What Then? What a U.S. Withdrawal from the WTO GPA Could Mean for Government Contractors Worldwide

Litigation Alert
02.06.2020

The Trump administration is considering a plan to withdraw the United States from the World Trade Organization's Government Procurement Agreement (WTO GPA), according to news reports. The WTO GPA is a plurilateral trade agreement through which companies located in GPA member countries can compete on an equal basis for procurement contracts awarded by other signatory governments. If the United States withdraws from the agreement, foreign contractors from nearly 50 countries—including all members of the European Union (EU), the United Kingdom, Norway, and Japan—may be at a disadvantage when competing for U.S. government contracts that are subject to domestic preference laws like the Buy American Act (BAA).

Background

The stated purpose of the GPA is to reciprocally open government procurement markets for goods, services, and construction services between signatory countries. Under the GPA, foreign contractors and suppliers have the opportunity to compete for covered U.S. government contracts, while U.S. contractors and suppliers may compete for covered foreign government contracts. Each GPA member's covered government procurements are defined in annexes to the agreement. The annexes identify the procuring entities (i.e., central, subcentral governments) and types of procurements (i.e., by goods, services, constructions services, and dollar threshold) that are subject to the GPA. In a procurement covered by the GPA, the procuring entity must treat foreign and domestic goods, services, and suppliers fairly and equally. Historically, the United States has sought to meet this obligation by waiving the application of domestic sourcing preferences—such as those in the BAA—that would otherwise make it more difficult for foreign contractors to compete with domestic firms.

Why would the U.S. consider withdrawing from the WTO GPA?

Pursuant to its "America First" policies, the Trump administration has sought to renegotiate several trade agreements—often by stating that it will walk away from an agreement unless the other signatories agree to better terms for the United States. The potential for the United States' withdrawal from the WTO GPA is consistent with the administration's approach on other trade agreements and may be fueled by data that suggests the United States has given more than it has received under the GPA. According to a May 2019 report from the Government Accountability Office (GAO), in 2015, the United States awarded about 47,000 contracts valued at around $12.1 billion to foreign contractors. The United States also awarded approximately 50,000 contracts, worth about $16.5 billion, to purchase foreign goods and services. Roughly 43 percent of the estimated value of these contracts was paid to foreign firms or spent on foreign goods and services from the EU, Norway, Canada, Mexico, Japan, and South Korea. Conversely, GAO estimated that in 2015 these same GPA members awarded about $6.5 billion to foreign sources, of which less than a third (or roughly $1.8 billion) was spent with U.S.-based firms or on U.S. products or services.

What could happen if the U.S. withdraws from the WTO GPA?

At this point, reports of the United States withdrawing from the WTO GPA largely are based on informed speculation. Though the White House called for a review of trade agreements like the GPA in April 2017, the administration has not formally announced it is considering withdrawing from the GPA, nor has it confirmed rumors that it is mulling a draft executive order to exit from the agreement. Government contractors worldwide should nevertheless pay close attention to this potential policy change, as it could significantly impact access to the U.S. procurement market.

Most notably, if the United States withdraws from the GPA, foreign firms and their supplies would no longer benefit from a BAA waiver in U.S. procurements that would otherwise be covered by the WTO agreement. Instead, in any acquisition that incorporates BAA requirements, a foreign contractor's proposed pricing would be subject to an upward adjustment—ranging from 6-12 percent for most procurements and 50 percent for Department of Defense procurements. See 48 C.F.R. § 25.105(b) and 48 C.F.R. § 225.105 (b). Such a pricing adjustment makes it less likely that a foreign firm will be deemed the lowest priced or "best value" offeror, thereby jeopardizing its chances for contract award. And though the BAA's requirements do not apply in many procurements (e.g., for services, supplies purchased for use outside the United States) and may be waived in others (e.g., procurements covered by the Trade Agreements Act (TAA)), the statute and its implementing regulations pose a formidable barrier to entry for foreign firms and suppliers. These challenges often are exacerbated because determining the BAA's applicability can raise complex questions that can turn on how "end products" and "components" are defined in a given procurement.

At bottom, foreign contractors and suppliers should closely monitor U.S. policy developments on this topic. That is especially important for contractors located in countries that do not currently have a TAA-covered free trade agreement with the United States—including those in the United Kingdom, France, Germany, Norway, the Netherlands, Belgium, and Japan.


For more information, please contact:

Alejandro L. Sarria, asarria@milchev.com, 202-626-5822

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

P. Welles Orr, worr@milchev.com, 202-626-1481


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