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Comment: the EU Mexico deal on public procurement

And the winner is…. the EU’s measurement instrument industry, perhaps.

The European Commission recently published the final outcome of negotiations in the public procurement area agreed with Mexico as part of an upgrade of the EU Mexico Global Agreement.

It took the two parties less than two years to upgrade a twenty-year-old industrial-goods-only trade pact and pack in agriculture, services, intellectual property and geographical indications, technical and sanitary standards and new rules of origin…. Then it took two years to work out further one ‘detail’ after the deal was announced as concluded ‘politically’ in July 2018. And that was anything but a minor detail: the government procurement market access commitments of Mexico.

We all know that access to public procurement markets abroad is a central tenet of the EU’s trade strategy. Both its industry and infrastructure services providers are keen to offer their products and services in foreign government contracts. Without substantial procurement commitments by the trade agreement partner, there can be no trade deal with the EU.

CETA precedent – to some extent

So what’s the deal on procurement between the EU and Mexico?

Here some take-aways of my initial read of the schedules – the fine print would still need analysing by the real government procurement experts. Two messages, however.

Firstly, the basic template of the agreement is CETA, the trade agreement between the EU and Canada.

Secondly: boy this looks like there’s been quite some haggling with Mexico and that the EU got quite a lot out of the country!

The overall deal between the EU and Mexico is thus: there are general rules applicable to all procurement processes and there are specific market access commitments.

The general rules applicable match quasi identically those used in the EU Canada trade agreement and cover everything from tendering procedures to transparency to online applications, as well as fundamental non-discrimination principles. The text also includes anti-corruption obligations. All these rules build on the WTO’s Government Procurement Agreement – but go further.

For Mexico accepting CETA language on its government procurement is a big step as it involves significant constraints on its state. Mexico is not party to the WTO’s GPA – although it is party to ex-NAFTA now USMCA that includes government procurement provisions. The latter however are less intrusive and far-reaching than those included in EU trade agreements. Most importantly it includes no sub-federal commitments.

Federal states and selected municipalities

The big difference with Canada however, is that Mexico was not in a position to offer quite as comprehensive a level of coverage at sub-national level – municipal and federal state – than Canada. Yet achieving meaningful market access commitments at sub-central level in Mexico was the EU’s main goal. And its original starting point was to ask for the same level of commitments as Canada.

So this deal is what the two sides were able to agree too.

For Mexico, the extent of new commitments is quite important and unprecedented for federal states and municipalities. Even if on closer reading the commitments are ridden with loopholes and exceptions.

Mexico offered concessions in 14 Mexican states out of 32. These states represent according to the European Commission about 64% of the country’s output.

Two further federal states committed to tabling a market access offer two years after the agreement comes into force. The agreement also commits Mexican states to offer new market access commitments five years after entry into force of the agreement.

The states that offered concessions are Chihuahua, Colima, Durango, Guanajuato, Jalisco, Mexico City, Mexico State, Morelos, Nuevo Leon, Puebla, Queretaro, Veracruz and Zacatecas.

The sectors the fourteen states of Mexico offered concessions in mainly include: universities and technical higher education institutions such as your average Mexican Instituto Tecnológico Superior; some health institutions (note Zacatecas’ government-run organ transplant centre), roads and public works authorities, the occasional transport authority, tourism boards – and of course all the ministries of the federal government.

All this is not necessarily ‘much’ for the EU if compares with the near comprehensive coverage offered by Canada’s federal provinces – despite these concessions representing a major unilateral concession from Mexico – there is nothing new to report about the EU’s procurement schedule.

Substantive central-level commitments

So how did the EU square that mismatch between CETA expectations and realities at the sub-central level?

By obtaining even more concessions from the central authorities of the Mexican state than Canada ever envisaged to offer.

This means: Mexico gives the EU’s companies market access rights even in small-ish projects.

GPA members generally estimate their concessions in IMF-denominated Special Drawing Rights or SDRs. Mexico does not: it values its concessions in US dollars.

Mexico’s central government offer market access for goods – and for services – for projects as ‘small’ as those valued at US$ 79 507 or above, i.e. projects worth ca 58 000 SDRs at current exchange rates. That is quite a steep concession. Compare that with the EU’s lower limit for its own recent FTAs, including this one:  130 000 SDRs.

Construction services and ‘public-private partnerships look different: the monetary thresholds under which no commitments are made are set at USD 10 335 931 (ca. SDR 7 600 000) . The standard EU threshold is SDR 5 000 000.

Federal state commitments in contrast are set at US $ 178 100 for all goods and services and at 10 333 931 for construction. For some public sector entities at sub-central level the thresholds are set even higher (US$ 397 535 general and US$ 12 721 740 for construction).

The Mexican authorities further offered concessions in nation-wide, pan-Mexican institutions, not least Mexico’s iconic oil and gas ‘holy cow’: Pemex.

Any major infrastructure state-owned enterprises such as Mexico’s telecommunications authority, the airport of Mexico, the ports authority, postal services and other energy and water distribution companies are committed to buy goods and services from European firms bidding to them. But European firms may not actually deliver those services directly to the local population.

Some major public sector companies – such as Pemex precisely – will also be able to require certain percentages of ‘local content’ – local jobs or inputs – in their tendering bids.

So what’s to be said about all this in the end?

Mexican universities will likely start buying much more microscopes from Europe, government entities procure European cars for officials to be chauffeures around, and French railway equipment companies will sell a few more metros in Mexico city perhaps.

And the United States will look on as the EU bites into its backyard, gaining market share and spreading its procurement rules.

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