Can U.S. Offer Comprehensive Coverage of States in TTIP?

The U.S. lacks the mechanism for comprehensive sub-federal coverage in TTIP.

As noted in an earlier posting, one of top priorities of the European Union’s (EU) in the U.S.-EU Transatlantic Trade and Investment Partnership (TTIP) negotiations is expansion of European access to procurement of states, cities and other sub-federal entities.  While the United States may be able to offer additional sub-federal procurement in the TTIP, it is unlikely to reach the comprehensive sub-central coverage that the EU offers in the WTO Government Procurement Agreement (GPA) or that Canada was able to offer in its 2013 trade agreement with the EU without a major change in its approach.

Canada’s Agreement on Internal Trade:  In 1995, Canada implemented an intergovernmental agreement among its federal government, provinces and territories, the Agreement on Internal Trade (AIT).  The AIT is aimed at the reduction and elimination of “barriers to the free movement of persons, goods, services, and investment within Canada” and the establishment of “an open, efficient, and stable domestic market.”  The agreement focuses on 11 sectors, one of which is procurement.

The AIT’s Chapter on Procurement establishes a framework to ensure that all Canadian suppliers have equal access to the country’s procurement above certain thresholds, and that such procurement is conducted in an open and transparent manner.  To those ends, it imposes requirements on the conduct of procurement.  The AIT even extends to Canada’s so-called “MASH” sector, a category that includes all municipalities, municipal organizations, school boards and publicly-funded academic, health and social service entities.  An AIT annex specifies the rules for procurement by the MASH sector.

As a consequence of the AIT, Canadian governmental entities are able to coordinate closely on procurement, and Canada was able to move quickly — in only six months — in negotiations of the U.S.-Canada Agreement on Government Procurement in 2010 to reverse its long-standing refusal to open the procurement of its provinces in international agreements.  In that 2010 Agreement, Canada gave the U.S. access to its provincial procurement for the first time, and agreed to bind that coverage under the GPA.  Canada also offered the U.S. temporary coverage of provincial and municipal construction projects under the bilateral agreement.  Canada undertook those commitments in exchange for access to the 37 states that the U.S. covers under the GPA and — most important to Canada — the U.S. waiver of “buy American” requirements in a number of programs funded by the American Recovery and Reinvestment Act of 2009 (ARRA).  ARRA had required the use of U.S.-produced iron, steel and manufactured goods in state and local projects that it funded.

More recently, in 2013, Canada was able to mobilize its provinces and MASH sector to open the procurement of both the provincial utilities and the MASH sector for the first time under a trade agreement with the EU.  In the Canada-EU Comprehensive Economic and Trade Agreement (CETA), concluded in 2013, Canada will open an unprecedented level of procurement to the EU.

European Commission Directives:  In the EU, the European Commission has jurisdiction, or in EU parlance “competence”, with respect to public procurement.  The EU regulates public procurement in all of its 28 Member States in order to create a single market.  It governs procurement through general treaty principles and detailed secondary legislation in the form of directives.  The EU has two primary directives – one for public sector procurement and the other for utilities.  The directives apply to all levels of government in the EU member states.

The EU is able to cover procurement subject to its directives in international agreements. Under the GPA, the EU provides comprehensive coverage of its sub-central entities, including cities and municipalities, and a broad array of utilities.

As a consequence of their establishment of internal procurement markets, and their inherent coordination mechanisms, both Canada and the EU have a foundation that enables them to offer comprehensive coverage of their sub-central entities in international agreements.

The United States does not have any comparable mechanism that brings all the states together under the same procurement framework and enables them to develop a unified approach to EU requests related to expansion of procurement under the TTIP.  Rather, the U.S. approach is on an entity-by-entity basis.  The U.S. government bases its coverage of states on their voluntary commitments, and it allows states to limit the procurement that they cover under agreements.

Since the U.S. does not have the advantage that Canada and the EU have of being able to offer comprehensive coverage of the procurement of its sub-central entities, it faces a challenge in the TTIP negotiations.  Will it be able to obtain enough voluntary commitments from states and other sub-federal entities to satisfy the EU?  If not, what other avenues may need to be explored in order to meet EU interests in expanded procurement commitments under the TTIP?

Jean Heilman Grier

March 3, 2014

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