Free Trade Agreement Updates for 2012

by Sheppard Mullin Richter & Hampton LLP
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2012 saw several updates with regard to free trade agreements (“FTAs”) between the U.S. and its international trading allies. The most notable of these was the U.S.-Korea FTA (“KORUS”), but several other changes were made to the U.S. procurement regulations implementing other free trade agreements. Regrettably, negotiations with China remain stalled with no firm promises on the horizon. Following is a summary of some of the key changes over the last year.

New Designated Countries 

During 2012, three countries were added to the list of “designated countries” under the Trade Agreements Act (“TAA”). The changes, at Federal Acquisition Regulation (“FAR”) 25.003 and Defense Federal Acquisition Regulation Supplement (“DFARS”) 225.003, are as follows:
 

Country

Effective Date

Relevant FTA

Reference

Armenia

March 2012

World Trade Organization Government Procurement Agreement (WTO GPA)

77 Fed. Reg. 12935
77 Fed. Reg. 4631

Colombia

May
2012

U.S.-Colombia Free Trade Agreement (Pub. L. No. 112-42)

77 Fed. Reg. 27549
77 Fed. Reg. 30359

Panama

November 2012

U.S.-Panama Free Trade Agreement (Pub. L. No. 112-43)

77 Fed. Reg. 69723
77 Fed. Reg. 68699


The FAR and DFARS were also updated in 2012 to reflect new changes from the United States-Korea Free Trade Agreement (Pub. L. No. 112-41), signed into law in October 2011. See 77 Fed. Reg. 13952; 77 Fed. Reg. 56739. While South Korea has long been a member of the WTO GPA, the new FTA allows for lower dollar thresholds at which South Korean products and services will qualify under U.S. procurements.
 

Country

New Thresholds

Old Thresholds

Supplies

Services

Construction

Supplies

Services

Construction

South Korea

$100,000

$100,000

$7,777,000

$202,000

$202,000

$7,777,000


Additionally, DFARS 252.225-7017 was updated to allow exceptions to the “Buy American” restrictions on the purchase of photovoltaic devices, consistent with the new KORUS FTA. See 77 Fed. Reg. 30356. We have previously written about these “Buy American” restrictions on photovoltaic devices (click here and here), with the DOD publishing final rules (without substantive changes) in May 2012. See 77 Fed. Reg. 30368.

New Qualifying Countries

In recent months, the U.S. Department of Defense signed reciprocal defense procurement agreements with the Czech Republic and Poland, adding these countries to the list of “qualifying countries” under the DFARS. See 77 Fed. Reg. 38736; 77 Fed. Reg. 76941.

“Qualifying countries” are a distinct subset of U.S. allies that are treated the same as domestic companies for purposes of certain procurements by the DOD. See DFARS 225.003. “Qualifying countries” are different from “designated countries,” which include countries with which the U.S. either has a FTA (e.g., Canada or Mexico) or that U.S. policy chooses not to discriminate against in U.S. procurements (e.g., Afghanistan). See FAR 25.003. Each “qualifying country” has a specific Memorandum of Understanding with the DOD, which supplements any other pre-existing FTAs and/or promises that neither country will discriminate against the other in defense procurements – effectively waiving many (albeit not all) DOD “Buy American” restrictions with regard to products or services from that ally country. While there is some overlap between the list of “qualifying countries” and “designated countries” – with both Poland and the Czech Republic having already been “designated countries” since 2004 when they joined the European Union and WTO GPA – the two lists are not co-extensive.

The addition of the Czech Republic and Poland as “qualifying countries” will give companies increased flexibility for DOD procurements in using products that would normally be TAA compliant.

Updates Under the WTO GPA

Several countries remain in talks to join the WTO GPA.

  • China. Since 2007, China submitted two offers to join the WTO GPA, but each was rejected as insufficient because (among other reasons) the offers did not guarantee access to provincial procurements. In December 2012, China submitted a third offer, promising access to approximately 100 additional government agencies in three Chinese provinces. However, the U.S. and other countries criticized this latest offer as insufficient because it still did not allow access to the totality of Chinese procurements (at both the national and local levels). The offer also insisted upon dollar thresholds that were far higher than the norm under the WTO GPA – $770,000 vs. $200,000 for purchases of supplies, and $77 million vs. $7.7 million for construction projects. China claims that its offers are reasonable, given China’s status as a developing economic power, but the other members of the WTO GPA insist on greater concessions before allowing China to join. This means that while a FTA with China remains “in progress,” any definitive agreement with China remains in the far-off future. 
  • New Zealand. In September 2012, New Zealand submitted its first offer to join the WTO GPA. But this offer was rejected, with individuals from the U.S. claiming that New Zealand needed to guarantee coverage in certain industries (such as public health, education, and welfare) and with sub-central governmental entities. New Zealand countered that it does not have “sub-central entities” to be covered by the FTA, with all governmental functions handled by the central New Zealand government. While there are several issues that remain to be worked out, it appears that New Zealand is well on the way to joining the WTO GPA. 
  • Vietnam. In December 2012, Vietnam stated that it was interested in joining the WTO GPA. Vietnam is already engaging in negotiations as part of a Trans-Pacific Partnership agreement (among the U.S., Australia, Singapore, and other South Pacific and South American countries), so it seems likely that a FTA with Vietnam will eventually happen. But the timing remains unclear. 
  • India. In February 2010, India became an observer to the WTO GPA, initiating the first steps to joining the WTO GPA. While India has not made any additional formal steps to join the FTA, India remains in progress and will hopefully formalize its membership in the near future.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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