Within a two-week period, the European Free Trade Association (EFTA), comprised of Iceland, Liechtenstein, Norway, and Switzerland, signed a free trade agreement (FTA) with Malaysia and concluded FTA negotiations with Mercosur, the South American trade bloc (Argentina, Brazil, Paraguay, and Uruguay). Both FTAs include extensive government procurement chapters based on the WTO Government Procurement Agreement (GPA). While the EFTA states are all GPA parties, their new FTA partners are not (although Brazil came close to joining the plurilateral agreement in 2023 before withdrewings its market access offer). This post looks at the procurement commitments of Malaysia and the Mercosur countries in the FTAs, with a particular focus on their transitional and other special measures allowed to them. It also considers the implications for the EU’s pending negotiations with Malaysia and aims to sign an agreement with Mercosur.
EFTA-Malaysia FTA
On June 23, 2025, Malaysia and the EFTA states signed the EFTA–Malaysia Economic Partnership Agreement. For Malaysia, it is only the second agreement, following the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), in which has agreed to open its procurement market to foreign companies. In addition, it is the first EFTA agreement with market access commitments with an Asian partner that is not a GPA member.
On market access, the parties grant each other non-discriminatory access to their procurement markets–mainly central government entities–on a reciprocal basis. The EFTA states have agreed to provide special and differential treatment to Malaysia due to its specific sensitivities. The special treatment accorded Malaysia is virtually the same as its treatment under the CPTPP. Both agreements permit Malaysia to apply transitional measures, including high thresholds, an exclusion of economic stimulus packages, offsets, and delayed implementation of certain provisions, as well as protections for its Bumiputera–ethnic Malays comprising a majority of its population.
Malaysia’s high transitional thresholds begin at 1.5 million Special Drawing Rights (SDRs) for goods and 2 million SDRs for services and culminate at 130,000 SDRs in the 8th year and 10th year of the FTA, respectively. Its initial construction services threshold of 63 million SDRs drops to 14 million SDRs after 20 years.
For the first 25 years of the FTA, Malaysia it will be able to exempt procurement funded by an economic stimulus package in response to a severe nationwide economic crisis. It may also apply offsets (otherwise prohibited by the FTA) for 12 years that begin at 60% of the value of the contract, are reduced to 40% after four years and then to 20% during the final four years. It may also delay establishing an impartial authority to review supplier complaints for three years and applying the FTA’s dispute settlement to procurement disputes for five years.
Also, as in the CPTPP, Malaysia may set aside construction contracts for Bumiputera up to 30% of the total annual value of construction contracts and apply price preferences for Bumiputera suppliers and manufacturers.
Malaysia’s negotiation of virtually the same special treatment in its FTAs with procurement commitments could be repeated in an FTA with the EU. The EU and Malaysia relaunched negotiations of an FTA in January 2025, 15 after they began in 2010, and more than a decade after they were halted over disagreements on sustainability standards and trade barriers.
EFTA-Mercosur FTA
On July 2, 2025, the EFTA states and Mercosur reached agreement on an FTA. Although the EFTA-Mercosur FTA was concluded in substance in 2019, it languished for five years until negotiations resumed in 2024. The FTA's government procurement chapter is largely based on the GPA with some adaptions to reflect the parties’ specific interests.
The Mercosur countries agreed to cover federal and central level government ministries and agencies. Brazil added a number of states to its commitments at the subcentral level and the other Mercosur countries committed to work with their subcentral entities to allow EFTA stakeholders to tender for contracts at those levels. EFTA, in turn, granted reciprocal access at the central level and will open its procurement market at the subcentral level to correspond to the coverage granted by the Mercosur countries in the future. The agreement will cover procurement of goods and services (including construction services, except for Paraguay).
The FTA includes transitional measures that give the Mercosur countries additional time to comply with the procurement chapter’s rules and adapt to EFTA thresholds. It also allows them to grant national preferences “relative to the percentage of domestic labor employed.” Measures tailored to the specific countries include the following:
-- Argentina reserves the right to enforce public policies consistent with its laws, including programs for micro and small and medium enterprise suppliers and the application of special countervailing conditions.
-- Brazil safeguards public policies on technological development, public health, the promotion of micro and small enterprises, and food safety.
-- Paraguay will apply differentiated procurement thresholds and maintain support programs for national production and employment with a timeframe for their elimination, while maintaining the right to not enforce the procurement chapter before eliminating these terms.
-- Uruguay reserves an annual 15% of its total procurement (based on the prior year) for programs that promote a specific sector, in accordance with public policies. Beginning in the 16th year after the FTA enters into force, it will reduce this percentage to 5%.
The parties hope to sign the agreement before the end of 2025.
The EU reached a political agreement on an updated partnership pact with the four Mercosur countries in December 2024, after 25 years of negotiations. The two trade blocs had concluded their agreement in 2021 but were unable to finalize it. They re-engaged in March 2023 with the aim of addressing EU concerns relating to sustainability, particularly in the Amazon region. In return, the South American countries negotiated concessions concerning public procurement in the health sector. The agreement will require approval by the European Parliament as as well as the member states. It faces opposition in the European Parliament and certain member states.
Jean Heilman Grier
July 8, 2025
Related Posts
EU-Mercosur Updated Agreement: Procurement
EU-Mercosur Agreement in Principle: Procuement
TPP Procurement: Malaysia’s Commitments
WTO Procurement Pact: North Macedonia Joins, Brazil Pulls Offer