EU-Vietnam FTA: Procurement Commitments

On February 4, Vietnam signed the Trans-Pacific Partnership (TPP), along with 11 other Pacific Rim countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and the United States). That signing followed Vietnam’s conclusion of negotiations, in December 2015, of a free trade agreement (FTA) with the European Union and its 28 member states. The two agreements constitute Vietnam’s first commitments to open its government procurement to foreign firms. Vietnam will provide access to slightly more procurement, subject to more stringent transitional measures, under the EU FTA than under the TPP. This post compares Vietnam’s procurement commitments under the two agreements and also examines the procurement that the EU is offering to Vietnam.

Turning first to thresholds (monetary values that determine whether procurement is covered under an agreement), the two agreements differ with respect to most elements. For the goods and services purchased by central government entities, both set Vietnam’s permanent threshold at 130,000 Special Drawing Rights (SDRs) (US$191,000). But, the TPP gives Vietnam 25 years to reach it, while the EU FTA limits the transition period to 15 years. They also differ in initial transitional thresholds: the TPP sets it at two million SDRs, in contrast to 1.5 million SDRs in the EU FTA.

For the construction services thresholds applied by central government entities, both agreements allow a 15-year transition period, but differ on the threshold levels. The TPP begins with a threshold of 65.2 million SDRs and ends at 8.5 million SDRs, while the EU FTA’s lower initial threshold of 40 million SDRs will be reduced to five million SDRs.

Vietnam’s coverage of entities differs slightly between the two pacts. While it covers one more central government entity (Ministry of Public Security) under the TPP than under the EU FTA, it adds four more entities to the EU agreement in the “other covered entities” category: two state-owned enterprises (Vietnam Electricity and Vietnam Railways) and two universities (Vietnam National University – Hanoi and Vietnam National University – Ho Chi Minh City).

With regard to sub-central government coverage, Vietnam lists two cities in the EU FTA (Hanoi and Ho Chi Minh City), but offers no sub-central coverage under the TPP. However, both agreements call for future negotiations on expansion of sub-central coverage, three years after entry into force of the TPP and 15 years after the EU pact enters into force.

Vietnam’s offer of services is slightly broader under the TPP. The additional services in the TPP include data network services and electronic message and information services.

In both agreements, Vietnam excludes preferences for small and medium-sized enterprises (SMEs). Its broad TPP exclusion contrasts with a much narrower EU FTA exclusion, which applies only to procurement of goods and services whose value is estimated at 260,000 SDRs or less and may not be applied to SMEs with more than 500 permanent full-time employees.

The two trade pacts permit Vietnam to delay implementation of several obligations, with certain differences. Both exempt Vietnam from dispute settlement challenges with regard to its procurement obligations for five years. But, only the TPP gives Vietnam additional time (three years) to establish a domestic review system. In delaying implementation of other provisions, the EU sets a 10-year limit, while implementation under the TPP may be postponed until Vietnam’s e-procurement system is operational, except for a seven-year limit on a reduced tendering period.

Both agreements allow Vietnam to apply offsets, for 18 years under the EU agreement and 25 years under the TPP. While they apply the same offset percentages, 40% for the first 10 years and 30% for the remainder of the offset period, they differ as to their application. Under the EU agreement, the percentages apply to the value of a contract, but under the TPP, to the total value of covered procurement.

For its part, the EU follows the approach it uses in the WTO Government Procurement Agreement (GPA) of tailoring its entity coverage to that of its partner. This is particularly evident with regard to sub-central entities and utilities. Unlike its broad GPA coverage of sub-central entities, the EU is only opening “cities-regions”, such as the region of Brussels, the region of Berlin and London, to Vietnam, which corresponds to Vietnam’s offer of its largest cities. The EU also limits its coverage of public bodies at the sub-central level to those providing health services or higher education services or those carrying out research activities.

Similarly, the EU has matched Vietnam’s coverage of utilities by offering only EU utilities engaged in the transport or distribution of electricity and railway services. It has not offered other sectors that it covers under the GPA, such as drinking water, airports and ports.

The EU also offers Vietnam fewer services than it covers under the GPA. For example, it omits telecommunications and architectural and engineering services from its Vietnam agreement, which Vietnam is not opening under the FTA.

The EU FTA and the TPP will apply essentially the same procurement rules since both are modeled after the GPA. The EU FTA incorporates several GPA provisions that are not in the TPP, such as provisions for electronic auctions. Taken together, the agreements will provide a basis for Vietnam to bring its procurement regime up to international standards.

Jean Heilman Grier

February 9, 2016

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