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Australian Government Procurement and FTAs

by Ted Murphy, National Assistant Secretary, NTEU (Australia's Tertiary Education Union)


The Australian trade union movement has a strong interest in the impact of current and potential free trade agreements (FTAs) on domestic government procurement. Advocates of free trade have criticized the 2009 ACTU Congress resolution on industry policy and the NSW Government’s decision to provide   domestic preference in procurement of up to 25%. According to media reports, some foreign governments have sought information about the NSW decision. Against this background there is a risk of both excessive caution on the part of other State governments and more restrictive proposals when negotiations commence for the proposed Trans-Pacific Partnership Agreement (TPPA).

This paper is intended to increase awareness of the commitments, the threshold values at which the commitments apply, and the exclusions and exceptions that are contained in Australia’s existing FTAs. These have a bearing on the ability of NSW and other Australian governments to grant preference and potentially also on Australia’s approach to the TPPA negotiations.

Negotiations for a TPPA is seen by New Zealand as the way to achieve its objective of an FTA with the US. New Zealand has a Trans-Pacific Strategic Economic Partnership Agreement (TPSEPA) with Singapore, Chile, and Brunei. The Commonwealth Department of Foreign Affairs and Trade (DFAT) has conducted consultations on the issue of building on this framework to create a broader agreement that includes Australia, the TPSEPA parties, the US and the Peru. This is seen as both consistent with Australia’s APEC orientation and a logical step given that Australia has existing FTAs with Singapore, Chile, and the US, and the Closer Economic Relations (CER) agreement with New Zealand. DFAT and the Government of New Zealand are confident that the US will support the proposed negotiations.

Current Procurement Commitments

As part of the CER framework Australia and NZ have a Government Procurement Agreement.  Australia’s FTAs with Singapore, the US and Chile also include substantive procurement obligations. The only other bilateral FTA to which Australia is a party, the agreement with Thailand, simply commits the parties to establish a working group to discuss relevant issues, and to report on the scope for commencing negotiations to include procurement in the agreement. It also proclaims that, in preparation for those negotiations, transparency, value for money, open and effective competition, fair dealing, accountability, due process, and non–discrimination shall be promoted and applied. Significantly, the dispute settlement chapter of this FTA does not apply to the procurement section unless authorised by the proposed negotiations.

The agreements with substantive commitments vary in respect of the options for different types of tendering processes. The Singapore agreement provides broad scope to use open or limited tendering procedures; the latter being defined as the procuring body directly inviting one or more suppliers to tender. In contrast, while the US agreement allows selective and limited tendering, the use of the former is subject to tenders being invited from the largest number of suppliers of the other Party consistent with the efficient operation of the procurement system, while the latter is subject to the proviso that it cannot be used to limit tendering to avoid competition, to protect domestic suppliers, or in a manner that discriminates against suppliers of the other party.

The range of entities covered by the procurement obligations vary markedly. Not surprisingly the Australia New Zealand Government Procurement Agreement, as revised in 1997, has the most extensive application at State and Territory level. New Zealand is effectively treated as part of Australia for procurement purposes and vice versa. However procurement by any local authority, body corporate or other legal entity is excluded unless the parties decide to apply it to such an entity. They are charged under the agreement to use their best endeavours to do so, consistent with good commercial practice. There is no provision for FTA-type dispute settlement procedures for procurement or other CER obligations due to the close relationship between the CER parties being seen as sufficient to deal with any difficulties.

Australia’s FTAs with the US and Chile also apply the procurement obligations beyond national government procurement, by way of a list of covered State and Territory government entities nominated by  the governments concerned. In contrast the obligations under the agreement with Singapore are limited to Commonwealth entities. Given that the US and Chile agreements were concluded after the Singapore FTA, it must be expected that Australia’s approach to the TPPA negotiations will favour the inclusion of State and Territory government entities in the procurement chapter. Australian unions and peak councils should make representations to the State and Territory governments about this matter early in the course of the TPPA negotiations.

Exceptions and Exclusions for Specific Areas

The agreements typically include the standard exceptions for security and defence procurement, for  procurement from other government entities, measures that are necessary to protect intellectual property, public morals, order or safety, human, animal or plant life or health, and for goods and services produced by the handicapped, prison labour, and philanthropic and not for profit institutions.  However, many of these exceptions are subject to the requirement that measures are not applied in manner which constitutes arbitrary or unjustifiable discrimination or a disguised restriction on trade. The  text of the US and Chile FTAs record the parties’ understanding that  the exceptions for measures to protect human, animals, plant life and health encompasses environmental measures necessary for these purposes.

The Chile agreement also has a note in the Australian schedule that the procurement chapter does not apply to health and welfare services. However this status of health and welfare services is not a consistent feature of Australia’s approach to FTAs. It is not specified in the Commonwealth‘s schedule in the US agreement and nor is it on the short list of cases of procurement excluded from the entire chapter. However the State and Territory lists generally avoid, Victoria being a notable exception, commitments on health and welfare services

Procurement of research and development services is on the list of excluded sectors in the Chile and the US FTA. Further, Australia’s States and Territories generally, but again not Victoria, list the procurement of education services as an exception.

The Singapore agreement has an exception for the promotion of employment and trading opportunities for Australia’s indigenous people in regions where significant indigenous populations exist. The US and Chile FTA’s exception in this area omits the population test and covers measures for the health, welfare, and economic and social advancement of indigenous people.

Financial services, as defined in the financial services chapter, are excluded from the procurement chapter of the FTA with Chile. As well, there is a specific exception for the Department of Finance and Deregulation regarding procurement by a named body in respect of investment management, advisory, and custodian services, in connection with Australian Government superannuation funds. This FTA also excludes from the obligations the procurement of fiscal agency or depository services, liquidation and management services, and services related to the sale and distribution of public debt. The FTA with the US has a seemingly identical exclusion, but the reference is to the acquisition rather than to the procurement of these services.

The FTA with Chile also excludes the procurement or rental of land, existing buildings, or other immovable property or rights thereon where not part of an arrangement for procurement of construction services.

SMEs and Industry Development

The Singapore agreement is notable for an Article that states that nothing in the procurement chapter shall prevent the parties from using government procurement to promote industry development including measures to assist small and medium enterprises (SMEs) to gain access to the procurement market. In the Chile agreement, there is an exception in the form of a note to Australia’s schedule to the effect that in respect of the national treatment and non-discrimination obligations in the chapter, Australia reserves the right, pursuant to Articles 15.23, to maintain the Australian Industry Involvement program and its successor programs and policies. However the effect of this is limited to defence procurement.

The broad Singapore reference to industry development is not in the US and Chile FTAs, but they do contain an exception for SMEs, without defining what an SME is. This may mean that regard would be had to the definitions used by the relevant governments when the FTA was concluded, without necessarily snap freezing indicators, such as the number of employees cited in government policies at that time for a firm to be classified as an SME, as the basis for enterprises qualifying as SMEs in the future.


The other key determinant of the scope for local preference, whether for SMEs or larger Australian firms, is the periodically adjusted threshold values specified in the FTA at which the obligations in the procurement chapter apply. For example, the current (July 2009) threshold in the FTA with the US at which the obligations apply to procurement by national government entities as listed in the schedule is $A87,000, except for construction services where the threshold is $A9,570,000. This construction services threshold also applies to such procurement by listed State and Territory entities but for the procurement of other goods and services the threshold is $A679,000, almost eight times the Commonwealth threshold. These thresholds also apply to Australia’s obligations under the agreement with Chile

The FTA with the US has a separate section in the procurement chapter dealing with procurement by government business enterprises, as distinct from other government entities such as departments, agencies and statutory authorities. No State and Territory enterprises have been listed that fall within this section. The construction threshold is the same as for other government entities while the general enterprise procurement threshold is $A436,000.

The exclusions, exceptions, and the SME provision provide much more scope for local preference than many may believe to be feasible after the media and political reaction to the NSW decision. The thresholds however are another matter, as the general thresholds are too low to permit local preference given the dollar value of most government procurement contracts.

Last Updated on Tuesday, 16 March 2010 09:56

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