International Trade: Government Procurement Agreements Contain Similar Provisions, but Market Access Commitments Vary
Published: 2016-09-27T00:00:00

Fast Facts:
Tapping into a ~$4 trillion global government market for goods and services
The United States and other countries have signed on to the World Trade Organization's Government Procurement Agreement and 20 free trade agreements that could allow suppliers to compete worldwide for government businesses.
We compared the relevant provisions of 6 major trade agreements and found that they generally require trading partners to be on the same page about transparency, procedures, and decision-making in government purchasing. The WTO agreement also generally provides more access to government markets than the other trade agreements we reviewed.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United States and other countries have made commitments under the WTO's GPA and FTAs that open their government procurement to foreign suppliers. Under these commitments, parties agree to a procedural framework for government procurement with provisions on issues such as transparency and nondiscrimination. These commitments have potentially opened an estimated $4.4 trillion government procurement market to international firms, providing numerous new opportunities for American businesses in foreign markets and for foreign businesses to compete for U.S. government contracts.
As part of your larger request for information on U.S. participation in international procurement agreements, GAO reviewed commitments made by the United States and trading partners in selected international procurement agreements. This report provides information on (1) the provisions and (2) the market access schedules of the selected international procurement agreements. GAO reviewed the provisions and market access schedules across six agreements involving the largest government procurement markets to identify common features and variations. The agreements are the 1994 GPA and the 2014 revised GPA, NAFTA, the South Korea-FTA, the Colombia-FTA, and the Australia-FTA. GAO analyzed WTO and U.S. documents pertaining to the GPA and U.S. FTAs and interviewed USTR and the Department of Commerce agency officials in Washington, D.C.
section_title: What GAO Found
paragraphs: GAO found that the World Trade Organization's (WTO) Agreement on Government Procurement (GPA) and selected U.S. free trade agreements' (FTA) government procurement chapters that GAO reviewed generally have similarities in text, and commitments, potentially because parties negotiated multiple agreements concurrently (see fig.). Each of the agreements outlines the general method for conducting government procurement, including provisions relating to transparency, procurement procedures, and criteria for procurement decisions. However, differences exist, partially because later agreements reflect new technology.
The 2014 revised GPA generally provides more comprehensive market access than the selected FTAs GAO reviewed. Partners define the degree to which they will open their procurement markets to suppliers from other countries, known as their market access commitments. These commitments outline the entities covered by the agreements, for example, at the central and subcentral government levels (for the United States, these include agencies of the federal government and states), and for what some agreements term “other entities” (which, for the United States, includes utilities). The United States covers 85 central government entities under the revised GPA, but only 53 entities under the North American Free Trade Agreement (NAFTA). Similarly, the United States covers 37 states under its GPA commitments and from no states to 30 in the FTAs GAO reviewed. While all the top five GPA parties GAO reviewed cover some subcentral government entities, Canada, Mexico, and South Korea do not have a subcentral government entity coverage schedule in their FTA commitments. According to the Office of the United States Trade Representative (USTR), parties have certain procurements that they deem sensitive and do not want to open to foreign suppliers, including for social or policy reason. In the agreements GAO reviewed, the U.S.'s trading partners often exclude agriculture, military support, and motor vehicles from their market access commitments.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations in this report.

section_title: Letter
paragraphs: Government procurement constitutes a significant potential market for  international trade, with an estimated annual global size of $4.4 trillion,  and the United States has played a key role in developing trade  agreements that partially open government procurement markets, which  are often closed to foreign competition, according to officials from the  Office of the United States Trade Representative (USTR). Specifically,  the United States and other countries have made commitments under the  World Trade Organization’s (WTO) Agreement on Government  Procurement (GPA) and under U.S. free trade agreements (FTA) that  open government procurement to foreign suppliers, ensure that the  process is conducted transparently and without bias, and provide foreign  suppliers with the same rights as domestic ones. In procurements that are  covered by these agreements, foreign suppliers are able to compete for  certain U.S. government contracts alongside U.S. suppliers, and U.S.  suppliers are able to compete for certain foreign government contracts in  accordance with the processes established in the agreement. According  to USTR, beginning with the Tokyo Round Code on Government  Procurement that entered into force in 1981 as part of the General  Agreement on Tariffs and Trade, these commitments have potentially  opened billions of dollars of procurement to international firms, providing  numerous new opportunities for American businesses and government  agencies.
As part of your larger request for information on U.S. participation in  international procurement agreements, we reviewed commitments made  by the United States and trading partners in selected international  procurement agreements. This report provides information on the  commitments made by U.S. trading partners outlined in (1) the provisions  and (2) the market access schedules of the selected agreements. This  report contains information on the government procurement commitments  agreed to by selected parties under the WTO’s GPA and U.S. FTAs that  have gone into effect since 1994. Specifically, we examined and  compared the government procurement commitments of trade partners  with the top five WTO’s GPA and active U.S. FTA procurement markets.
To review government procurement commitments, we focused on the  United States and the trading partners with the top five WTO’s GPA  procurement markets (the European Union , Japan, Canada, South  Korea, and Norway), which together represent over 90 percent of GPA  countries’ total government procurement. We also focused on the trade  partners in FTAs that have come into effect since 1994 with the top five  procurement markets (Canada, Australia, South Korea, Mexico, and  Colombia) out of all active U.S. FTAs, which together represent over 80  percent of FTA trading partner countries’ total procurement. This scope  encompasses six agreements: (1) the 1994 GPA and the revised GPA,  (2) the government procurement chapters of FTAs covering the top five  FTA partner countries (the North American Free Trade Agreement   , (3) the South Korea-FTA, (4) the Colombia-FTA, and (5) the  Australia-FTA). We reviewed and analyzed the text of these six  agreements to identify common features and variations in commitments.  As we reviewed the commitments of the five largest procurement markets  covered by the GPA and the five largest procurement markets among  active U.S. FTA trade partners since 1994, our findings may not be  applicable to all of the U.S. FTA agreements and do not represent the  views of the U.S. government. We also analyzed and compared the  market access-related commitments (lists of entities and exclusions)  made in the annexes of these agreements that contain coverage  schedules.
We conducted this performance audit from August 2015 to September  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions, based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. (See app. I for more  information on our scope and methodology.)
subsections: section_title: Background
paragraphs: The United States has made commitments related to its procurement  market under the WTO’s GPA, in its various forms, and through FTAs  negotiated with other countries. In both cases, suppliers compete through  a procurement process that follows parameters agreed upon by the  parties to the trade agreements. USTR negotiates these agreements and  monitors and enforces foreign government compliance once they come  into force. Officials in the Department of Commerce’s (Commerce)  International Trade Administration monitor compliance as well as support  USTR’s activities and provide services to promote U.S. exports.
The GPA is a plurilateral agreement within the framework of the WTO  that, according to the WTO, aims to mutually open government  procurement markets among its parties, covering government purchasing  of goods, services, and construction work. The current GPA (referred to  as the revised GPA) entered into force on April 6, 2014, 20 years after a  previous agreement (referred to as the 1994 GPA) was signed on April  15, 1994. The two agreements currently co-exist because Switzerland is  still in the process of adopting the revised GPA.  All other parties to the  1994 GPA have adopted the revised GPA. According to WTO documents,  the revised GPA is a result of parties negotiating refinements to the 1994  agreement. The WTO has stated that these include updating the  agreement’s text and expanding market access commitments. The  revised GPA consists of 18 parties (including the EU) and covers 46 WTO  members, including the 28 EU member states (countries). Another 28  WTO members are observers. Of these, 8 members are in the process of  acceding to the agreement.
The United States has FTAs with 20 countries, 4 of which (Canada,  Israel, Singapore, and South Korea) are also parties to the GPA. Unlike  the GPA, which encompasses dozens of parties, most U.S. FTAs are  bilateral. Almost all of the FTAs that the United States has in force include  provisions covering government procurement, and most contain a  separate government procurement chapter that, like the GPA, contains  market access commitments that include coverage schedules and  threshold amounts for procurement activities to which the agreement  applies.
According to USTR, to implement U.S. obligations under the international  agreements that cover government procurement, the United States  waives preferential purchasing requirements that would otherwise be  inconsistent with the international agreement. For example, for contracts  covered by the GPA and U.S. FTAs, USTR has waived the Buy American  Act and other preferential provisions for eligible products.
section_title: Selected International Government Procurement Agreements Generally Contain Similar Provisions
paragraphs: Our review of government procurement commitments in agreements  between the United States and selected trading partners found that, in  general, the text in these agreements contained similar provisions. The  revised GPA, the Colombia-FTA, and the Australia-FTA were negotiated  concurrently and generally maintain many of the commitments in the  1994 GPA, NAFTA, and the South Korea-FTA while adding explicit  language related to nondiscrimination of other parties’ suppliers,  promotion for the environment, and shorter timelines. We found nine  common characteristics across the agreements. We also found that some  differences exist, for example because later agreements have reflected  new technology.
subsections: section_title: Negotiations of GPA and FTAs Overlapped
paragraphs: USTR negotiated all of the agreements on behalf of the United States,  and negotiation timelines often overlapped (see fig. 1). A former trade  agreement negotiator told us that the revised GPA reflected an “evolution”  from the 1994 GPA, because negotiators focused on streamlining the  language and addressing parties’ proposed changes. USTR officials  stated that recent FTAs, including the Colombia-FTA and the South  Korea-FTA, reflect the changes incorporated into the revised GPA. We  found that later agreements reflect modernized technology. For instance,  the 1994 GPA and NAFTA state that tenders (bids) shall normally be  submitted in writing directly or by mail while also including provisions  regarding the submission of tenders using telex, where permitted. Later  agreements, such as the revised GPA and the Australia-FTA, do not  specify a common method for submitting tenders and have provisions  recognizing the use of electronic means in conducting procurement.  Additionally, the 1994 GPA, NAFTA, and the revised GPA all require  parties to regularly submit procurement statistics. The revised GPA gives  parties the option to publish records to an official website.
section_title: Agreements Contain Nine Common Elements, with Some Differences in Specific Commitments
paragraphs: We found that the government procurement agreements we reviewed  generally follow the same structure and contain nine common elements  that we identified; however, they sometimes differ in their specific  commitments. The nine common elements we distilled from our analysis  of the text include provisions that relate to transparency,  nondiscrimination, defining scope and coverage, exceptions, procurement  procedures, criteria for procurement decisions, supplier challenges,  ethical standards, and changes and further improvements. The method  by which procurement is conducted, such as the processes by which  procurement is announced, information is released, and a winning bidder  is selected, is contained in many similar provisions across the six  agreements we reviewed. However, there are some notable differences,  in areas such as statistical monitoring, environmental protection, and the  supplier challenge process. U.S. trade officials told us that specific  differences usually reflect variations in the trading partners’ domestic  priorities. Nevertheless, USTR officials told us that differences in the text  of provisions in the agreements may not actually result in parties having  different obligations with regard to their procurement practices.
Furthermore, USTR stated that parties sometimes take actions not  explicitly mentioned in the agreements, but not prohibited either. For  example, USTR noted that suppliers that have been convicted of criminal  behavior may be excluded from bidding on contracts. USTR further added  that later agreements may add language specifically allowing parties to  take such actions. For example, the revised GPA and the South Korea- FTA explicitly mention criminal convictions as grounds for excluding a  supplier.
subsections: section_title: Foster Transparency
paragraphs: A common feature of these agreements is the inclusion of provisions  related to transparency in the procurement process. For the GPAs, this  reflects one of the six principles that the WTO states are the foundation of  the plurilateral trading system, an aim to make trade “predictable and  transparent.” Parties to these selected agreements commit to publishing  information on their laws, regulations, judicial decisions, and specific  administrative rulings regarding procurement covered by the agreement.  Furthermore, government entities must also release information at  various steps of the procurement process, and the requirements for  releasing information have similarities. Under the selected agreements,  should a government entity wish to undertake procurement under open  tendering procedures, generally it must publish an invitation for suppliers  to submit tenders. Once an award has been made, parties must also  publish information on the contract. The Colombia-FTA and the Australia- FTA require this information to be published within 60 days of the award,  while the remaining four agreements allow 72 days for publication.
Three of the agreements (the 1994 GPA, the revised GPA, and NAFTA),  explicitly require parties to collect procurement statistics. In the two  GPAs, parties are to provide the statistics to the committee on a regular  basis. In NAFTA, parties are to provide the statistics to the other parties  in the agreement on a regular basis. The procurement statistics required  to be reported by governments vary among the three agreements. Both  the 1994 GPA and the revised GPA require parties to submit statistics on  contracts awarded by all entities covered by the agreement. The 1994  GPA provisions relating to such reporting specify when the report is  required to contain statistics for both above-and below-threshold-value  contracts and when statistics for only above-threshold-value contracts are  required. The revised GPA reporting provisions specify that the report is  to contain statistics on all contracts covered by the agreement. As a  result, procurement that is above the thresholds set in the agreement is  required to be reported. The revised GPA does not speak to the reporting  of below-threshold-value contracts.
The timing of the statistical reports differs as well. The 1994 GPA requires  statistics to be reported “on an annual basis” but does not provide a  specific date on which the annual basis is to begin. The revised GPA also  requires that reports cover 1 year and specifically that they be submitted  within 2 years of the end of the reporting period. Similar to the 1994 GPA,  NAFTA specifically requires estimates of above-and-below threshold  procurement, and statistics on the number and value of contracts  awarded above the applicable threshold value, to be presented in annual  reports. However, unlike the 1994 and revised GPAs, NAFTA’s provision  on the collection of statistics states that statistics must be provided  “unless the Parties otherwise agree.”
section_title: Promote Nondiscrimination
paragraphs: Each of the agreements includes commitments that parties not  discriminate against each other’s suppliers. For the GPAs, this reflects  another of the six fundamental WTO principles, “nondiscrimination.” The  text of each of these agreements contains versions of the following  provision, taken here from the 1994 GPA: “With respect to all laws,  regulations, procedures and practices regarding government procurement  covered by this Agreement, each Party shall provide immediately and  unconditionally to the products, services and suppliers of other Parties  offering products or services of the Parties, treatment no less favourable  than that accorded to domestic products, services and suppliers; and that  accorded to products, services and suppliers of any other Party.” While  there are some differences, this type of provision in each of the selected  agreements speaks to a party treating the suppliers and goods of another  party no less favorably than it treats domestic suppliers and goods.  Additionally, the agreements contain other provisions that are consistent  with this commitment. For example, the agreements all have a provision  on determining rules of origin (criteria for deciding the national source of a  product) that generally expresses that a party shall apply the rules of  origin that it applies in the normal course of trade.
section_title: Define Scope and Coverage
paragraphs: Each of the agreements we examined contains a section on scope and  coverage that defines what is covered by the agreement. All of the  agreements generally state that they apply to any measure regarding  covered procurement. All of the agreements, except the 1994 GPA,  provide some detail as to what transactions to which the government  procurement provisions will not apply, such as the acquisition of fiscal  agency or depository services, and liquidation and management services  for regulated financial institutions.
section_title: Allow Exceptions
paragraphs: The agreements we examined all contain provisions allowing certain  exceptions to the commitments made in the agreement. For example,  each of the agreements allows for the use of limited tendering. Limited  tendering allows an entity to contact one supplier directly rather than to  utilize open or selective procedures. Nevertheless, this procurement is  still otherwise covered under the agreements, according to USTR  officials. Each agreement contains lists of circumstances under which  government entities may use limited tendering, with similarities across the  agreements. For instance, if the covered procurement is for products that  are purchased on a commodity market, or if a government entity has not  received any tenders that conform to the essential requirements on a  notice of intended procurement, a government entity may opt to use  limited tendering procedures. Other examples include procurements that  can only be supplied by one particular supplier and where no reasonable  alternative or substitute exists because the goods or services are works  of art or products protected by patents.
Each of the agreements includes provisions detailing other exceptions to  the agreement. According to a former trade agreement negotiator, these  exceptions, also known as derogations, identify procurement not covered  by the agreement. In general, these provisions state that nothing in the  agreement shall prevent parties from taking measures necessary to protect public morals, order, or safety; necessary to protect human, animal, or plant life or health; necessary to protect intellectual property; relating to goods or services of handicapped persons;  relating to goods or services of persons with philanthropic institutions;  and  relating to goods or services of prison labor.
However, each agreement also contains a condition that such measures  not be applied in a manner that would constitute a disguised restriction on  trade or a means of arbitrary or unjustifiable discrimination between the  parties where the same conditions prevail. While all of the selected  agreements contain the exceptions listed above, some agreements  contain additional language in their provisions on exceptions, resulting in  differences in the text. First, all of the agreements except the Australia- FTA and the Colombia-FTA specifically state that nothing in the  agreement shall prevent any party from taking any action or not disclosing  any information that it considers necessary for the protection of its  essential security interests relating to the procurement of arms,  ammunition or war materials, or to procurement indispensable for national  security or for national defense purposes. Second, those two agreements  extend the exception related to measures necessary to protect human,  animal, or plant life or health to include environmental measures  necessary for those protections. Third, the Australia-FTA specifically  includes “not-for- profit institutions” in its exception related to measures  relating to goods and services of persons with philanthropic institutions.
section_title: Outline Procurement Procedures
paragraphs: The agreements we examined contain similarities in the procedures for  how procurement is conducted and documented. First, a government  entity proposes a procurement. Under the selected agreements, unless  other procedures apply, for covered procurements, entities must publish a  notice. In general, these notices are required to include information such  as a description of the procurement and a final date for receiving tenders.  These notices often include technical specifications describing exactly  what the government entity anticipates procuring. The agreements  prohibit the parties from adopting or applying technical specifications that  would create unnecessary obstacles to trade. For example, the  agreements generally prohibit technical specifications that require  particular trademarks or country-specific details. The revised GPA, the  Colombia-FTA, the South Korea-FTA and the Australia-FTA add that  these rules for technical specifications are not intended to prevent parties  from adopting technical specifications for the conservation of natural  resources or the promotion of the environment.
If a supplier believes it can meet all of the listed requirements and provide  the desired goods or services, it may submit a tender. The agreements  vary in the amount of time the parties must allow suppliers to submit  tenders once the notice has been released. USTR officials told us that  because online procurement systems were more efficient than mailing or  faxing tenders, deadlines for tender submission could be shorter. Subject  to exceptions, the 1994 GPA, NAFTA, the revised GPA, the South Korea- FTA, and the Colombia-FTA require parties to establish a final  submission date for tenders in an open procurement of no less than 40  days from the publication of the notice, and the Australia-FTA requires at  least 30 days. One such example of an exception is in the revised GPA,  which specifies that if parties incorporate electronic means into the  procurement process, they may reduce the deadline by 5 days for each of  the three electronic means prescribed. As a result, parties to the revised  GPA are capable of reducing this deadline to 25 days. Another example  can be found in the Colombia-FTA, which allows parties to reduce the  general time limit for the submission of tenders to 30 days if the notice of  intended procurement is published in an electronic medium and tender  documentation is concurrently provided to prospective suppliers  electronically.
section_title: Clarify Criteria for Procurement Decisions
paragraphs: Once a supplier decides to submit a tender, the agreements each  generally require government entities to treat all tenders impartially upon  receipt. The agreements set out specific requirements that parties must  follow when awarding covered contracts. Generally, to be considered for  an award, a tender must have met all of the essential requirements listed  in the notice and be from a supplier that complies with the conditions for  participation. Furthermore, the procuring entity is then generally  required to award the contract to the supplier that is fully capable of  undertaking the contract and whose tender meets criteria such as being  the lowest cost or the most advantageous. However, a procuring entity  need not follow those requirements if the entity decides that it is “not in  the public interest” to award the contract.
section_title: Provide Dispute Settlement and Supplier Challenges
paragraphs: During the procurement process, procuring governments entities may  make decisions that suppliers, including foreign companies, feel are not in  compliance with the provisions of one or more of the agreements. All of  the agreements we examined outline procedures for resolving challenges  raised by suppliers regarding procuring government entities’  implementation of the procurement process, granting suppliers a  mechanism by which to resolve these concerns. Most of the agreements  require parties to encourage suppliers to attempt to resolve such  concerns through consultations with the procuring entity before entering  into the formal supplier challenge process. While the specifics vary  among the agreements, the parties generally must designate an impartial  authority to review supplier challenges. Suppliers must be allowed at least  10 days from the time when the basis of the complaint became known or  reasonably should have become known to the supplier to submit a  challenge about an awarded contract. Furthermore, though all of the  agreements have requirements related to the issuance of a decision by  the designated reviewing authority, there are variations in the  requirements. Generally, the reviewing authority is also allowed to issue  interim measures, which may include suspending the contract award.  According to Commerce officials, those interim measures are intended to  give the review body time to review the complaint and issue a decision.  The revised GPA, the Australia-FTA, and the Colombia-FTA contain a  specific provision prohibiting governments from discriminating against a  supplier that has an outstanding dispute case on another contract.
Additionally, there may be occasions when a party believes its benefits  under the agreement have been nullified or impaired leading to a dispute  between member countries. Three GPA related complaints have been  brought to the WTO’s dispute settlement mechanism. NAFTA and both  the 1994 GPA and the revised GPA contain additional, specific  procedures for resolving government-to-government procurement  disputes. All of the FTAs we reviewed also have government-to- government dispute settlement procedures outside of the government  procurement chapter, which apply to the whole agreement, including the  government procurement provisions.
section_title: Promote Ethical Standards
paragraphs: According to the WTO’s based researchers, one benefit of government  procurement agreements is that they can guide countries toward  increased integrity and good governance. Each of the agreements we  examined includes provisions relating to ethical standards, such as  stating that procuring entities may exclude suppliers from the  procurement on grounds such as bankruptcy or false declarations. The  list of reasons allowing for exclusion of suppliers in each agreement is not  exhaustive, and USTR officials told us that parties may exclude suppliers  at their own discretion. For instance, the revised GPA, the Australia-FTA,  and the South Korea-FTA mention excluding suppliers for significant  deficiencies in performance of any substantive requirement or obligation  under a prior contract. In addition to these grounds for exclusion, the  revised GPA and the South Korea-FTA also cite as grounds for exclusion  final judgements in respect of serious crimes or other serious offenses, or  failure to pay taxes. The revised GPA also mentions excluding suppliers  that have committed “professional misconduct or acts or omissions that  adversely reflect on the commercial integrity of the supplier.” According to  the WTO, a key goal of the revised GPA was to include additional  language to fight corruption. Some agreements contain explicit  anticorruption language. For example, the revised GPA states that a  procuring entity shall conduct covered procurement in a transparent and  impartial manner that prevents corrupt practices. Moreover, the  Colombia-FTA requires parties to establish procedures to declare  suppliers that have engaged in fraudulent or other illegal actions in  relation to procurement ineligible for a party’s procurement.
section_title: Provide for Changes and Further Improvements
paragraphs: Each international government procurement agreement contains a  coverage schedule determining which entities’ procurement falls under  the scope of the agreement. The WTO states that the coverage schedule  “plays a critical role” in determining whether a procurement is covered.  Each of the agreements we examined also includes a mechanism for  parties to rectify or modify these market access schedules, and all of the  agreements lay out procedures for such instances. For example, under  these procedures in the Australia-FTA, parties may make minor revisions  to their market access schedule as long as they provide notification and  that no other party objects. Some agreements also expressly outline a  framework for future negotiations. The 1994 GPA stated that parties must  undertake further negotiations within 3 years of the date of entry into force  of the agreement, while NAFTA stated that negotiations shall resume on  December 31, 1998.
section_title: More Comprehensive Market Access Coverage Generally Found in the Revised GPA than in Selected FTAs
paragraphs: Our analysis found that the revised GPA provides generally more  comprehensive market access coverage of central (e.g., federal), sub  central (e.g., state), and other government entities (e.g., authorities) than  the 1994 GPA and the FTAs we reviewed. GPA and FTA parties do not  open their entire procurement markets to foreign competition. Instead, the  agreements have coverage schedules usually contained in several  annexes, which define the party’s market access commitments. These  market access commitments identify the procuring entities covered by the  agreements at the central and subcentral government levels and, in some  agreements, by what is termed “other entities,” such as utilities. The  agreements also identify the goods, services, and construction services  covered and exclusions or exceptions are noted by general category or  by entity. According to USTR officials, all parties in the agreements we  reviewed, including the United States, have certain procurements that  they deem sensitive and do not want to open to foreign suppliers,  including for social, policy, or national security reasons. These officials  stated that, for example, the United States specifies exclusions that  include set-asides for small or minority businesses, and trading partners  often exclude defense, agriculture, military support, and motor vehicles  from their market access commitments. Moreover, the agreements’  coverage of procurements is delineated by threshold values below which  procurement activities are not covered and foreign access in accordance  with the procedures in the agreement is not guaranteed.
subsections: section_title: Central Government Entities Covered in Selected Government Procurement Agreements
paragraphs: We found that the United States increased the number of its covered  central government entities from 75 under the 1994 GPA to 85 under the  revised GPA. (See table 1.) The central government entity coverage  schedule of the United States for both the 1994 and the revised GPA  includes 15 executive branch departments, such as, the Department of  Education, the Department of Justice, and other federal entities, for  example, the Farm Credit Administration and the Small Business  Administration. Eleven federal entities were added to the revised GPA  central government schedule, and one was dropped. The U.S,’s  coverage schedule does not list judicial or legislative branch entities in  any of the agreements we examined.
We found that the U.S.’s schedules cover fewer central government  entities in the FTAs we reviewed than in the revised GPA. While the  U.S.’s coverage schedules in the two GPAs and the four FTAs we  reviewed include the same 15 executive branch departments, the number  of other central government entities covered varies. Over time, the total  number of central government entities covered by FTAs increased from  53 under NAFTA to 79 under the South Korea-FTA; however, the FTAs  include fewer central government entities than the revised GPA. For  example, the four FTAs do not cover 11 central government entities  covered by the U.S.’s central government schedule in the revised GPA.
As for central government entity coverage for the U.S.’s trading partners  in the agreements we reviewed, the top five GPA parties with the largest  procurement markets (the EU, South Korea, Canada, Norway, and  Japan) can cover executive, judicial, and legislative central government  entities in their coverage schedules for the revised GPA. For example,  Japan covers 25 central government entities, including ministries,  agencies, the legislature, the cabinet, and the Supreme Court. Norway  covers all of its existing central government entities and, according to a  former trade agreement negotiator, stipulates that it will cover central  government entities created in the future. The EU covers EU entities  and, to the extent stipulated, the central government contracting  authorities of EU member states. As compared to its coverage schedule  in the 1994 GPA, South Korea added nine new central government  entities to the revised GPA, including the Defense Acquisition Program  Administration, the Korea Communications Commission, and the Fair  Trade Commission. Similarly, other top five U.S. FTA partner countries  that are not parties to the GPA (Colombia and Australia) also cover  executive, judicial, and legislative government entities in their market  access commitments.
section_title: Subcentral Government Entities Covered in Selected Government Procurement Agreements
paragraphs: Similarly, the United States covers more subcentral level procurement in  either GPA than in any of the individual FTAs we reviewed. The number  of states covered in the U.S.’s subcentral level commitments has not  increased over time, as both the 1994 GPA and the revised GPA cover  37 states. (See fig. 2.) Included are California, New York, and Texas, the  three states with the largest procurement markets. The GPA also includes  seven states not covered under any FTA we reviewed.
Across the FTAs we reviewed, the United States only includes subcentral  government entities in the Colombia-FTA and the Australia-FTA. The  United States does not list any state in its coverage schedule in NAFTA  or the South Korea-FTA. Nevertheless, Canadian and South Korean  suppliers are able to participate in state-level procurement covered under  the revised GPA in the same manner as domestic suppliers because  those countries are also GPA members. The Colombia-FTA covers eight  states that are also included in the revised GPA, as well as Puerto Rico.
The Australia-FTA covers 30 states that are also included in the GPA,  as well as Georgia; this is the only agreement that we reviewed that  covers Georgian procurement.
States whose procurement is not covered under any agreement we  reviewed are Alabama, Alaska, Indiana, Nevada, New Jersey, New  Mexico, North Carolina, North Dakota, Ohio, South Carolina, Virginia, and  West Virginia. According to USTR officials, they must obtain state  government authorization to cover procurement in a trade agreement on  a state-by-state basis, and each state independently determines whether  to have its procurement covered under a trade agreement. Officials noted  that despite the flexibilities that states have in determining the scope of  procurement covered, such as being able to limit coverage to  procurement by specified agencies and to exclude purchases of sensitive  goods or services, U.S. state participation has not increased over time.
Other countries give U.S. suppliers access to their subcentral government  procurement as well. Among the top five GPA parties, there has been an  expansion in the number of subcentral government entities covered by  the agreement over time between the 1994 and the revised GPA. Canada  added a territory to its subcentral government entity coverage schedule in  the revised GPA and excluded procurement by the entities listed in the  subcentral coverage schedule from Iceland and the Principality of  Liechtenstein. Japan added 7 designated cities; it covers all 47  prefectures and 19 designated cities. South Korea increased the number  of subcentral government entities covered by adding to its coverage  schedule the Ulsan Metropolitan City, and the local government entities in  three metropolitan cities: Seoul (25 local governments), Busan (16 local  governments), and Incheon (10 local governments). As stated previously,  of the FTAs we reviewed, only the Australia-FTA and the Colombia-FTA  include subcentral government entities’ coverage schedules. In these  agreements, Australia includes its six states and two territories, and  Colombia includes its 32 Gobernación del Departamento entities in the  subcentral government procurement market access commitments.
section_title: Other Government Entities Covered in Selected Government Procurement Agreements
paragraphs: In addition to central and subcentral government entities, parties to  procurement agreements also cover other government entities. According  to USTR officials, “other government entities” are not defined and, as a  result there is a wide variation among parties to the agreements as to the  types of entities covered. Each party’s coverage is the result of a variety  of factors, including the structure and organization of its government and  its market access negotiations with other parties.
Under the GPA, some parties define their coverage of other government  entities by listing specific entities that will be covered in the annex. Of the  five GPA countries we reviewed, the United States, Canada, Japan, and  South Korea follow this model. The U.S.’ coverage includes electric  utilities and ports/port authorities in the agreements we reviewed.  Canada’s coverage includes federal Crown corporations, such as some  museums and a railway corporation; Japan’s coverage includes banks,  centers, corporations, councils, foundations, funds, institutions, and  museums; and South Korea’s coverage includes entities such as the  Korea Trade-Investment Promotion Agency, the Korea Rail Network  Authority, and the Korea Tourism Organization, in addition to a number of  banks and corporations. On the other hand, the EU and Norway define  their commitments with respect to other government entities by listing  activities in specific sectors undertaken by certain classifications of  entities rather than by naming specific entities. These sectors include  drinking water, electricity, airports, and maritime or inland ports. Under  the Australia-FTA and the Colombia-FTA, coverage is limited to only  those other government entities listed. Similar to GPA trading partners,  these FTA partners also include a variety of entities, such as industry,  agencies, and commissions. Canada lists the same other government  entities in NAFTA and in the GPA.
The United States covers the same 10 other government entities under  the 1994 GPA and in the revised GPA; while under the FTAs we  reviewed, the United States only covers some of these entities. (See table  2.)
section_title: Coverage and Market Access Exclusions in Selected Government Procurement Agreements
paragraphs: According to officials, the coverage of goods, services, and construction  services in international procurement agreements is based on the  principle that all procurement above thresholds and by covered entities  for these items is covered, unless explicitly excluded. Officials noted that  all parties have certain procurements that they deem sensitive and do not  want to open to foreign suppliers, for example for social, policy, or  national security reasons. Officials also stated that because market  access commitments are negotiated on a reciprocal basis, some parties  also exclude some types of procurement only from another party, for  example when they believe they are not receiving enough market access  of that particular type. According to the WTO, reciprocity is the foundation  of coverage commitments generally. In terms of U.S. and trading  partners’ exclusions, we found commonalities across the agreements we  reviewed.
Provisions describing the exclusion of specified goods, services, and  construction services can be found in the general notes sections in the  agreements and often in a specific annex to the agreements, at an entity  level. In particular, exclusions of specified services are generally identified  on a positive or negative list. According to a former trade agreement  negotiator, most parties use a positive list; that is, only the services listed  are covered by the agreement. Under the GPA, Canada, the EU, Japan,  Norway, and South Korea use a positive list. The United States uses a  negative list approach — unless listed, any procurement by a covered  entity of a service meeting the procurement threshold is covered by the  agreement. According to Commerce officials, a negative list approach  provides more liberal coverage than a positive list approach because it is  not an exhaustive list and allows for coverage of new services.
The United States specifies exclusions in the six agreements we  reviewed, and these exclusions apply to the procurements of all entities  covered by the agreement, except as specified otherwise. The exclusions  include “set-asides” for small or minority businesses. For example, U.S.  laws promoting the economic development of small businesses, as  defined by the U.S. Small Business Administration, reserve certain  contracts for these types of firms, according to a former trade agreement  negotiator. Similar to the United States, Canada also excludes set-asides  for small and minority businesses. Commerce officials noted that the  Australia-FTA, the Colombia-FTA, and the South Korea-FTA all exclude  purchases for the direct purpose of providing international assistance  from the scope of the government procurement commitments.
Parties also define specific exclusions of goods, services, and  construction services at the entity level. U.S. exclusions of procurements  by central government entities are generally similar across the six  agreements we reviewed. (See table 3.)
Trading partners also set exclusions at the central entity level. For  example, Colombia’s exclusions include the procurement of agricultural  raw materials or inputs related to agricultural support programs and food  assistance by the Ministero de Agricultura y Desarrollo Rural; Australia’s  exclusions include procurement of ship and marine equipment by the  Department of Defence and the Defence Materiel Organisation; and  South Korea’s exclusions include certain procurements of agricultural,  fishery, and livestock products by covered central government entities.  The EU coverage schedule also contains specific exclusions regarding  the United States under the GPA. According to a former trade  agreement negotiator, under the GPA, the EU withholds about 200  central government entities of member states from the United States and  not from other countries because, as noted previously, the United States  does not cover all federal agencies and does not cover legislative or  judicial entities.
At the subcentral level, U.S. states covered in the GPA, the Australia- FTA, and the Colombia-FTA include exclusions to their procurement. As  noted previously, the other FTA agreements do not cover U.S. states’  procurement. First, these agreements include four exclusions that apply  to all state entities outlined in the coverage schedules. Provisions in the  agreements do not apply to preferences or restrictions associated with programs promoting the  development of distressed areas or businesses owned by minorities,  disabled veterans, and women; any procurement by a covered state entity on behalf of a noncovered  entity at a different level of government;  restrictions attached to federal funds for mass transit and highway  transit projects that are undertaken with federal funds; and procurement of services excluded by the United States, as well as  printing services.
In addition, under the subcentral level procurement covered under the  GPA, the Australia-FTA, and the Colombia-FTA, a number of U.S. states  have state-specific exclusions related to certain types of procurement,  some of which are the same across these three agreements. (See table  4.)
In addition, in procurements by the Texas Building and Procurement  Commission, Texas excludes preferences for motor vehicles, travel  agencies located in the state, and rubberized asphalt paving made from  scrap tire by a Texas facility in the Colombia-FTA and the Australia-FTA  but not the GPA. Georgia excludes the procurement of beef, compost,  and mulch by the Department of Administrative Services and the Georgia  Technology Authority in the Australia-FTA.
Of the FTAs we reviewed, only the Australia-FTA and the Colombia-FTA  have subcentral government entity coverage schedules. In the Australia- FTA, at the subcentral government entity level, exclusions include health  and welfare services, education services, and motor vehicles for  procurement by certain entities. Colombia’s exclusions include food,  agricultural raw materials/inputs, and live animals related to agricultural  support programs and food assistance. GPA trading partners exclude  specific procurement by listed sub central government entities of  suppliers, services, and service providers from the United States. For  example, the EU excludes the procurement of air traffic control equipment  from suppliers and service providers from the United States.
section_title: Threshold Amounts in Selected Government Procurement Agreements
paragraphs: International procurement agreements we reviewed specify threshold  values above which procurement activity is covered. Of the revised GPA  coverage schedules that we reviewed, many parties apply similar  threshold levels. According to officials, the lower the threshold values, the  more access foreign suppliers have to the procurement market. Officials  also noted that conversely, foreign suppliers do not benefit from the  agreements’ coverage with regard to relatively smaller procurements. For  the GPA, threshold values are expressed as special drawing rights (SDR)  in coverage schedules delineating covered entities.
We found that among the top five WTO GPA procurement markets (the  EU, Japan, Canada, South Korea, and Norway) we reviewed, parties set  the same threshold levels as at least one other party, with a few  exceptions. (See table 5.) In the revised GPA, among the central  government entities’ coverage schedules we reviewed, the threshold level  for goods and services is 130,000 SDRs (approximately $182,000), and  for construction services it is 5 million SDRs (approximately $7 million) for  all parties except for Japan. For subcentral government entities’  coverage schedules, four parties set the threshold level for goods and  services at 200,000 SDRs (approximately $279,000), and two parties  set the threshold level at 355,000 SDRs (approximately $496,000). For  the procurement of construction services by subcentral government  entities, most of the parties set the threshold level at 5 million SDRs  (approximately $7 million). For other entities’ coverage schedule, most  of the parties set the threshold level for goods and services at 400,000  SDRs (approximately $559,000) and for construction services at 5  million SDRs (approximately $7 million). For the United States, for  example, the 2016-17 threshold value is set at $191,000 for procurement  of goods and services and $7.4 million for procurement of construction  services for covered central government entities in the revised GPA.
We also found that for the most part, threshold levels for these countries  did not change between the 1994 GPA and the revised GPA. For  example, only Japan lowered its threshold level for the procurement of  goods and certain services by central government entities; changing the  threshold level from 130,000 SDRs (approximately $182,000) to 100,000  SDRs (approximately $140,000). Additionally, South Korea lowered its  threshold level for the procurement of goods by entities listed in its other  entities’ coverage schedule from 450,000 SDRs (approximately  $628,000) to 400,000 SDRs (approximately $559,000).
For the United States, current threshold levels set in the FTAs we  reviewed differ from those set in the GPA. Under NAFTA, the Australia- FTA, and the Colombia-FTA, the United States sets a lower threshold of  approximately $78,000 for the procurement of goods and services by  central government entities. Under NAFTA, the U.S. threshold level for  the procurement of construction services by entities listed in the federal  government entities’ coverage schedule and the government enterprises’  coverage schedule is set at above $10,000,000, a higher threshold than  the one set for construction services in the GPA.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the USTR and the Department of  Commerce for comment. Both agencies provided technical comments  which are incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the USTR, the Secretary of the Department of Commerce,  and other interested parties. In addition, the report is available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8612 or GianopoulosK@gao.gov. Contact points for our  Offices of Congressional Relations and of Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.
section_title: Appendix I: Scope and Methodology
paragraphs: To review government procurement commitments, we determined which  characteristics these agreements share as well as how they differ. We  focused on the five largest procurement markets of parties to the World  Trade Organization’s (WTO) Agreement on Government Procurement  (GPA) and the five largest procurement markets among active U.S. free  trade agreement (FTA) partners since 1994. This scope encompasses  six agreements: the 1994 GPA, the revised GPA, and four U.S. FTAs (the  North American Free Trade Agreement , the South Korea-FTA,  the Colombia-FTA, and the Australia-FTA). We reviewed agreements that  entered into force from 1994 on, beginning with NAFTA. We included the  GPAs in our scope because they are multilateral international  procurement agreements that cover the most parties and the largest  markets. In addition, the FTAs we reviewed correspond to the five largest  procurement markets among active U.S. FTAs in our scope. We reviewed  4 out of the 14 active U.S. FTAs. As we reviewed the commitments of the  five largest procurement markets covered by the GPA and the five largest  procurement markets among active U.S. FTA trade partners since 1994,  our findings may not be applicable to all the U.S.’s FTA agreements.
The WTO’s GPA and the government procurement chapters of FTAs are  very long, complex documents, making direct textual comparisons  challenging without an analytical framework. To compare the text, we  created a framework to isolate sections of the text to make direct  comparison possible and reliable. First, we had four analysts  independently read the text of two of the six agreements to identify  overarching themes; broad categories such as “transparency”; and  subthemes, specific provisions such as “statistical reporting” found in  these agreements. The analysts were instructed to reference the WTO  literature, including WTO’s statement of general principles, to help reflect  the negotiating parties’ main priorities as presented by the WTO. When all  four analysts had finished compiling their lists independently, they met  and compared them. The four lists shared broad similarities across  themes and subthemes, and through discussion they were combined into  one draft list. This draft list was shared with officials from the Office of the  United States Trade Representative (USTR) and the Department of  Commerce (Commerce), as well as with a former trade official and  internally with GAO general counsel staff and a methodologist to ensure  consistency. After their feedback was incorporated, the final list contained  nine themes and 31 subthemes. Using this final list as a framework, two  analysts independently read through the text of all six agreements and  sorted pieces of text that corresponded to each subtheme. The pieces of  text could be as short as one sentence or as long as multiple pages and  were sorted according to the content of the text rather than chapter or  section headers. The two analysts independently filled out a spreadsheet,  using separate copies of the agreements for referencing to ensure that  the integrity of the blind review was not compromised. When they had  completed their review, they compared their results and combined them  into a master spreadsheet, resolving differences through discussion. For  the few instances when agreement could not be reached, the other two  analysts who had participated in compiling the draft list of themes were  consulted to make a decision. The master spreadsheet was then  reviewed by GAO general counsel staff. The master spreadsheet served  as a guide and a framework to describe and compare the text and identify  similarities and differences across the agreements. This master  spreadsheet also assisted us in finding the textual examples contained in  the report.
In addition to reviewing the text of the agreements, we also analyzed and  compared the market access-related commitments (lists of covered  entities and excluded procurements) made in the annexes of these  agreements. We identified similarities and differences in coverage and  exclusions across these agreements. Specifically, we compared the U.S.’  market access commitments in the 1994 GPA to the revised GPA and to  the FTAs in our scope. We also identified market access commitments of  selected U.S. trading partners in these agreements. To verify our findings,  we reviewed WTO and USTR documentation. In addition, we interviewed  USTR and Commerce officials to discuss these similarities and  differences in coverage and exclusions.
We conducted this performance audit from August 2015 to September  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions, based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Kimberly M. Gianopoulos, (202) 512-8612, or GianopoulosK@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Adam R. Cowles, Assistant  Director; Marisela Perez, Analyst-in-Charge; Chris Cronin, and Grace P.  Lui made major contributions to this report. Also, Martin de Alteriis,  Gergana T. Danailova-Trainor, Karen Deans, and Neil Doherty provided  assistance.