On April 28, the European Union and Mexico concluded negotiations of “the last outstanding element” of their new trade agreement that was announced two years ago. The missing element was “the exact scope” of the opening of their public procurement markets. Of particular note, Mexico committed – for the first time in any trade agreement – to open the procurement of half of its states. In addition to that coverage, it is providing EU suppliers with access to more procurement than it offered under either the U.S.-Mexico-Canada Agreement (USMCA) or the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). This post highlights the procurement results.
When the two parties concluded their agreement-in-principle in 2018, Mexico had committed to seek coverage of state procurement before the agreement was signed. It has succeeded with its offer to cover the procurement of 14 of its 32 states (including its capital) immediately: the States of Chihuahua, Ciudad de México, Colima, Durango, Estado de México, Guanajuato, Jalisco, Morelos, Nuevo León, Puebla, Querétaro, San Luis Potosí, Veracruz and Zacatecas.
Mexico will add public procurement commitments for the States of Aguascalientes and Coahuila within two years after it signs the agreement. In addition, within five years after the agreement is signed, Mexico promised to extend its sub-central coverage.
The covered states list two types of entities: government entities and other entities such as universities, hospitals, authorities, institutes. They apply higher thresholds to the second category. For all the states, Mexico excludes the procurement related to penitentiary systems. It also takes specific exclusions for several states.
The procurement obligations will not apply to the state of Jalisco for three years after the agreement is signed. In addition, Veracruz will be exempt from provisions relating to the use of electronic means for four years.
With respect to central government coverage, the EU agreement covers slightly more entities than the USMCA. Both agreements apply comparable thresholds. The EU-Mexico agreement lists 64 other entities, in contrast to the 36 entities listed in the USMCA. The additional entities include hospitals and port administrations.
Mexico excludes the same services under both the EU agreement and the USMCA, with one difference. it opens procurement of advertising services to the EU but not to the United States.
Unlike in the USMCA and CPTPP, Mexico covers public private partnership projects (PPPs) under the new agreement for its central government and other entities, but not sub-central entities. PPP projects are not subject to obligations relating to notices and domestic review procedures. The EU assumes comparable obligations with respect to works concessions.
As in the USMCA and the CPTPP, Mexico is permitted to set-aside a portion of its contracts from the obligations of the Agreement: US$2.33 billion annually, with PEMEX and the Federal Electricity Commission (CFE) limited to US$466 million in contracts set aside each year. Both government enterprises are also permitted to impose a local content requirement of no more than 40 percent for labor-intensive turnkey or major integrated projects or 20 percent for capital-intensive turnkey or major integrated projects. In the USMCA and CPTPP, this requirement applies to all entities.
Mexico excludes procurement for the purchase of water and for the supply of energy or of fuels for the production of energy. It also excludes public utility services, including telecommunications, transmission, water and energy services, as well as transportation services.
The EU is providing Mexico with access comparable to that it has offered parties in other agreements and tailored, at least in part, to Mexico’s commitments. The EU provides Mexico with access to the procurement of utilities operating in several sectors: water, electricity, airports, ports and urban transport.
The agreement requires Mexico to move toward adoption of the United Nations Provisional Central Product Classification system for goods and services. That would replace the NAFTA Common Classification system that Mexico has applied in its agreements, beginning with NAFTA. Within five years of entry into force of the EU trade pact, Mexico must propose a harmonization of the classification systems.
In line with its recent trade agreements with Canada and Japan, the EU’s agreement with Mexico provides significant gains in opening sub-central procurement, once again outpacing U.S. access. The USMCA does not cover state procurement.
Following the legal scrub of the agreement, it will be translated into all EU languages and then submitted for necessary domestic procedures of each party. For the EU that will mean approval by the Council of the EU and the European Parliament.
Jean Heilman Grier
May 15, 2020