EU-Mercosur Agreement in Principle: Procurement

On June 28, the European Union and the four founding members of Mercosur, a South American bloc, reached an agreement in principle on a new trade arrangement. It is the largest trade agreement that the EU has concluded. The European Commission President emphasized its stand for rules-based trade “in the midst of international trade tensions.” This post looks at the procurement elements of the agreement. 

The political agreement on a new trade framework joining the EU and four Mercosur members (Argentina, Brazil Paraguay and Uruguay) is part of a wider Association Agreement between the two regions. (Venezuela did not participate in the negotiations because its membership in Mercosur was suspended in 2016.) The EU published a summary of the results of the agreement; the text of the agreement is not available.

On government procurement, the parties have limited their exchange of access to the federal and central government level based on reciprocity. For Brazil, this coverage includes ministries as well as the judicial and legislative branches. Argentina will cover procurement of ministries, agencies and national universities.

The EU will open procurement of EU institutions and central government contracting authorities in the EU member states. It remains to be seen whether the EU will give the Mercosur countries full access to all central government entities of its members. Under the WTO Government Procurement (GPA), the EU withholds nearly 200 entities from several GPA parties.

Under the new trade agreement, Brazil and Argentina will open work concessions contracts awarded by their central government entities. This would include, for example, public private partnerships where the builder of a highway is remunerated through tolls. The EU opens its works concessions under the GPA but only for certain parties. 

The agreement does not cover sub-central government entities. However, the EU reports that the Mercosur countries committed to work with their entities at the state, province and municipal level in order to bring their procurement under the agreement. The parties will aim to conclude the extension of the agreement to the sub-central level within two years after it enters into force. But such coverage is possible but not certain. This contrasts with the EU’s agreement with Mexico, in which it committed to seek coverage of its states and to achieve “minimum coverage” by the time that agreement is signed.

According to the summary, transitional measures will allow the Mercosur countries “some time to comply with the rules of [the procurement] chapter and to adapt to EU thresholds.” That indicates that the Mercosur countries will be able to apply, for a specified period, thresholds higher than those the EU applies under the GPA and its other trade agreements.

The EU and Mercosur countries agreed to modern procurement disciplines based on the principles of non-discrimination, transparency and fairness. They will apply “the detailed rules” in the revised GPA. The EU noted that includes domestic remedies that enable bidding companies to challenge a procurement where they believe they have been treated unfairly.

None of the Mercosur countries are parties to the GPA. However, all except Uruguay, are observers to that plurilateral agreement: Paraguay became an observer in 2019 and Brazil in 2017. Argentina has been an observer since 1997. 

In 2016, Brazil and Peru signed an Agreement on Economic and Trade Expansion, which is the first international agreement to provide for the opening of Brazil’s procurement.

Jean Heilman Grier

July 2, 2019

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