Office of the United States Trade Representative


State Government Procurement and Trade Agreements

The Facts

Myth: The federal government made a misleading request to states to cover their procurement under free trade agreements (FTAs).

• In September 2003, the U.S. Trade Representative sent letters to all Governors asking whether their state governments would permit the coverage of some state government procurement under FTAs that were and are being negotiated by the United States.

• Thirty-seven U.S. states had agreed voluntarily in the early 1990s to cover some of their state procurement under the WTO Agreement on Government Procurement (WTO GPA). This allowed suppliers from the other 27 countries that are Party to the GPA to have an equal opportunity to compete for purchases in those states.

o These states volunteered to cover their procurement because they understood that U.S. procurement agreements help U.S. workers and firms by requiring foreign governments to use the type of open, transparent and non-discriminatory purchasing procedures routinely applied by the states

• Last September, USTR asked if those 37 states would be willing to extend to new FTA partners the same opportunities they currently extend to the 27 GPA signatory countries.

• USTR also asked the 13 states that are not covered by the WTO GPA whether they were willing to have their procurement covered under the WTO GPA, as well as under the free trade agreements under negotiation.

Myth: Local and municipal governments will be swept in by any state agreement to be covered in these agreements.

• False. Coverage of a state’s procurement in an FTA does NOT affect the procurement of any city or county government in that state. USTR has not asked any cities or counties to cover their procurement under these trade agreements.

Myth: Covering procurement under FTAs would force states to comply with "draconian constraints" on domestic purchasing policies and undermine state authority to make purchasing policies, including promotion of local development.

• False. State governments can decide the extent to which a state’s government procurement would be covered under the FTAs. It is up to the states to designate the agencies they want to cover, and to identify any goods or services they want to exempt.

• For example, when the 37 states signed on to the WTO GPA, many reserved a number of sensitive procurement areas such as motor vehicles, construction-grade steel, printing, and construction services. The same reservations these states chose to take in the 1990s could be taken under FTAs.

• If any new states choose to sign on to the procurement agreements, they would also be able to decide whether they want to reserve any sensitive procurement areas, such as measures to promote local economic development.

• Preference programs for small businesses, distressed areas, minorities and women are excluded from the agreements.

• Moreover, the procurement agreements set very high thresholds for coverage of state government procurement. For goods and services, only contracts above $477,000, and for construction services, only contracts above $6.7 million would be subject to the agreements.

Myth: USTR is seeking blanket authority to cover state procurement under trade agreements.

• In its letter to state governments, USTR listed several agreements that were then under negotiation for which state participation was sought (bilateral free trade agreements with Australia, Central America, and Morocco). Several agreements still under negotiation were also listed (the Free Trade Area of the Americas and a free trade agreement with the Southern African Customs Union). It is up to each state to decide:

o Whether to participate.

o Which agreements to participate in.

o The level of its specific commitment.

Myth: FTAs would undermine green procurement policies of state governments.

• False. The trade agreements ensure that state officials can make purchases that protect the environment. The agreements explicitly permit states to make purchases in accordance with their own state environmental policies.

Myth: The WTO Government Procurement Agreement’s "track record includes the demise of states' procurement policies aimed at avoiding business with the Burmese dictatorship."

• Wrong. In June 2000, the U.S. Supreme Court unanimously struck down under the Supremacy Clause of the US Constitution a Massachusetts state law that effectively barred companies doing business with Myanmar (formerly Burma) from doing any business with the state. The WTO never ruled on the Massachusetts Burma case.

Myth: FTAs would put "at risk" preference programs and other local development policies.

• False. When states sign on to the FTAs, they may exclude sensitive local programs, as many states have (as noted above).

• Also, the thresholds for the application of the FTAs to state procurement are very high: $477,000 for purchases of goods and services and $6.7 million for construction contracts.

Myth: States would not receive any benefits by participating in the trade agreements.

• False. Including state procurement in FTAs allows U.S. businesses comparable access in the state or other sub-central procurement markets of trading partners. Moreover, opening state procurement to a wider list of potential bidders can result in lower prices and more choices for state government agencies, thus saving taxpayer dollars.

• By voluntarily covering their procurement, states strengthen USTR’s leverage to persuade foreign countries to open their state or other sub-central procurement markets to U.S. suppliers. For example, in the negotiations for an FTA, Australia had been unwilling to cover its states and territories unless the United States covers a significant number of states. Nondiscriminatory access to the procurement of Australian states and territories is a high priority for U.S. suppliers of goods and services.

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