On February 20, 2019, Dr. Colette Langos, a Senior Lecturer at the University of Adelaide, made a very interesting presentation at GWU Law School, on developments in Australia’s bid protest procedures. She explained that these latest reforms, outlined in her attached slides, were an important part of Australia’s accession to the WTO Government Procurement Agreement.
On January 31, 2019, President Trump issued an Executive Order encouraging federal grantees to “Buy American” when purchasing iron, aluminum, steel and certain manufactured products for infrastructure projects funded by federal grants. Although the Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects only directs federal agencies to encourage grantees to “Buy American,” it also calls for federal agencies to assess whether federal grantees (including state and local governments) might be required to buy U.S.-made goods in the future.
“We want American roads, bridges, and railways, and everything else to be built with American iron, American steel, American concrete, and American hands.”
White House economist Peter Navarro, a key proponent of closing U.S. borders to international trade, published an op-ed on Fox News before the order was released, explaining and supporting the order. As the President and Peter Navarro made plain in the signing ceremony in the Oval Office, the new order is part of a broader White House initiative to boost U.S. manufacturing, a central theme in Trump’s reelection efforts.
The order highlights a gap in trade agreements, because federal grants are generally excepted from U.S. trade agreements that require open trade in procurement. See, e.g., WTO Government Procurement Agreement, U.S. Annex 7, General Notes, para. 2.
But even though federal grants are not themselves subject to the trade agreements, state grantees using federal funds for their own procurements may be covered by those agreements — and thus may not be able to discriminate against covered foreign vendors when they procure using federal grant funds. Two-thirds of the states, for example, are members of the World Trade Organization’s Government Procurement Agreement, and so have committed not to discriminate in certain purchases from other members of the GPA. The new Trump executive order defers to those prior commitments to open trade in procurement.
The new order calling on grantees to discriminate across borders contrasts sharply with prior White House guidance, through the Office of Management & Budget (OMB), 2 CFR 200.319(b), which requires many grantees to “conduct procurements in a manner that prohibits . . . state, local, or tribal geographical preferences in the evaluation of bids or proposals.” This prior OMB guidance barring grantees from domestic geographic preferences aims to encourage maximum competition in procurements using grant funds; the new order, calling for international discrimination, logically would probably hurt competition.
If grantees follow the President’s admonition and only “Buy American,” experience suggests that public projects under federal grants may take longer and cost more. Under Section 1605 of the American Recovery and Reinvestment Act of 2009 — which imposed a similar “Buy American” requirement — GAO found that grantees faced severe operational problems when they were forced to comply with similar “Buy American” requirements. For many of these same reasons, the National Association of State Purchasing Officers (NASPO) has opposed geographic preferences in procurement, because they can undermine competition and hurt best value.
In her posting on the new executive order, Jean Heilman Grier suggested that this order is a logical successor to Trump’s April 2017 executive order which called for federal agencies to “Buy American and Hire American.” While that earlier order encouraged federal agencies to Buy American whenever they can, this order extends that admonition to federal grantees.
Because of the latticework of policies and agreements which bar or discourage discriminatory procurement by state and local governments, it is unclear exactly what impact this new executive order may have on federal grantees’ purchasing. What is clear, however, is that even the most aggressive “Buy American” requirements in procurement are unlikely to have any serious impact on the nation’s trade deficit. At the federal level, a December 2018 GAO report showed that only roughly 1.5% of federal procurement ($7.8 billion of approximately $500 billion per year) were foreign products — compared to a national trade deficit of $566 billion in 2017. Foreign purchases probably total an even smaller share of state and local procurement, compared to federal purchases from abroad, because trade agreements force open a much smaller portion of state and local public markets. In sum, therefore, no matter how aggressively federal grantees implement the executive order, it is unlikely that the new order, though trumpeted for political reasons, will reduce the U.S. trade deficit in any significant way.
Article available at: https://ssrn.com/abstract=3268740
Christopher R. Yukins – George Washington University Law School
The Trump administration recently released the proposed text of the U.S.-Mexico-Canada Agreement (USMCA), a major regional trade agreement that, if ratified, would replace the North American Free Trade Agreement (NAFTA). While the government procurement chapter of the proposed USMCA was largely a copy-and-paste from the abandoned Trans-Pacific Partnership agreement (TPP), the procurement chapter of the USMCA did contain a few major surprises — including the omission of Canada. This article reviews the background to the USMCA, some of the most important elements of the agreement, and the lessons learned for future international cooperation in procurement policy and law.
This article draws in part upon a paper that Professor Yukins will present at an interdisciplinary conference in procurement at the Sorbonne University, Paris in October 2018.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3204844
The European Commission has proposed expanding the European Defence Fund, an initiative to fund defense technology developed in Europe. As a general matter, only European firms would have access to the fund for development, and participating European nations would need to commit themselves to purchasing the defense materiel developed under the fund. In effect, this could lock U.S. firms out of billions of euros worth of European defense procurement over the coming years—despite long-standing reciprocal agreements under which the U.S. and its European allies agreed to open their defense markets. The fund was announced quietly last year and now, in the shadow of a trade war launched by the Trump administration, has evolved into a substantial potential barrier in the transatlantic defense market, and potentially another brick in a rising wall of protectionism between the U.S. and Europe.
60 Gov. Contractor para. 196 (June 27, 2018)
The Public Procurement Institute, Moscow, kindly provided these slides, procurement-in-russia, which were delivered at a briefing at George Washington University Law School on September 21, 2016. Russia may join the WTO Government Procurement Agreement, as Jean Grier discussed in a recent blog posting, and so this sharing of information on the Russian procurement system is both timely and welcome.
An interesting comment by Jean Grier on the ongoing EU-U.S. debate over procurement trade data, and the impact that debate is having on TTIP negotiations. Ms. Grier was previously the lead negotiator on procurement for the Office of the U.S. Trade Representative, and is an internationally recognized expert on procurement and trade.
A previous post suggested that the Transatlantic Trade and Investment Partnership (TTIP) might offer a way to fill some of the gaps left by Brexit, Britain’s prospective departure from the European Union. This post flips that proposition, and asks whether TTIP’s goals for opening procurement markets might, in effect, be swallowed up by Brexit, as some in the trade community have suggested despite public support from the White House and the EU for moving forward with TTIP. This means, in turn, that TTIP’s goals for procurement may need to be addressed in another forum, perhaps under the World Trade Organization’s Government Procurement Agreement (GPA).
The previous post used procurement as a case study. The post pointed out that if the European Union agrees to the TTIP agreement before the UK departs (“Brexits”), the TTIP agreement probably will list UK procurements open to competition under TTIP, and will include guarantees of free access to those procurements. After “Brexit,” Britain arguably could then “reenter” TTIP as an independent nation, and adopt those former obligations under the TTIP agreement, in return for reciprocal access to EU and U.S. markets.
This outcome — allowing Britain access to open markets in Europe under TTIP, without any concomitant obligation to allow free movement of persons — would be exactly what the British “Leave” campaigners want for the UK; a separate TTIP arrangement with an independent UK also enjoys support from senior U.S. Republicans. This outcome is, however, exactly what the leaders of the European Union have announced they will not allow. Hope for such a British “back door” to open markets is also, incidentally, what President Obama warned against before the referendum vote, when he said that an independent Britain would be at the “back of the queue” in the United States’ negotiations of trade deals.
In a raucous speech on the floor of the European Parliament on June 29, 2016, Nigel Farage, the UKIP leader in the “Leave” campaign (and a Member of the European Parliament), paused in a harangue of his fellow MEPs to call for “a sensible tariff-free deal” between the European Union and the UK. (It should be noted that the “Leave” campaign formally opposes TTIP, largely because of the broader integrative measures that might be included in the agreement.)
On that same day, however, European leaders stated that the EU will not afford the UK a free trade arrangement unless the UK agrees to ensure the “four freedoms” at the heart of European integration, including the free movement of European workers — which is anathema to many in the “Leave” camp in Britain. Specifically, the EU leaders stated:
In the future, we hope to have the UK as a close partner of the EU and we look forward to the UK stating its intentions in this respect. Any agreement, which will be concluded with the UK as a third country, will have to be based on a balance of rights and obligations. Access to the Single Market requires acceptance of all four freedoms.
(Emphasis added.) Even if Britain could side-step this European opposition by using the “TTIP back door,” a TTIP agreement would not solve all of the United Kingdom’s trade problems. Again using procurement as an example, trade agreements such as TTIP and the World Trade Organization’s Government Procurement Agreement (GPA) are really best understood as ambitious nondiscrimination arrangements. Those trade agreements simply do not drive the same rigorous cross-border economic integration, in procurement or otherwise, that the European Union’s governance mechanisms provide.
In sum, although TTIP would hardly be a panacea, because TTIP might give Britain a “back door” to a free trade arrangement with Europe, European leaders may prove reluctant to press forward to conclude the TTIP agreement.
If TTIP does falter, what will this mean for procurement? If TTIP stalls, it may mean that the goals held for TTIP will need to be addressed under other institutions, such as the WTO Government Procurement Agreement (GPA). The GPA’s implementation is administered by the WTO Committee on Government Procurement, and logically the TTIP goals — goals which would address persistent structural obstacles to trade in procurement — could be taken up by the Committee, perhaps under the pending work programs to enhance the GPA.
The EU and U.S. negotiating goals for TTIP (at least as of the ninth round of negotiations, in April 2015) were made clearer as a result of a leak of internal European negotiating documents by Greenpeace Netherlands. According to those leaked materials and the EU and U.S. published statements of position, those TTIP goals include, on the EU side, better access to (and information on) sub-central (state and local) procurements in the United States, and on the U.S. side, stronger commitments by all parties to fighting corruption in procurement. To the extent Brexit derails those goals in TTIP, it may fall to the WTO to take them up as part of a broader effort to strengthen international procurement markets under the Government Procurement Agreement.
– Chris Yukins
Editor’s note: On September 19, 2016, these Brexit developments will be discussed at our annual conference on transatlantic procurement at King’s College London; GWU Law School is a co-sponsor. Attendance is free, and further information is available athttp://www.eventbrite.co.uk/e/opening-transatlantic-procurement-markets-tickets-25739851589 .
Christopher Yukins’ short paper reviewing the procurement issues under Brexit was published yesterday in Thomson Reuters’ weekly, The Government Contractor; it’s available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2802637.
In the wake of Brexit, much of the public discussion about the Transatlantic Trade and Investment Partnership (TTIP) — the comprehensive trade agreement being negotiated between the European Union and the United States — has focused on the delay that Brexit may cause the TTIP negotiations, and has reflected hope on the part of the British left that Britain can now stay out of TTIP.
In the long term, however, it is perhaps unlikely that a newly independent Britain would remain outside TTIP, which if concluded is likely to prove a critical tool to open markets, and reduce regulatory barriers, between European nations and the United States. Although the White House has warned that an independent UK would be joining TTIP from a “different starting point,” TTIP, if successful, could simply be too attractive for Britain to ignore — especially if the alternative, a bilateral deal with the United States, would offer reduced access for a weaker Britain.
This possibility that Britain would, after Brexit, seek to join TTIP opens a strategic question: could TTIP be used to close some of the gaps opened by Brexit?
In procurement, the most serious gap left by Brexit is uncertainty — will the UK agree to continue to follow the EU procurement directives, and can the UK continue to calm the protectionist voices emerging in the European Union? TTIP may address both problems.
To understand why, we can look to the structure of other free trade agreements, such as the WTO Government Procurement Agreement (GPA), to make an educated guess as to how TTIP would be structured. Under the GPA, each party lists the nations and agencies to be covered. Thus, under the revised GPA, the European Union has in Annex 1 agreed (with UK acquiescence) that certain United Kingdom agencies will be covered.
We can assume that the procurement provisions under TTIP would adopt the same structure, listing covered nations and agencies. That has been the case under the Transpacific Partnership (TPP), which lists in Annex 15-A the agencies regarding which the TPP parties have agreed to open their procurements.
We can also assume that the European Union would not object to agreeing under TTIP that its member states will comply with the European procurement directives; agreeing to bind its member states to its own rules should not be difficult for the EU. Finally, it seems safe to assume that the EU and the United States would be willing to stipulate that any nation that entered the TTIP structure would be allowed to enter only on terms at least as favorable as those that previously bound that state, under that agreement. Neither the European Union nor the United States would have an obvious reason to object to such a condition; neither, of course, favors Brexit.
Under such a provision, if post-Brexit Britain sought to enter TTIP separately as a nation outside the European Union, Britain would be bound to the coverage terms that previously applied, i.e., arguably the same UK government agencies would be covered, and they would be bound to follow the European procurement directives (or a set of procurement rules as least as rigorous as the EU rules).
None of this would be simple, of course. But by demanding that any new entrant — including the United Kingdom — join TTIP on terms as least as favorable as before, TTIP might help bring stability and predictability to procurement in the U.S. and European markets.
That leaves, then, the question of emerging protectionism regarding procurement in the European Union, driven by European concerns that some trading partners, including the United States, have unfair access. While the United Kingdom has often opposed new protectionism in Brussels, the UK’s influence will likely plummet under Brexit. Under a redrawn arrangement in TTIP, however, Britain would be able to engage anew, not as a voice within the EU, but rather as another negotiating partner in TTIP. The dynamics would be different, but the United States would regain an ally in opposing new European protectionism in procurement.
– Chris Yukins
Editor’s note: On September 19, 2016, these Brexit developments will be discussed at our annual conference on transatlantic procurement at King’s College London; GWU Law School is a co-sponsor. Attendance is free, and further information is available athttp://www.eventbrite.co.uk/e/opening-transatlantic-procurement-markets-tickets-25739851589 .
Modernizing International Trade Law to Support Innovation and Sustainable DevelopmentJoin us to celebrate the 50th anniversary of the Commission and to engage with leaders in the field of international trade law, including practitioners, judges, academics, international officials and other experts to explore the opportunities that UNCITRAL should seize in the coming years.
Participants will examine ways in which UNCITRAL can contribute to managing new development issues and fostering innovation through the modernization of international trade law. The Congress will be open to anyone with an interest in international trade and business, the work of UNCITRAL and the potential of trade law reform and innovation to translate the United Nations sustainable development goals into action to advance business and trade at country level.
Attendance at the Congress is free of charge. More information will be available on this site when it becomes available.