USMCA Procurement: Advisory Committee Views

The U.S. trade advisory committees have weighed in with their assessments of the U.S.-Mexico-Canada Agreement (USMCA), measuring it against the North American Free Trade Agreement (NAFTA), which it will replace. This post highlights the committees’ comments on the USMCA’s procurement provisions, which were examined in an earlier post. It focuses on market access concerns: the exclusion of Canada from the new agreement’s procurement commitments and the carve out of government procurement from the Financial Services Chapter.

As required by Trade Promotion Authority legislation, the committees submitted their reports within 30 days after the president notified Congress on August 31 of his intent to enter into a trade agreement with Mexico (and possibly Canada). After Canada was added to the final agreement at the end of September, only about half of the committees filed an addendum to take into account the full agreement. With respect to government procurement, the committees were hampered in preparing their initial reports because they did not have access to the market access commitments, only the procurement text.

With respect to the text of the procurement chapter, which was brought up to international standards, the top advisory committee, the Advisory Committee for Trade Policy Negotiations (ACTPN), noted the improvements, in particular for labor, environment, integrity and transparency into the value of procurement. The Intergovernmental Policy Advisory Committee (IGPAC) singled out its support of the procurement provision that “explicitly allows” procuring entities to promote compliance with labor laws in the territory in which the good or services is produced. The Small and Minority Business Committee applauded provisions to facilitate small business participation in government procurement. Other committees also recognized the merits of the updated procurement text.

Two committees offered particularly substantive comments relating to access to Canada’s and Mexico’s procurement markets: Automotive Equipment and Capital Goods Committee  (ITAC-2) and the Services Committee.

ITAC-2 called the exclusion of Canada from the USMCA’s procurement commitments “a bad precedent”. It worried that Canada’s exclusion would mean that U.S. firms have less access to Canadian government tenders than potential bidders from the member countries of the Trans-Pacific Partnership and the European Union, which gained broader access under a EU-Canada trade agreement. The Committee is wary of relying on the U.S. and Canadian commitments under the WTO Government Procurement Agreement (GPA), because of the “not inconceivable” possibility that the U.S. could withdraw from the GPA, with the result that U.S. suppliers would lose access to the Canadian market.

The advisory committee on services focused on access to Mexico’s procurement market. It pointed out that NAFTA had “led to important access”, enabling U.S. insurers’ Mexican subsidiaries to provide insurance “to two-thirds of all Mexican government employees, as well as supplying auto insurance to the Mexican government”. By contrast, the committee is concerned that the USMCA “creates uncertainty” relating to government procurement market access for financial services firms.

The Services Committee’s specific concern relates to the new agreement’s exclusion of government procurement from the Financial Services Chapter, in contrast to its inclusion under NAFTA. As a consequence of the USMCA’s carve out, “important rules requiring non-discriminatory treatment, as well as the incorporated investment protections, do not apply” to government procurement. The Committee recommends that, before the USMCA is signed, the exclusion should be removed or the parties exchange letters “indicating that they will continue to treat foreign financial firms with domestic operations as domestic suppliers”.

Both IGPAC and the Digital Economy Committee noted their opposition to any U.S. “dollar-for-dollar” market access proposal, a reference to the administration’s initial proposal in the negotiations to cap Canada and Mexico’s access to U.S. procurement at the same level of access that the U.S. receives in their markets. IGPAC noted that such an approach would be “disproportionate given the relative size of the economies of the three countries”.

Several committees had hoped for coverage of sub-central entities, but others, in particular, IGPAC, opposed any such coverage. IGPAC reiterated “its longstanding position that any sub-central procurement commitments must be voluntary positive list commitments to be determined by each state or local government”.

The Aerospace Equipment Committee commended the administration for maintaining broad exceptions for special government procurement, including the “essential security” exemption. It noted that exemption ensures that the majority of defense trade and security cooperation will not be subject to the Agreement’s procurement provisions.

The steel advisory committee sought protection of Buy American preferences.  The Labor Advisory Committee for Trade Negotiations and Trade Policy criticized the USMCA’s retention of the NAFTA obligation to provide bidders of Mexico with the same “Buy American” preferences as U.S. bidders.

Jean Heilman Grier

November 14, 2018

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