Canada: Trans-Pacific Partnership: Landmark New Commitments On Government Procurement

Last Updated: January 13 2016
Article by Paul M. Lalonde, William O'Brien, Jessica Abrahams and Allen B. Green

TPP general summary

The legal text of the Trans-Pacific Partnership (TPP) was released to the public on November 5, 2015. After seven years of negotiations, Canada and 11 Pacific Rim countries, representing 40 percent of the global GDP, have successfully concluded negotiations on one of the largest and most ambitious free trade initiatives in history. Comprising 30 chapters with schedules and annexes, the TPP is a comprehensive agreement that covers both topics previously covered by international trade agreements, including government procurement, and subjects not previously considered such as electronic commerce and cybersecurity.

General principles and core commitments

The chapter on government procurement includes commitments on national treatment and non-discrimination according to which each Party extends to the goods and services of the other Party treatment no less favourable than the treatment that the Party accord to domestic or any other Party's goods or services.1 Further, Parties cannot treat a locally established supplier less favorably than another locally established supplier on the basis of degree of foreign affiliation or ownership.2

The chapter also seeks to remove prior impediments to electronic tendering by encouraging the Parties to provide electronic means of access to procurement for the publication of procurement information, notices and tender documentation, and for the receipt of tenders3 using generally available information technology systems.<.sup>4

Interaction between the government procurement provisions and other trade agreements

The newly released text reflects the approach Canada has taken with regards to government procurement in other international trade agreements. The initial provisions of the TPP begin by stating that the Parties intend for the TPP to coexist with existing international agreements.5

  1. Interaction with NAFTA government procurement thresholds

Canada, Mexico and the United States have agreed to harmonize the provisions of Chapter 10 of the NAFTA, dealing with government procurement, with those of the TPP. This will allow procuring entities to take advantage of the modern procedures included in the TPP, such as electronic tendering, in an effort to promote efficiency.

Additionally, Canada and the United States have agreed to apply the TPP procurement thresholds to the government procurement activities covered by the NAFTA. They have decided to apply the goods and services thresholds and construction services threshold for Central Government Entities government procurement set out in their respective schedules to Annex 15-A (Government Procurement) of the TPP Agreement to the respective obligations of Canada and the United States for the goods threshold, services threshold and construction services threshold for federal government entities procurement under Chapter 10 of NAFTA. This results in a reduction of the number of applicable procurement thresholds.

  1. WTO thresholds

The parties to the TPP, all being WTO members, are permitted to enter into regional trade agreements for the elimination of tariffs and other barriers to trade. The thresholds specified in the respective schedules to the WTO Agreement on Government Procurement continue to apply in parallel with the thresholds negotiated under the TPP.

Thresholds

The provisions set out in the Parties' schedules to Annex 15-A in the government procurement chapter of the TPP are varied and there is little uniformity.

For central government entities, access to procurement is opened above the same thresholds for Canada and the United States. The value of the procurement must be equal to or exceed 130,000 Special Drawing Rights6 ("SDRs") for procurement of goods and services and 5,000,000 SDRs for procurement of construction services.

As far as sub-central level entities are concerned, only half the parties with sub-central government entities cover them under the TPP. The thresholds for Canadian sub-central government entities are 355,000 SDRs for goods and services and 5,000,000 SDRs for construction services. The United States does not provide coverage of its sub-central level entities in the Agreement. The final provision in Chapter 15 reinforces the possibility to hold further negotiations and requires the parties to commence negotiation with a view to achieving expanded coverage, including sub-central coverage, no later than three years after the date of entry into force of the Agreement.7

Parties apply different thresholds for entities designated as "other entities" in each country's schedule to Annex 15-A. In this category, Canada's procurement for goods and services must be worth at least 355,000 SDRs while construction services must be worth at least 5,000,000 SDRs. In the United States, those thresholds are US$250,000 and 5,000,000 SDRs respectively.

It is important to note that developing country Parties may, with the agreement of the other Parties, adopt or maintain transitional measures such as a price preference program, offset or threshold that is higher than its permanent threshold.8

Supplier information and procedural fairness

  1. Supplier information

The TPP recognizes that competing successfully for a foreign procurement contract requires access to timely, complete and accurate information. Parties are required to promptly publish any measure of general application relating to covered procurement. Any change or addition must also be published promptly. Procuring entities must reply to any reasonable request for relevant information by an interested or participating supplier, provided that the information does not give the supplier an advantage over other suppliers.10

  1. Procedural fairness

The TPP seeks to achieve procedural fairness for suppliers by imposing principles of non-discrimination, transparency, impartiality and accountability in the procurement process. The procuring entity must provide sufficient time for a supplier to obtain the tender documentation and to prepare and submit a bid.11 It must also commit to base its evaluation solely on the conditions that the procuring entity has specified in advance in notices or tender documentation.12 Parties are required to provide, on request of any other Party, information to demonstrate that procurement was conducted fairly, impartially and in accordance with Chapter 15.13

Accountability is further enhanced by providing unsuccessful suppliers with the right to an explanation of the results of the procurement process14 and the right to challenge the decision of the procuring entity before an impartial administrative or judicial review authority.15

Non-discriminatory and flexible specifications

Fairness and objectivity of technical specifications are recognized as important attributes that allow Parties to compete on an even footing. Procuring entities must avoid procedures that would have the effect of creating unnecessary obstacles to trade. They must set out the technical specifications in terms of performance and functional requirements rather than design or descriptive characteristics.16

Conditions for participation must be limited to conditions that ensure that a supplier has the legal and financial capacities and the commercial and technical abilities to fulfil the requirements of the procurement.17 A procuring entity cannot impose the condition that the supplier has previously been awarded one or more contracts by a procuring entity of a given Party or that the supplier has prior work experience in the territory of that Party.18 The procuring entity, however, may require relevant prior experience if essential to meet the requirements of the procurement.19

New markets for Canada and the United States

Through the TPP, Canada has achieved new and improved market access to government procurement contracts within Australia, Brunei, Malaysia and Vietnam. Additionally, the United States is granting Canadian suppliers access to major US regional power authorities such as the Tennessee Valley Authority for the first time. This represents a noteworthy expansion since such markets were excluded under the NAFTA. Global Affairs Canada points out that the TPP will result in Canadian suppliers now having the right to participate in procurements by major US federal power authorities which operate hydroelectric power, fossil fuel plants, nuclear power plants, wind turbines, solar panels and transmission systems, as well as provide flood control and navigation for the Tennessee and Columbia River Basins.20

From the United States' perspective, the Agreement represents the first government procurements commitments to the United States ever made by Brunei, Malaysia and Vietnam.21 It has also gained potential access to a dozen more Canadian entities.

Exclusions

Canada's list of excluded procurements includes public utilities services and services related to culture or cultural industries at the federal level; cultural or artistic goods and services in Quebec; and culture and cultural industries in Nova Scotia.

The United States has chosen to exclude a number of industries including procurement of any agricultural good made in furtherance of an agricultural support program or a human feeding program; certain elements of Department of Defense procurement such as combat vehicles; as well as goods falling under the security exceptions such as weapons. As explained above, the United States has also excluded sub-central level of government entities.

Conclusions

The new procurement commitments in the TPP expand the areas in which Canada and the United States have opened their government procurement to foreign competition, but will not require significant changes to Canadian and U.S. procurement measures and practices. In line with commitments in other existing trade agreements, both countries already largely comply with the requirements of the TPP. At the same time, the TPP has the potential to increase access to significant new procurement markets for Canadian and US suppliers in other TPP member states. Time will tell whether Canadian and US suppliers will successfully pursue these new opportunities.

Footnotes

1 15.4.1

2 15.4.2

3 15.4.8

4 15.4.9

5 1.2.1

6 SDRs is an international reserve asset created by the IMF. Its current value is approximately 1 SDR = 1.38 US$.

7 15.24.2

8 15.5.1

9 15.6.1

10 15.13.3

11 15.14.1

12 15.8.3(b)

13 15.17.1

14 15.16.2

15 15.19.1

16 15.12.2(a)

17 15.8.1

18 15.8.2(a)

19 15.8.2(b)

20 Government Procurement Chapter, Global Affairs Canada

21 TPP Chapter Summary, Government Procurement

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