The possibility that President Trump could order the withdrawal of the United States from the WTO Government Procurement Agreement (GPA) continues to raise concerns. A recent post looked broadly at the potential implications of such a move. This post focuses on what GPA withdrawal would mean in terms of loss of access to sub-central procurement, which typically far outpaces the level of central government purchases, and the likely impossibility that the U.S could regain access to that procurement in bilateral negotiations.
If the U.S. pulled out of the GPA, it would lose access to the sub-central procurement of all GPA parties, except Australia with which it has a free trade agreement (FTA) that covers sub-central purchases. U.S. FTAs with other GPA parties (Canada, Israel, Korea and Singapore) do not include such coverage.
The value of sub-central government purchases typically far exceeds that of central governments. For example, Canada’s provinces and territories purchase more than twice as much as its federal government: Can$7billion versus Can$3 billion at the federal level in 2014 (the most recent statistics reported to the WTO).
Similarly, in the European Union, more than half of its GPA-covered procurement is undertaken at the sub-central level. In a February 2020 report to the WTO, EU statistics for 2014-16 show that the greatest value of EU contracts covered by the GPA in each of the three years was procured by sub-central entities: 54 percent in 2014, 52 percent in 2015 and 62.5 percent in 2016. EU procurement under the GPA totaled EUR 403 billion in 2016, with sub-central procurement accounting for EUR 252 billion, central government entities EUR 83 billion and utilities EUR 68 billion.
The share of government procurement by sub-central governments is even higher in China. The WTO’s 2018 Trade Policy Review of China pointed out that 95 percent of China’s government procurement is at the local level. In its latest offer in negotiations to join the GPA, China offered all 22 provinces and four province-equivalent cities such as Beijing and Shanghai. That would be lost to the U.S. if it pulled out of the GPA and China completes its GPA accession.
To date, the Trump administration has stated explicitly its intention to “exclude sub-federal coverage (state and local governments) from the commitments being negotiated” in its negotiating objectives for bilateral agreements with Britain, Japan and the EU, as well as the revision of NAFTA. By contrast, the UK’s negotiating objectives include seeking “new and more secure access to the US procurement market . . . at all levels of Government.”
If the U.S. refuses to cover sub-central procurement in new FTAs, it could expect a repeat of its experience in negotiating the U.S.-Korea FTA. In those negotiations, the U.S refused to pursue state coverage based on its concern that it would be highly unlikely to equal, not to mention surpass, the 37 states to which Korea already had access as a GPA party. Korea responded by refusing to cover not only its sub-central entities but also any government enterprises in the FTA. As a consequence, the Korea FTA is limited to central government procurement.
The U.S. position in the Korea FTA negotiations reflected the challenges of covering state procurement under trade agreements. The U.S. covers 37 states under the GPA and two FTAs (with Singapore and Chile), which carried over GPA coverage without consulting the states. In subsequent FTAs, the administration only covered state purchases with the explicit authorization of each state. That approach brought 31 states into the U.S.-Australia FTA in 2005, the high point in FTA state coverage. The number of participating states dropped to 23 states under the Morocco FTA, 22 (plus Puerto Rico) under the Dominican Republic-Central American-U.S. FTA, and even more precipitously to eight states in the last attempt by the administration to gain state authorization.
In FTAs with the Colombia, Panama and Peru, the U.S. applied a reciprocity policy in an attempt to raise state participation. Under it, a state’s goods, services and suppliers would have rights to participate in the procurement of the trading partner’s sub-central entities only if it agreed to cover some of its procurement under the FTA. Only eight states plus Puerto Rico signed on to those FTAs. (Two more were subsequently added to the Peru FTA.)
From this experience, it would be highly unlikely that the administration could regain the level of state coverage that it has under the GPA in bilateral agreements. As a consequence, its FTA partners would be unlikely to open their sub-central procurement to the U.S. and could follow the Korea example and offer even narrower coverage.
Losing access to the procurement of Canada’s provinces and territories would be particularly ironic since a 2010 U.S.-Canada bilateral agreement finally gave the U.S. access to that procurement along with a Canadian commitment to bind that coverage under the GPA, a move Canada had long resisted.
Moreover, Canada’s provinces would not likely take loss of rights to participate in state procurement without a response. The province of Ontario already has in place a reciprocity law. It enacted the Fairness in Procurement Act, 2018 in retaliation for a Buy American law adopted by New York. The law allows Ontario to exclude American suppliers from participating or being awarded contracts in its procurement or even apply more stringent criteria to American proposals. Other provinces – and GPA parties – could follow suit if the president were to carry out his threat and withdraw the U.S. from the GPA.
Jean Heilman Grier
May 6, 2020
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China’s 2018 WTO Trade Policy Review: Procurement Highlights
U.S. Procurement Covered under Trade Agreements: A Djaghe Reference Paper