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Government Procurement Moves to Center Stage in NAFTA Renegotiations

This week, NAFTA negotiators will meet once again to renegotiate the 23-year-old, critically important trade agreement between the United States and two of its largest trading partners, Mexico and Canada. We share many of the Trump administration’s goals of modernizing this agreement, which was negotiated long before the incredible changes that the internet and digital technologies have brought to the global economy.

We believe that this modernization can bring additional benefits to the deeply integrated supply chains that span North America. Among other important areas of concern, however, the administration has proposed changes to the government procurement chapter that not only risk jeopardizing the agreement, but that also would hurt the businesses it seeks to protect. Resolving these issues related to government procurement is critical to vendors and suppliers in the American public sector because failure to sustain or improve these provisions would result in substantial disruptions to the global supply chains upon which the U.S. government and the tech sector rely.

During the negotiating round in September, the U.S. proposed language that sought to correct a perceived inequity in the government procurement market. The administration argued, in short, that U.S. openings in its procurement market outstrip those of other countries, and that this imbalance harms U.S. companies. As a result, the U.S. proposed to limit all access to U.S. government procurement contracts based on a “dollar-for-dollar” value of the combined Mexico-Canada market. This approach differs vastly from previous commitments where the U.S. has sought trading partners to open coverage for comparable entities and markets. With the U.S. government procurement market valued at over $500 billion and Mexico’s and Canada’s markets together equaling approximately $90 billion, the dollar-for dollar approach would significantly alter the access provided under NAFTA.

To counter this proposal, Mexico tabled its own proposal, which would restrict government procurement contracts to U.S. companies to the same value of the contracts that Mexican firms are awarded in the U.S. U.S. companies however, compete in both Mexican and Canadian markets at higher rates than firms from either country. For example, in Canada, U.S. firms received approximately 10 percent of contracts awarded in 2015, while Canadian firms were awarded only 0.15 percent of contracts in the U.S. marketplace. As such, both proposals have been deemed undesirable for contractors from all signatory countries.

NAFTA’s current government procurement chapter was written before digital technologies changed not only the products and services being purchased but also how the purchases are made in the procurement market both in the U.S. and with our key trading partners. If the U.S. leverages a modernized NAFTA to increase transparency, expand access to government procurement markets in Canada and Mexico, and further integrate the North American economy, U.S. tech companies can increase their exports to government buyers as public sectors seek to modernize, become more efficient and productive, and deliver more digital citizen services.

Public Policy Tags: Trade & Investment