Late in the night of October 5, 2015, twelve countries concluded negotiations on a groundbreaking free-trade agreement to liberalize trade. The Trans-Pacific Partnership (“TPP”) is a free-trade agreement between the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, New Zealand and Vietnam.
The TPP, which still requires approval from Congress, is part of the Obama Administration’s efforts to gain market access in the growing economies of Asia and balancing out China’s increasing economic influence. While China, South Korea and other major players in Asia are not parties to the agreement, there is hope that they will choose to join. Several nations, including Indonesia and the Philippines, have already expressed interest in joining the agreement once it goes into effect.
Like all free-trade agreements, the TPP requires the countries involved to substantially reduce barriers to trade, including tariffs on goods and services. While some tariffs will be eliminated entirely, tariffs on politically sensitive goods such as automobiles, types of apparel and dairy products will drop more gradually.
Increasing access between the markets of the 12 participants is also likely to impact government procurement competition domestically and provide more opportunities for American companies abroad. The TPP includes a specific chapter on government procurement, which is intended to improve market access for U.S. firms to provide goods and services to those countries that undertake procurement projects, and to provide reciprocal opportunities in the United States. The government procurement chapter includes regulations on issuing solicitations, accepting bids and awarding contracts, as well as a requirement that parties treat foreign goods and services no less favorably than those of domestic producers.
Transparency is also a requirement under the TPP, which will help companies to better understand the processes behind government procurement projects. The United States has experience in abiding by these types of regulations; many of the TPP nations already have free-trade agreements with the United States that require market access for foreign companies seeking government contracts. However, the United States does not currently have free-trade agreements with Brunei, Malaysia, or Vietnam, and increased access to these markets should create significant opportunities for U.S. companies. Those opportunities will only expand further if other countries join the TPP.
The benefits, however, do not come without some possible costs to U.S. contractors, as enactment of the TPP would mean an increase in competition for federal government contracts. However, any uptick in competition is unlikely to have a pronounced impact initially, because many of the 12 countries have already had opportunities to bid for U.S. government contracts under the current system of free-trade agreements. Additionally, national security and defense contracts are exempted from the TPP government procurement chapter, and will continue to be filled by domestic or other eligible foreign companies. State and local government procurement will also be excluded under this agreement. And goods covered by the Buy American Act are also exempted from the government procurement chapter of the TPP. We therefore anticipate an overall positive affect on U.S. government contractors, particularly those contractors interested in procurements with international governments.