Does TPP Procurement Success Depend on Four Markets?

The primary benefit for the U.S. in the TPP government procurement negotiations would likely be the opening of the procurement markets of the four TPP partners with which it does not yet have procurement agreements.

For the United States, the success of the government procurement negotiations in the Trans-Pacific Partnership (TPP) depends largely on a significant opening of the procurement markets in four countries:  Brunei Darussalam, Malaysia, New Zealand and Vietnam.  They are the only TPP partners with which the United States does not yet have procurement commitments.  The United States already has access to the government procurement markets of the other seven TPP partners (Australia, Canada, Chile, Japan, Mexico, Peru and Singapore).  Hence, the TPP negotiations on procurement will provide the greatest benefit for U.S. suppliers if they gain access to procurement in the four countries without procurement agreements with the U.S.

The United States has exchanged government procurement commitments with six of its TPP partners under free trade agreements (FTAs):  Australia (2005), Canada (1989 and 1994), Chile (2004), Mexico (1994), Peru (2009) and Singapore (2004).  The United States obtained access to Japan’s government procurement through their joint membership in the WTO Government Procurement Agreement (GPA), and its predecessor, as well as a series of bilateral procurement agreements negotiated in the 1980s and early 1990s.  (Canada and Singapore are also GPA parties.)  In addition, Canada opened up the procurement of its provinces and territories under a 2010 U.S.-Canada bilateral procurement agreement.

Furthermore, New Zealand — one of the four countries without a government procurement agreement with the U.S — is moving to join the GPA.  Should it successfully become a GPA party soon, the United States may gain rights to participate in its procurement without waiting for the TPP to conclude.

New Zealand commenced its GPA negotiations in October 2012 by submitting an initial offer of the procurement it would cover under the GPA.  According to press reports, it recently submitted a revised offer that “doubled its initial commitment.”  While Parties have indicated that New Zealand needs to improve further its proposed coverage of procurement, the Chair of the WTO Committee on Government Procurement, Bruce Christie (Canada), at an October 2013 meeting, asked the Parties to intensify their work on New Zealand’s accession with the hope that it could be completed by the 9th WTO Ministerial in Bali in December.

If New Zealand completes its accession to the GPA this year, or even early next year, it would very likely become a GPA Party before the TPP is implemented, or perhaps even concluded.  New Zealand’s membership in the GPA would leave Brunei, Malaysia and Vietnam as the only TPP partners with no government procurement commitments with the United States.  Since Brunei is a party to the Trans-Pacific Strategic Economic Partnership Agreement, the precursor to the TPP, it would likely offer in the TPP at least the procurement that it covers under the earlier agreement.

Malaysia and Vietnam are the only TPP partners that have yet to undertake any international commitments to open their procurement markets to foreign suppliers.  In the TPP, they should be expected to open procurement comparable to that covered by their partners under FTAs with the U.S.  Those FTAs generally include extensive coverage of central or Federal government entities, at least some sub-central entity coverage, coverage of government enterprises or state-owned enterprises and broad coverage of services.  The North American Free Trade Agreement (NAFTA) is somewhat of an exception because it does not cover any sub-central entities and covers fewer U.S. federal entities than the other FTAs.

The TPP agreement could allow Malaysia and Vietnam to use transitional measures of the type included in the recent revision of the GPA — to ease the opening of their procurement markets for the first time.  The revised GPA specifies four types of transitional measures: price preferences, offsets (local content requirements), phased-in coverage of specific entities or sectors and higher temporary thresholds (monetary values above which procurement is covered) during a specified time period.

The TPP negotiators will need also to determine how to treat Malaysia’s extensive preferences for its bumiputera (ethnic Malays).  Malaysia’s concerns with protecting its bumiputera preferences contributed to the scuttling of negotiations of a bilateral FTA with the United States several years ago.  Such concerns could be addressed in the TPP, at least in part, through the use of transitional measures.

The United States offers incentives for its new trading partners.  If Brunei, Malaysia, New Zealand and Vietnam open their procurement markets, the United States could remove the purchasing prohibition that currently blocks federal purchases from these countries in procurements above $200,000, based on the Trade Agreements Act of 1979.

The United States should have as its primary goal for government procurement in the TPP negotiations – the opening of the procurement markets of Brunei, Malaysia, New Zealand and Vietnam for U.S. suppliers.  A secondary goal would be expansion of the current FTA and GPA commitments of its other TPP partners – a topic to be explored in a later posting.

Jean Heilman Grier

Nov. 4, 2103

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References

GPA II Won’t Be in Effect this Year, Washington Trade Daily, 2 (Oct. 10, 2013)

Grier, J.H., U.S.-Japan Government Procurement Agreements, 14 Wisconsin International Law Journal (1995)