International Protection of Free Trade in Procurement Under NAFTA’s Chapter 10 on Public Procurement: The Pathway from NAFTA to WTO Government Procurement Agreement to a Potential European-US Transatlantic Trade and Investment Partnership

The North American Free Trade Agreement (NAFTA), which entered into force on 1 January 1994, is an agreement between Mexico, Canada and the United States to ensure that covered goods and services fall under a comprehensive free trade agreement among the three countries. NAFTA included, in Chapter 10, provisions opening up many aspects of the parties’ procurement markets. As a practical matter, however, NAFTA’s procurement-related provisions have largely been overshadowed by the World Trade Organization (WTO) Agreement on Government Procurement (GPA), which includes the United States, Canada, and many other member parties, but not Mexico. Perhaps in part because Canada has a long history of integration with the U.S. industrial base for defense production, with regard to public procurement the United States’ trading relationship with Canada under the GPA has played a more prominent role. The importance of the GPA in framing future procurement agreements is being borne out in current negotiations, between the European Union and the United States, on a comprehensive free trade agreement, known as the Transatlantic Trade & Investment Partnership (T-TIP). European negotiators have made it clear that their negotiations with the United States will be based on the GPA – in fact, that the T-TIP agreement may set a benchmark for future changes to the GPA, which is rapidly becoming the central agreement in international efforts to promote free trade in procurement. In the process, the procurement provisions of NAFTA are proving less important, as cooperation in trade and procurement regulation centers on the much more broadly adopted GPA. Whether through the T-TIP agreement (known as “TTIP” in Europe), or through the GPA, the international free trade agreements are likely to ease cross-border cooperation in framing procurement law. Part II of this chapter reviews NAFTA’s procurement-related provisions in detail, and discusses some of the protections built into that agreement. Part III describes the launch of the T-TIP negotiations between the European Union and the United States, and notes that those negotiations – based not on NAFTA, but on the GPA – demonstrate that the GPA has become an important instrument (more important than NAFTA) in framing free trade agreements in procurement. Part III describes how the T-TIP agreement might be used to open greater European access to public procurement markets in the United States, especially at the sub-central (state) level. Part III also discusses one option to open that access – to require states, when spending the billions of dollars of federal grants distributed every year, to afford European vendors the same “national treatment” they afford U.S. vendors – and describes some of the hurdles that face that approach. Finally, Part III discusses how the T-TIP agreement could be used to establish an ongoing mechanism -- specifically, an administrative structure to coordinate European and U.S. federal procurement regulations -- for the “transnationalization” of public procurement law

A Versatile Prism: Assessing Procurement Law Through the Principal-Agent Model

Over the past several decades, the federal procurement system in the United States has grown remarkably, and now totals over $500 billion annually. Over that same period, the rules governing federal procurement have been buffeted by broad efforts at reform. At no point, however, have we ever had an overarching theory - a model or prism - through which to assess the procurement system or its reform. Agency theory provides one such theoretical model. Long established in economics and the other social sciences, the principal-agent model (agency theory) provides a model to explain successes (and failures) in organizational structures, and also to understand the procurement system and its rules. The theory builds upon the classic principal-agent model. A principal enlists an agent to carry out the principal’s goals, presumably because the agent enjoys some comparative advantage in performing the goals. Inevitably, however, the agent’s interests diverge from the principal’s; if the agent’s goals diverge sufficiently, the agent may be said to have a conflict of interest. This article employs agency theory to assess classic constructs of procurement law, such as Steven Schooner\u27s desiderata, and argues that the theory can be used to solve future puzzles in procurement policy, and to predict where procurement policies are likely to fail - and to succeed

Cross-Debarment: A Stakeholder Analysis

As more nations and organizations establish debarment (or blacklisting ) systems, to exclude corrupt or incompetent firms and individuals from contracting, a serious question has arisen: if a contractor is debarred, should other jurisdictions automatically exclude that contractor in a cross-debarment ? This paper, which grew out of an October 2012 symposium at the World Bank, discusses the advantages and disadvantages of cross-debarment, from the standpoint of various stakeholders. The article concludes that some stakeholders (such as debarring officials themselves) might prefer that there be no automatic cross-debarment, so that government officials retain discretion -- and so leverage -- to persuade contractors to take remedial measures. The paper concludes that while automatic cross-debarment might enhance anti-corruption efforts, automatic cross-debarment is likely to raise real -- and, in most cases, legitimate -- concerns in the affected stakeholder communities. Stakeholders would more likely coalesce around a more moderate approach, which ensured that debarments were fully publicized, and that officials in other nations had due notice of corruption and performance failure, but which left those officials with flexibility and discretion in addressing a foreign debarment

International Procurement Developments in 2015: Structural Reforms to International Procurement Laws

The year 2015 saw major structural changes to international procurement rules -- including (1) a proposed Trans-Pacific Partnership (TPP) trade agreement which will impact procurement, and important shifts in Canada’s laws regarding contractor debarment and exclusion (discussed here by Brenda Swick), (2) European procurement laws which favor open, multilateral negotiations (Hans-Joachim Priess), and (2) new, more liberal procurement policies at the World Bank (Christopher Yukins) -- all of which are likely to help open procurement markets around the world. This article, prepared for presentation at the February 2016 Thomson-Reuters Year in Review conference in Washington, D.C., surveys these developments and discusses their future implications

Trump Executive Order Calls For More Aggressive Use Of The Buy American Act—An Order Likely To Have More Political Than Practical Effect

President Trump recently issued an executive order, EO 13881, 84 Fed. Reg. 34257 (July 15, 2019), calling for more aggressive application of the Buy American Act. The new order calls for the Federal Acquisition Regulatory Council to strengthen domestic preferences under the Act. The order was long predicted as another step in the Trump administration’s advancing protectionism. Indeed, most of the Trump administration’s protectionist initiatives have been foreseeable from the outset, for the Trump administration has consistently embraced those initiatives that provide maximum political benefit at minimum cost. But developments since Trump took office—including new data that show that the Buy American Act applies to a markedly small portion of federal procurement, and emerging electronic marketplaces that could swallow up much of that small market share—may mean the new executive order has far more impact politically (both in the U.S. and abroad) than it does practically

Assessing the Trade Agenda for Government Procurement in the Biden Administration

This paper, prepared shortly before President Joe Biden was inaugurated, discussed key trade issues for the incoming administration in public procurement. The piece reviewed major trade measures in procurement taken during the Trump administration – most of which were predictable from the time Trump was elected. The paper turned to the major trade challenges that faced the Biden administration, in areas as diverse as climate change, cybersecurity and the protectionism in post-Brexit Europe, and then assessed how the Biden administration might address these challenges, especially given Joe Biden’s support for “Buy American” policies during the 2020 campaign. The paper also assessed how the new administration might cooperate on these difficult issues with the United States’ allies abroad. The paper concluded that the Biden administration’s main challenge was restoring confidence abroad in the United States as a responsible trading partner in procurement; once that goal was met, the paper argued, the more technical issues of trade in procurement would be much easier to address

Mandatory Disclosure: A Case Study in How Anti-Corruption Measures Can Affect Competition in Defense Markets

In the U.S. defense procurement market, regulators require contractors to make “mandatory disclosures” if principals at those firms determine, after due review, that there is credible evidence that the firms engaged in certain crimes (fraud, bribery or gratuities), civil fraud, or significant overpayment by the government. Failure to make such a mandatory disclosure, required by clause and by regulation, can lead to (among other things) the debarment of the contractor -- a potentially devastating result. Mandatory disclosure is a natural extension of a separate requirement, that contractors maintain effective corporate compliance and ethics systems, and the Defense Department’s largest prime contractors, with sophisticated compliance systems in place, have been able to accommodate the mandatory disclosure requirement. This paper asks whether this disclosure requirement in effect favors those largest contractors, and decreases competition in a already highly concentrated defense market, either by creating substantial legal risks for firms too small or inexperienced to institute effective compliance and disclosure systems, or by discouraging competition from other companies in the commercial sector. The paper concludes that the mandatory disclosure rule can impair competition in defense procurement, and recommends that regulators carefully shape any disclosure requirements, and perhaps reconsider relying on voluntary disclosure, mindful of the need to reduce costs and enhance competition in defense procurement markets

The Draft OCI Rule - New Directions and the History of Fear

After years of rancor and debate, the Office of Federal Procurement Policy and the FAR Councils in April 2011 finally issued a proposed revision to the regulations governing organizational conflict of interests (OCIs) in federal procurement. The proposed rule marked an extraordinary change of direction - in some ways, it would reorder policy priorities built up over years of case law - but also may have reflected the drafters’ nagging ambivalence about the new direction. The proposed OCI rule marked a significant change in direction in part because policymakers’ core concerns - their core fears concerning conflicts of interest - have themselves shifted over time. Because new means of addressing those concerns are constantly emerging and evolving, we know that the rules will continue to evolve. The article argues, however, that as the OCI rules advance, they should be meshed more seamlessly with other advances in procurement law, such as new initiatives in contractor compliance and efforts abroad, for example through the European procurement directives and the WTO Government Procurement Agreement (GPA), to regulate conflicts of interest in procurement

The U.S.-Mexico-Canada Agreement (USMCA): Some Surprising Outcomes in Procurement

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 Transpacific Trade 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

A Case Study in Comparative Procurement Law: Assessing UNCITRAL\u27s Lessons for U.S. Procurement

The United Nations Commission on International Trade Law (UNCITRAL) has commissioned a working group, with delegations from many industrialized and developing nations, to reform and update the UNCITRAL Model Law on Procurement of Goods, Construction and Services. The working group is currently reviewing reforms on a number of fronts. This essay focuses on three areas of reform in particular - electronic communications, electronic reverse auctions, and unrealistically low bidding - to gauge whether lessons from the UNCITRAL debate may be useful for reform in the U.S. procurement system. As the essay reflects, the international debate surrounding UNCITRAL reform does in fact yield many lessons for U.S. policymakers. Indeed, the analysis suggests that the U.S. system may be at a point where it would be irresponsible not to consider comparative lessons from reforms abroad, to ensure that U.S. procurement policy draws thoughtfully upon lessons learned from other procurement systems around the world