Canada: CETA: the Government Procurement (GP) Chapter

This article constitutes the conclusion to our articles on CETA appearing in our last Infolettre.1

Context

Although the Canada – EU Comprehensive Economic and Trade Agreement (CETA) contains some thirty (30) chapters covering a wide range of areas from goods and cross-border trade in services to intellectual property, sustainable development and the environment, it was very clear from the outset of negotiations that the EU was strongly interested in "substantially improved access to public procurement markets aiming to achieve full coverage of central and sub-central government procurement in all sectors."2

Although certainly an understandable request (some situate the central and sub-central Canadian GP market at around 7% of Canada's almost $2 billion GDP), certain concerns were immediately raised on the Canadian side over the difficulty of coordinating provincial and territorial (P/T) involvement in a federally negotiated treaty, particularly in light of the longstanding approach by P/T entities to use GP as an effective lever in local economic development.

Notwithstanding these concerns, and thanks in good part to the leadership role of the Province of Quebec, the P/T quickly embraced this request by the EU as part of the new global trend in public procurement3. Through regular meetings of federal negotiators and P/T representatives, enriched by a regular dialogue on a range of issues with the Federation of Canadian Municipalities, GP commitments were identified to establish an integral part of an overall balanced agreement. These Canadian commitments constitute the most comprehensive procurement commitments ever made by Canada at federal, provincial/territorial and municipal levels.

Moreover these global commitments operate not only for the benefit of the EU but also for Canadian suppliers by granting them preferential access to the EU's $1.3 trillion procurement market, building upon and enhancing the WTO GPA4.

Application

Key principles

The GP commitments, as expressed in CETA, cover four (4) key principles:

1. Non-discrimination

  • "national treatment" meaning treatment granted by Canadian procuring entities toward EU suppliers to be no less favourable then that granted toward local Canadian suppliers;
  • prohibition on offsets meaning any condition or undertaking that encourages local development or improves a party's balance of payments (domestic content, licensing of technology, investment or counter trade).

2. Transparency

  • government and procuring entities are obligated to make certain information public:
    • relevant laws, regulations and policies;
    • notices and trade documentation regarding individual procurement transactions;
    • award information to participating suppliers (with explanations supporting decisions made);
    • replies to inquiries about specific procurements to show procurement was conducted "fairly, impartially and in accordance with [CETA]"
    • use of a single point of electronic access for procurement notices for all covered procurement (subject to a five (5) year transitional period).

3. Impartiality

  • procedural rules designed to enhance fairness of the process including:
    • conditions for participation by suppliers (prior experience supplying in Canada or to a Canadian procuring entity not necessary; financial capacity and commercial/technical abilities judged on information both inside and outside Canada);
    • rules on qualification of suppliers (supplier registration system; selective tendering; multi-use lists);
    • level playing field for technical specifications and tender documentation (performance and functional requirement rather than design or descriptive characteristics; referenced to TM/IP to include "or equivalent");
    • clear rules on negotiations;
    • procedures for treatment of tenders and awarding of contracts.

4. Accountability

  • Domestic review procedures (Canada and P/T required to provide an "... effective, non-discriminatory administrative or judicial review procedure" to challenge a breach of CETA);
  • Although these procedures remains to be implemented it should be noted that:
    • under the WTO-GPA the review process is the court system (and this could be the case for CETA);
  • the P/T could also set up their own bid protest mechanism.

Who and what is covered – General

The GP Chapter of CETA applies to contractual transactions to acquire goods or services for the direct benefit or use of the government

  • by certain identified government entities;
  • of certain identified goods and services;
  • when contract values exceed identified thresholds;
  • subject to certain exceptions and exclusions.

In general terms, the provisions of the GP Chapter

  • become applicable after a procuring entity has decided on its requirement and continues through to, and includes, the contract award;
  • do not include the procurement by one government entity from another;
  • cover contracts for purchase, lease, rental or hire purchase (whit or without an option to buy);
  • do not apply to:
    • procurement with a view to commercial sale or resale;
    • acquisition or rental of land or immoveable property;
    • public employment contracts;
    • special cases (international aid, under conditions of international organizations or funded by international grants or loans).

To determine what provisions of CETA apply, if any, to any particular procurement it is therefore necessary to follow a simple two step approach. The first step will be to see if an applicable government entity is involved and, if so, the second step will be to simply see whether applicable goods and services are being procured. The following sets out further details on each of these two steps.

Who and what is covered – Details

1. Government entities are specifically listed in Annexes to the GP Chapter and comprise:

  • Federal Government Entities (listed nominally to include almost all federal departments and agencies but specifically excluding security/intelligence agencies, Parliament and agents of Parliament);
  • Sub-central Entities (defined by each P/T with its own scope and coverage where P/T have used a "definitional" approach with certain exclusions (other than New-Brunswick and Yukon which used a nominal approach));
  • Other Entities broken down into two (2) sub-categories:

a) Government Corporations identified by a "definitional" approach with certain exceptions (includes Federal, provincial and territorial Crown corporations; corporations or entities owned or controlled by a municipal governments);

b) Public Utilities identified as operating in certain areas (including airports, urban transit, ports, drinking water and sewage, electricity/gas/heat generation and distribution);

2. Goods and services are also specifically listed in Annexes as follows:

  • Goods means generally all goods subject to certain exceptions and exclusions;
  • Services means nominally designated services under United Nations Central Product Classification (UN CPC) and includes engineering, architecture, IT, consulting and environment services subject to certain exclusions;
  • Construction services mean nominally all services in UN CPC Division 51 subject to certain limitations, restrictions and exclusions.

3. GP Thresholds of estimated value establish when CETA becomes applicable and have been set at levels generally consistent with the WTO-GPA and international practice. More particularly, it is necessary to chart the estimated value of various goods and services against the type of government entity making the procurement to determine whether CETA applies. Whereas NAFTA sets out thresholds in Canadian dollars, CETA follows the practice of multilateral agreements and sets out thresholds of estimated value in Special Drawing Rights (international type of monetary reserve used by the International Monetary Fund).

These thresholds range from a low of 130,000 SDR ($200,900) for procurement by Central Government Entities of goods and services to a high of 5M SDR ($7,7M) for procurement by all applicable entities of construction services.

4. Exceptions and exclusions finally complete the fine-tuning of CETA in addition to the restrictions, limitations and exclusions already mentioned. These break down into:

  • General exceptions which are applicable to both parties (protection of national security interest in procurement; imposition or enforcement of measures regarding human, animal or plant health, public order, morals or safety or similar matters);
  • Specific exceptions and exclusions for the benefit of Canada (shipbuilding and repair; broadcasting programme material; works of art and cultural industries (Quebec); preferences for aboriginal people; regional economic development subject to certain limitations (not available for provinces of Quebec, Ontario, Alberta, British Columbia and Saskatchewan; no unduly monopolistic behaviour; maximum estimated value of $1M; maximum of ten (10) derogations per year by procuring entity).

Conclusion

Although the GP provisions of CETA are indeed comprehensive, as the Agreement requires, they nevertheless strike a pragmatic and efficient balance in the interest of international competition and the respect of accepted local procurement practices.

In short, it would appear that the major objective of "substantially improved access to public procurement markets" has been achieved notwithstanding the difficulties involved. The last step of course remains the ratification of CETA and its implementation.

Once CETA is implemented applicable procuring entities (and their suppliers) will accordingly be required to familiarize themselves with the new procedures and restrictions contained therein. In order to facilitate that process by providing a roadmap into this new territory the following link sets out a simple presentation of "Does CETA apply to my proposed procurement?" and "What steps do I need to follow?"

Footnotes

1 CETA: Hurry Up and Wait ... But be Ready! http://www.lkd.ca/ceta-hurry-up-and-wait-but-be-ready & Impact of the Comprehensive Economic and Trade Agreement on Intellectual Property Law in Canada http://www.lkd.ca/impact-of-the-comprehensive-economic-and-trade-agreement-on-intellectual-property-law-in-canada

2 Canada-European Union Joint Report: Towards a Comprehensive Economic Agreement http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/eu-ue/can-eu-report-can-ue-rapport.aspx?lang=eng.

3 OECD Principles for Integrity in Public Procurement (2009) – http://www.oecd.org/gov/ethics/48994520.pdf.

4 World Trade Organization – Agreement on Government Procurement – https://www.wto.org/english/tratop_e/gproc_e/appendices_e.htm.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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