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Newsletter

The USMCA: Is the glass half empty or is the glass half full?

Fasken
Reading Time 3 minute read

Capital Perspectives - Ottawa Newsletter

With the execution of the USMCA by Canada, Mexico and the United States on Nov 30, the eventuality of a new trade agreement environment is certain, although what that environment will mean to Canadian suppliers is less than clear.

Canada is not a party to the USMCA government procurement chapter (Chapter 13). Once the USMCA comes in to force, suppliers in Canada, the U.S. and Mexico will no longer have one trade agreement that provides a common "rule set" for government procurement in North America. Rather, there will be one agreement governing procurement between Canada and the United States (the World Trade Organization Agreement on Government Procurement – WTO-AGP), another between the United States and Mexico (the USMCA), and, when it comes in to force, a third agreement between Canada and Mexico (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – CPTPP). 

After 24 years of NAFTA, Canadian suppliers must now look to the other trade agreements with greater strategic focus, to determine how their access to procurement opportunities has changed.

Federal procurement between Canada and the United States

For government procurements in Canada and the US, the government's obligations and Canadian and US supplier access, rights and remedies under WTO-AGP for goods and services are subject to higher monetary thresholds. For construction services, the converse is true. The table below identifies the threshold differences.

Central (Federal) Government Procurement

 

NAFTA

WTO-AGP

Goods

US $25,100

US $180,000

Services

US $80,317

US $180,000

Construction

US $10,441,216

US $6,932,000

 

Benefit to Canadian bidders

Although the monetary thresholds are higher under the WTO-AGP than under NAFTA for a Canadian supplier bidding on a Canadian federal government procurement that is also subject to the Canada Free Trade Agreement (CFTA), the higher WTO-AGP threshold is of no concern because the CFTA thresholds are lower than the NAFTA thresholds.

Canadian Federal Government Procurement

 

WTO-AGP

NAFTA

CFTA

Goods

US $180,000

US $25,100

CDN $25,300

Services

US $180,000

US $80,317

CDN $101,100

Construction

US $6,932,000

US $10,441,216

CDN $101,100

 

In those cases, Canadian suppliers will gain the benefit of access to the opportunities and the remedies provided by the CFTA at thresholds lower than their US or Mexican competitors, who remain subject to the higher WTO-AGP or CPTPP thresholds. Canadian government procuring entities may wish to consider whether the higher WTO-AGP thresholds permit them to focus more specifically on Canadian goods and services for certain procurements (keeping in mind the other trade agreements that also apply).

How to manage the introduction of another free-trade agreement

NAFTA provided lower procurement access thresholds for goods and services, and a single ruleset covering procurement in all of North America – for suppliers and governments. With the number of applicable agreements equalling the number of countries, uncertainty is bound to arise. In the new trade agreement environment, a government procurement entity will have to be prepared to respond to challenges under three different trade agreements for one procurement. Canadian suppliers bidding on Canadian government procurements will need to understand the opportunities available to them under the CFTA and, when bidding on US or Mexican government procurement opportunities, will need to familiarize themselves with the specifics of WTO-AGP and, eventually, the CPTPP.

Clifford Sosnow is a partner with the Fasken Ottawa and Toronto offices. He is an internationally recognized expert on cross-border anti-bribery and foreign corruption law, economic sanctions, export/import compliance, investment arbitration and foreign investment reviews.

Marcia Mills is procurement counsel with the Fasken Ottawa office and has 20+ years of private and public sector experience. She provides clients with legal and strategic advice for all aspects of government procurement, as well as advice on government policies and procurement processes. 

Faye Voight is an articling student with the Fasken Ottawa office. Completing the International Business Law program at the Bader International Study Center in the U.K. motivated her to compete in, and later coach, the Willem C. Vis International Commercial Arbitration Moot.