March 15, 2016

U.S. and EU Trade Officials Negotiating New Government Procurement Rules

U.S. and EU Trade Officials Negotiating New Government Procurement Rules

By: Randy Miller, Partner at FH+H

United States and European Union (EU) officials have begun negotiating possible changes to their government procurement rules, with the aim of finalizing an agreement by the end of 2016. While the talks are in their early stages, each is seeking greater access to government procurement opportunities in the other’s market.

The talks on government procurement are part of the negotiations for a new Transatlantic Trade and Investment Partnership (known as TTIP), an important new free trade agreement between the United States and the EU. 

TTIP is intended to reduce trade barriers and increase trade between the U.S. and the EU to stimulate economic growth. With sluggish economies on both sides of the Atlantic since the financial crisis of 2008, U.S. and EU leaders argue that TTIP can play an important role in expanding trade and increasing overall economic activity.

The U.S. economic relationship with the EU is the largest and most complex in the world, generating goods and services trade flows of about $2.7 billion a day.  Transatlantic investment is directly responsible for roughly 6.8 million jobs. The combined GDP of the U.S. and EU represents almost 50% of world GDP and accounts for one-third of total global goods and services trade. The EU countries, together, would rank second both as an export market for U.S. products and as a supplier of imports to the United States.

The TTIP negotiations began in June of 2013.  Twelve rounds of negotiations have been conducted during the first three years of negotiations, with upcoming rounds of talks scheduled for April and July of this year. The Obama Administration has been intent on concluding TTIP by the end of 2016, although lately they have acknowledged that the required congressional approval of the trade agreement could stretch into next year. EU negotiators say that negotiations could be concluded this year, but not at the risk of negotiating a “TTIP Light” that doesn’t address all issues.

Negotiators have set ambitious goals for TTIP and are pursuing a comprehensive agreement that sets “high standards” and eliminates unnecessary redundancies in red tape.  Negotiators plan to reach agreements covering more than a dozen separate areas, including chapters on tariff reductions, government procurement, small and medium-sized businesses, textiles and apparel, non-tariff barriers, services, electronic commerce, investment, labor, environment, intellectual property rights, customs facilitation, and regulatory reform. 

The government procurement portion of the talks is off to a slow start. Opening up the U.S. government procurement market is one of the key EU interests in the TTIP negotiations, but a U.S. offer exchanged on February 29 falls far short of EU expectations. The offer’s main concession is lowering the value thresholds above which foreign companies can bid on government contracts, most likely for the federal agencies that already are covered by the plurilateral Government Procurement Agreement (GPA).

However, there are limits as to how much the EU can gain from lowered U.S. procurement thresholds.  Under the GPA, EU businesses already have full access to procurement contracts exceeding $191,000 in value, and U.S. law sets aside procurements under $150,000 for domestic small businesses.  These rules leave only $41,000 for potential new procurement market access available to the EU under TTIP, unless the U.S. agrees to a change in the small business set asides.

Detailed negotiations on March 7-9 were followed by “stocktaking” discussions on March 11 between U.S. Trade Representative Michael Froman and EU Trade Commissioner Cecilia Malmstrom.  Malmstrom signaled that the U.S. procurement offer is not sufficient to conclude the “middle game” of negotiations, which generally refers to resolving all issues except the most politically difficult ones. Malmstrom said that TTIP cannot be successful this year without securing some of the key EU priorities, such as access to the U.S. government procurement market, more protection for food names, and an innovative regulatory cooperation chapter.

The government procurement talks are expected to become more active this summer.  The initial U.S. and EU offers will be followed by another exchange of revised offers in a matter of months, according to Malmstrom.  “We are just sharing offers, the first exchange of offers on this,” she told a Washington think tank. “Obviously there will be a second, hopefully by the summer. So we haven’t really entered into real discussions on this yet.”

FH+H will be following the TTIP negotiations this year, including talks on the government procurement provisions, to analyze their impact on U.S. business interests. Please contact Randy Miller at [email protected] for more information. 

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