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The government procurement chapter of a free trade agreement (FTA) ensures that purchases made by government entities are conducted in a non-discriminatory, predictable and transparent fashion. The chapter also provides guaranteed market access for each Party’s suppliers to the government procurement of the other Parties that is covered by the FTA. FTA government procurement chapters cover purchases of goods and services (including construction) by major government entities and enterprises at the central government level. In addition, the U.S.-Chile FTA and the Dominican Republic-Central America-United States FTA (CAFTA-DR) provide coverage at the sub-central level.
Each Party specifies in an annex to the chapter the procurement that it covers under the FTA. The FTA annex specifies the government entities covered by the chapter, specific goods and services that are excluded from coverage of the chapter, and the monetary thresholds above which the chapter applies. Parties may also take measures that are necessary to protect the environment and intellectual property, or for national security. Parties may set out exclusions or reservations that relate to its procurement (such as the U.S. exclusion of set-asides for small and minority businesses).
Examples of chapter provisions guaranteeing equal access, transparency and predictability:
• A trading partner’s procuring entities are prohibited from favoring a domestic supplier over a U.S. supplier in procurement covered by the chapter.
• A trading partner’s procuring entities are required to publish notices of their intended procurements and provide sufficient time and information necessary for suppliers to submit responsive tenders.
• A trading partner is obligated to establish or maintain an independent authority with the power to review a supplier’s complaints regarding the conduct of government procurement, such as complaints that the supplier was treated unfairly in the procurement process.
• The use of technical specifications in procurements are disciplined, including through requirements that they be based, where appropriate, on international or recognized national standards and on performance requirements, rather than design characteristics.
• The chapters include a general prohibition of offsets, such as local content requirements.
• As a result of the Agreement, Honduras has eliminated the discriminatory requirement that foreign firms act through a local agent in order to participate in public tenders.
• Guatemala will use its Internet-based open procurement system known as Guatecompras to ensure full transparency in procurement actions. The value of public procurements through Guatecompras has increased from $112 million in 2004 to nearly $2 billion as of August 2006. Additionally, the national procurement law was amended to provide arbitration for firms to dispute awards of tenders.
• In order to implement the Government Procurement Chapter, the Dominican Republic passed a procurement law to ensure that procuring entities conduct procurements in a transparent and non-discriminatory manner.
• In order to ensure integrity in the procurement process and fight corruption, CAFTA-DR governments are required to establish debarment procedures to disqualify suppliers that engage in fraudulent or illegal activities.
• Prior to CAFTA-DR, U.S. companies operating in the region complained of inadequate notification of pending procurements and vague bidding timetables. As a result of the Agreement, governments are obligated to keep tenders open for specified periods and publish notices of intended procurement.