirements in the U.S.-Canada-Mexico Agreement and the GPA for governments and procuring entities to avoid conflicts of interest and corrupt practices in government procurement.
Jean Heilman Grier
May 7, 2019