Australia - United States Free Trade

Australia-United States Free Trade Agreement - Guide to the Agreement

15. Government Procurement

1.    Purpose and Structure

The core purpose of the Chapter is non-discrimination in the conduct of government procurement.   In this context non-discrimination requires each government to afford the suppliers, goods and services of the other country the same treatment that applies to domestic suppliers, goods and services.

The Chapter sets out specific rules, procedures and transparency standards to be applied in the conduct of government procurement, consistent with non-discrimination.

The Government Procurement Chapter consists of 15 Articles, eight Annexes and a side letter dealing with blood plasma.   The annexes determine which government entities are covered by the Chapter and the specific types of procurements and procurement arrangements that each Party has specified for exemption from application of the Chapter.

Readers should also refer to the definition of government procurement contained in Chapter One and provisions relating to the management of confidential information and essential security interests contained in the Chapter 22.

2.    Implications for Australia

Australia is currently not a "designated" country under the US Trade Agreements Act as it does not have an agreement with the US on government procurement.   This prevents US Federal Government entities from being able to consider bids from Australian suppliers.   Australian companies currently wishing to sell to the US Federal Government must establish operations in the US, or in a designated country, or establish partnering arrangements with US firms.

By contrast, access to the Australian market is open - based on non-discrimination, without any legal or policy barriers to foreign suppliers.  

By virtue of the non-discrimination provisions in Article 15.2,   Australia will become a designated country under the US Trade Agreements Act.   The non-discrimination provisions will also require the US to provide Australia with a waiver from the "Buy American Act" (1933, 41 USC 10) for contracts to which the Chapter applies (see Section 3 below).   The "Buy American Act" (1933, 41 USC 10) imposes a 6% penalty on foreign goods (not services).   The waiver will enable Australian suppliers, for the first time, to compete in the US procurement market on equal terms with suppliers from the US and from over 60 other designated countries.  

In return, Australia has agreed to tender procedures and transparency arrangements that will require some changes to the way procurement is conducted in Australia (see Section 5 below) and the adoption of regulations to ensure compliance by procuring entities.   

3.    Coverage

The Chapter applies only to procurements by entities listed in the annexes with a value equal to or above certain thresholds.   Annex 15-A lists 79 US Federal Departments including the new Department of Homeland Security.   Subsidiary agencies of the US listed entities are covered unless specifically excluded.

Australia's list in Annex 15-A includes all Federal Departments and all other agencies covered by the Financial Management and Accountability Act 1997.   In addition, Australia has listed in Annex 15-B, 33 entities covered by the Commonwealth Authorities and Companies Act 1997.

The US and Australian Departments of Defence are listed in Annex 15-A.   Both sides have exempted procurement of items that are critical to their national security such as military equipment, systems and essential supplies.   Australia has also reserved the right to maintain the Australian Industry Involvement Program for defence procurement.

Thresholds vary for different groups of entities and for supplying goods and services or construction services and are set out at the beginning of Annexes 15-A, 15-B and 15-C.   A higher threshold applies to construction than for other goods and services.   The general goods and services thresholds for federal entities for Australia and the United States are A$81,800 and US$58,550 respectively.

In addition to the value thresholds, the Government Procurement Chapter is limited in application by:

1.general exclusions set out in paragraph 3 of Article 15.1 being specific types of procurements that both countries agreed the Chapter should not apply to;

2.the exceptions set out in Article 15.12 ;

3.exclusions and reservations specific to a country, entity or group of entities as set out in the Government Procurement Chapter Annexes;

4.exclusion of purchases of goods or services for resale or for the production of goods or services for resale; and

5.the general "essential security" provisions of the Agreement.

In Annex 15-G, the US has reserved their preference policies in respect of small and minority businesses.   Australia has similarly specifically reserved in Annex 15-G a right to continue with procurement policies that assist small and medium enterprises and those which provide economic and social assistance to indigenous persons.

At the time of writing, the issue of inclusion of State and Territory level governments in the Chapter had yet to be resolved.   More time has been allowed for further states and territories to join.   The current Australian and US offers   are set out in Annex 15-C.

4.   Price Preferences and Offsets

The principle of non-discrimination means that neither country may apply local preference arrangements, including price preferences, for procurements to which the Chapter applies.  

Article 15.2.5 also specifically bans offsets, defined broadly to cover any requirement built into a procurement, for such things as local content, technology transfer or export performance.   However, this ban is itself subject to the Chapter exclusions mentioned above and therefore does not apply to Australian policies supporting small and medium enterprises.  

The ban on offsets will prevent government procurement being used to promote industry development such as through requiring suppliers to engage in activities that are considered offsets and are not covered by the exclusions to the Chapter.   This will require modification to the Australian Government Endorsed Supplier Arrangement assessment procedure and to general Australian Government policies such as the Model Industry Development Criteria (which currently may apply to contracts of $5 million or more).  

5.   Tender Procedures

A number of Articles in the Chapter are devoted to setting out specific procedures and rules to apply to the conduct of procurement related activities.   They detail rules and procedures for three procurement methods that government entities may use (Article 15.2.3):

The GP Chapter creates a presumption of open tendering, with the other forms of tendering allowed only in specific conditions (as set out in Article 15.7 and 15.8).   The general requirement for open tendering is expected to lead to more tenders being subject to open tendering procedures in Australia.  

The Chapter imposes minimum standards for public notices of procurement activities.   Of importance to industry are the requirements for notices   regarding the advertisement of tender opportunities (referred to as "notices of intended procurement") (Article 15.4) as well as in respect of contract awards (Article 15.9).

Coupled with the public notice requirements are minimum times to allow suppliers to respond to the requests for tenders.   Time Limits (Article 15.5) provide for tenders to remain open for at least 30 days, or 25 days where tender notices are published on the Internet (as is commonly the case in Australia).   Under specific or exceptional circumstances, detailed in Article 15.5.3, time limits may be reduced to no less than 10 days. One important circumstance is where an entity procures commercial goods or services (see the definition of commercial goods and services in Article 15.15(2)).  

6.   Domestic Review of Supplier Challenges

The Chapter sets minimum procedures for dealing with supplier challenges to the process or outcome of a procurement. These procedures, detailed in Article 15.11, confirm a supplier's right to challenge in the event that a procuring entity has failed to comply with measures put in place by a government to implement the Chapter.   Article 15.11 does not, however, give suppliers rights to challenge the adequacy or compliance of measures put in place by a government.   The existing court systems in Australia satisfy the requirements set out in the Chapter.   This understanding is confirmed in a side letter to the Agreement.

7.    Exchange of Letters - Blood Plasma

This exchange of letters includes a side letter from Australia to the United States and concerns the treatment to be provided to blood plasma products and blood fractionation services.   The side letter is an integral part of the Free Trade Agreement and is subject to the dispute settlement provisions of the Agreement.   In Australia decisions on the blood supply are a joint responsibility of the Commonwealth, State and Territory Governments under the National Blood Agreement.     Plasma fractionation services are purchased by the National Blood Authority on behalf of all Governments.

7.1. CSL Contract (Paragraph 1)

The Commonwealth of Australia currently has a contract with CSL Limited for the supply of plasma fractionation services that will expire at the end of 2004.   The National Blood Authority is negotiating a new contract with CSL Ltd which will commence from 1 January 2005.   Under the terms of paragraph 1, this new contract will conclude no later than 31 December 2009, or earlier if Australian governments decide that is appropriate.

7.2. Review of Plasma Fractionation Arrangements

(Paragraph 2)

By no later than 1 January 2007, Commonwealth, State and Territory governments will undertake a review of the arrangements for the supply of plasma fractionation services.   The Commonwealth Government will recommend to the States and Territories that, in future, suppliers of such services are selected through tender processes consistent with the Government Procurement Chapter of the Agreement.

7.3. Reservation to Government Procurement Chapter (Paragraph 3)

The Government Procurement Chapter of the Agreement applies to purchase of goods and services, except where specifically excluded, by listed government agencies.   Procurement of Plasma Fractionation Services has been excluded from coverage of the Government Procurement Chapter (See Annex 15-E Services).     If the review of plasma fractionation arrangements results in agreement to move to tender processes consistent with the Government Procurement Chapter, Australia has undertaken to remove this exception to the provisions of the Government Procurement Chapter.

7.4. Regulatory Requirements (Paragraph 4)

This paragraph acknowledges the importance of each party maintaining regulatory requirements for ensuring the safety, quality and efficacy of blood plasma products and supply of blood fractionation services.   In the case of Australia, the Therapeutic Goods Administration (TGA) will continue to regulate blood products.   The TGA will keep regulatory control of standards, wherever the fractionation process takes place, and who ever is the fractionator.     However, consistent with our obligations under the World Trade Organisation Technical Barriers to Trade Agreement, regulatory requirements should not unnecessarily obstruct trade.

7.5. Policy on Self-Sufficiency (Paragraph 5)

This paragraph acknowledges the right of governments to have policies that blood plasma products are derived from blood plasma collected in their own territory.   This allows Australia to preserve its policy on using plasma collected from Australian blood donors.

7.6. Appendix 19 (Paragraph 6)

Australia has undertaken not to require that blood plasma products produced in the United States demonstrate significant clinical advantage over Australian produced products.   This obliges Australia to remove the requirement in Appendix 19 of the Australian Guidelines for the Registration of Drugs that foreign products demonstrate significant clinical advantage over local products for registration in Australia.

March 6, 2004

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