International Government-Procurement Obligations of the United States: An Overview

CRS Report for Congress
International Government-Procurement
Obligations of the United States:
An Overview
Updated January 9, 2006
Todd B. Tatelman
Legislative Attorney
American Law Division

Congressional Research Service ˜ The Library of Congress

International Government-Procurement Obligations of
the United States: An Overview
Summary
This report contains an overview of the major procurement agreements to which
the United States is a party, including the World Trade Organization (WTO)
Agreement on Government Procurement, the procurement chapter of the North
American Free Trade Agreement (NAFTA) and provisions from other free trade
agreements. In addition, this report highlights major federal laws that relate to the
government-procurement obligations of the United States.

Contents
The WTO Agreement on Government Procurement.......................1
Overview ....................................................1
General Obligations............................................2
National Treatment and Non-discrimination (Article III)...............3
Rules of Origin (Article IV)......................................4
Tendering Procedures (Article VII)................................5
Qualification of Suppliers (Article VIII)............................5
Selective Tendering Procedures (Article X).........................6
Limited Tendering Procedures (Article XV).........................6
Offsets (Article XVI)...........................................7
Challenge Procedures (Article XX)................................8
Dispute Settlement (Article XXII).................................8
Exceptions (Article XXIII).......................................8
Rectifications and Possible Compensation (Article. XXIV).............9
The United States Appendix to the AGP...........................10
Federal Agencies (Annex I).................................10
State Agencies (Annex II)..................................11
“All Other Entities” (Annex III).............................12
Services (Annex IV).......................................12
Construction Services (Annex V)............................13
General Notes............................................13
The North American Free Trade Agreement (NAFTA)...................14
Procurement Obligations Under Other Free Trade Agreements.............15
United States Statutes that Effect International Government-Procurement
Obligations ..................................................17
Buy American Act............................................17
Trade Agreements Act of 1979 (TAA)............................17

International Government-Procurement
Obligations of the United States:
An Overview
Over the last few decades the United States has played an active role in the
development of international trade agreements dealing with government
procurement. The most notable agreements are contained in the World Trade
Organization (WTO) Agreement on Government Procurement and the procurement
chapter of the North American Free Trade Agreement (NAFTA), but many other free
trade agreements also include government procurement provisions. Each of these
agreements has obligated the United States to perform under specific requirements.
The first section of this report will detail the U.S. obligations under these
international agreements.
The WTO Agreement on Government Procurement
Overview
The United States’ WTO obligations with respect to government procurement
are contained in the WTO Agreement on Government Procurement (AGP).¹
Generally, the AGP applies the basic WTO national treatment and most-favored-
nation obligations to the area of government procurement. The AGP was negotiated
during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT),
and took effect in the United States on January 1, 1996.² Unlike other provisions of
the WTO, which countries must accept as a condition of membership, the AGP is a
plurilateral agreement. Therefore, AGP parties are only committed to apply the
agreement to other AGP parties. Presently, in addition to the United States, the AGP
has been accepted by the European Communities (EC), each of the 25 EC Member

¹ Agreement on Government Procurement, Apr. 15, 1994, Marrakesh Agreement
Establishing the World Trade Organization, Annex 4B, Article III, Legal Instruments-
Results of the Uruguay Round vol. 31, 1915 U.N.T.S. 103 [hereinafter AGP]; see also
Uruguay Round Trade Agreements, Texts of Agreements, Implementing Bill, Statement of
Administrative Action and Required Supporting Statements, H.R. Doc. 103-116, 103d Cong.

2d Sess. (1994).

² The Uruguay Agreements Act, P.L. 103-465, 108 Stat. 4809 § 101(d)(17) (1994). This Act
amended the Trade Agreements Act of 1979, P.L. 96-39, 93 Stat. 236 (1979), which was the
existing U.S. law with respect to implementing government procurement obligations. See
House Committee on Ways and Means, Overview and Compilation of U.S. Trade Statutes

188 (2003 ed.)[hereinafter Overview of Trade Statutes].

countries,³ Canada, Hong Kong, Iceland, Israel, Japan, Korea, Liechtenstein,
Netherlands with respect to Aruba, Norway, Singapore, and Switzerland.⁴
General Obligations
The AGP applies to “any law, regulation, procedure or practice regarding any
procurement by entities covered by the Agreement.”⁵ This includes central and sub-
central governmental entities, as well as other government-related entities that a
member Party designates.⁶ In addition, the AGP governs “procurement by any
contractual means, including through such methods as purchase or as lease, rental or
hire purchase, with or without an option to buy, including any combination of
products and services.”⁷
Pursuant to Article I, each Party to the AGP must submit an Appendix with
Annexes that list the Party’s covered entities, as well as the products and services that
it may or may not procure for AGP purposes. The Appendix is divided into five
Annexes: Annex I covers central government entities; Annex II, sub-central
government entities; Annex III, all other entities which procure in accordance with
the AGP; Annex IV, services and; Annex V, construction services.⁸
It is important to note that the AGP does not apply to all procurement contracts,
but only to those contracts that are covered by a Party’s specific commitments.
Further, of the covered contracts, the AGP only applies to those that are valued at or
exceed designated monetary thresholds set forth in each Party’s Annexes in terms of
Special Drawing Rights (SDRs).⁹ In the United States the thresholds are given
official dollar amounts in biennial notices issued by the Office of the United States
Trade Representative (USTR).¹⁰ The U.S. Annexes, which set out the scope of U.S.
commitments, will be discussed in detail later in this report.¹¹

³ These are Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta,
Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, and the United
Kingdom.
⁴ Parties to the AGP are available at [http://www.wto.org./english/tratop_e/gproc_e/
memobs_e.htm].
⁵ AGP, supra note 1, at Art. I:1.
⁶ Id..
⁷ Id. at Art. I:2. The term “procurement” is not defined in the AGP, however, the U.S.
General Notes contains a list of the types of transactions that the United States does not
deem to constitute a procurement. See infra notes 71-80 and accompanying text.
⁸ AGP, supra note 1, at Art. I:1, fn. 1.
⁹ Id. at Art. I:4.
¹⁰ See 70 Fed. Reg. 73510 (December 12, 2005) (setting forth the procurement thresholds
for the calender years 2006-2007) [hereinafter USTR Threshold Notice].
¹¹ See infra notes 50-70, and accompanying text.

The AGP further provides that where governmental entities, “in the context of”
AGP-covered procurement, require non-listed enterprises to award contracts in
accordance with particular requirements, Article III obligations regarding national
treatment and non-discrimination “apply mutatis mutandis to such requirements.”¹²
One commentator explains this requirement by stating that “a listed entity could not
oblige an independent enterprise to favour national suppliers when purchasing goods
on its behalf,” and further notes that “[t]he increasing privatization of public services
gives added importance to this rule.”¹³
Consistent with the overall framework of the WTO, the AGP requires national
treatment and nondiscrimination in contracting. In addition, the AGP contains
obligations regarding tendering procedures, qualification of suppliers, offsets,
invitations to participate in procurements, tender and selection procedures, awarding
of contracts, transparency, and challenge procedures. Disputes under the Agreement
are generally subject to WTO consultation and dispute settlement procedures,
although the AGP does establish some special rules. The AGP also contains general
exceptions from Agreement obligations, as well as a specific national security
exception. A party to the AGP may also make changes to its Schedule, however, the
changes are subject to consultations with the WTO and, in the case of significant
changes, negotiations with member states on possible compensation.
National Treatment and Non-discrimination (Article III)
AGP national treatment and most-favored nation (MFN) obligations apply with
respect to goods, services, and suppliers of goods and services and involve issues
related to the country of origin of goods and the degree of foreign affiliation or
ownership of locally established service suppliers.
Both the national treatment and MFN obligations are contained in Article III
paragraph 1, which provides that
With respect to all laws, regulations, procedure and practices regarding
government procurement covered by this Agreement, each Party shall provide
immediately and unconditionally to the products, services and suppliers of other
Parties offering products or services of the Parties, treatment no less favourable
than:
(a)that accorded to domestic products, services and suppliers; and
(b)that accorded to products, services and suppliers of any other
Party.

¹² AGP, supra note 1, at Art. I:3. The Latin phrase mutatis mutandis is commonly
translated as “with the necessary changes.”
¹³ E. McGovern, International Trade Regulation § 6.221 (updated 1999)[hereinafter
McGovern].

Article III, paragraph 2 of the AGP prohibits discrimination against locally-
established suppliers based on foreign ownership links or foreign supply. The
provision states that
With respect to all laws, regulations, procedures and practices regarding
government procurement covered by this Agreement, each Party shall ensure:
(a)that its entities shall not treat a locally-established supplier less
favourably than another locally-established supplier on the basis
of degree of foreign affiliation or ownership; and
(b)that its entities shall not discriminate against locally-established
suppliers on the basis of the country of production of the good
or service being supplied, provided that the country of
production is a party to the Agreement in accordance with the
provisions of Article IV [i.e. provisions regarding rules of¹⁴
origin].
Article III also provides that the obligations stated above do not apply to
“customs duties and charges of any kind imposed on or in connection with
importation, the method of levying such duties and charges, other import regulations
and formalities, and measures affecting trade in services other than laws, regulations,
procedures and practices regarding government procurement covered by this¹⁵
Agreem ent . ”
Rules of Origin (Article IV)
Rules of Origin are defined in Annex 1A of the WTO as
laws, regulations and administrative determinations of general application
applied by any Member to determine the country of origin of goods provided
such rules of origin are not related to contractual or autonomous trade regimes
leading to the granting of tariff preferences going beyond the application of¹⁶
paragraph 1 of Article I of GATT 1994.
While the AGP itself does not contain separate rules of origin, it does provide that
a Party may not implement rules of origin regarding the importation or supply of
government procured products or services “which are different from the rules of
origin applied in the normal course of trade and at the time of the transactions in
question to imports of supplies of the same products or services from the Parties.”¹⁷

¹⁴ One commentator has observed that the obligation in Art. III:2(a) regarding foreign
affiliation “confers a partial right of establishment” and that “[t]he “benefit is extended to
all countries, but only parties to the Agreement could enforce the right.” McGovern, supra
note 13, at § 6.221.
¹⁵ AGP, supra note 1, at Art. III:3.
¹⁶ General Agreement on Tariffs and Trade 1994 (GATT 1994), WTO Annex 1A.
¹⁷ AGP, supra note 1, at Art. IV:1. The United States sets forth its rule of origin for
“eligible products” in § 302(b) of the Trade Agreements Act of 1979. See Trade
(continued...)

Article IV, paragraph 2, however, allows this requirement to be amended in light of
the results of WTO negotiations on rules of origin for products and services.¹⁸
Tendering Procedures (Article VII)
Article VII of the AGP establishes the general rules regarding tendering
procedures. A tendering procedure is the system through which companies engage
in competitive bidding for government and other contracts. Specifically, Parties to
the AGP are to ensure that their procedures are “applied in a non-discriminatory
manner”¹⁹ and “shall not provide to any supplier information with regard to a specific
procurement in a manner which would have the effect of precluding competition.”²⁰
Article VII, paragraph 3 defines the three types of tendering procedures governed by
the AGP as: (1) open tendering procedures – in which all interested supplies may bid;
(2) selective tendering procedures – under which only those suppliers invited to bid
may do so and; (3) limited tendering procedures – where the entity contacts the
suppliers individually and requests bids.²¹
Qualification of Suppliers (Article VIII)
Article VIII requires that AGP Parties not discriminate among suppliers of other
Parties, or between domestic suppliers and suppliers of other Parties in the process²²
of drawing up lists of qualifying suppliers. Article VIII also requires qualification
procedures to be consistent with eight categories of requirements including that
“[a]ny conditions for participation in tendering procedures . . . be limited to those
which are essential to ensure the firms’ capability to fulfill the contract in question.”²³
Article VIII(b) further mandates that participation requirements “be no less
favourable to suppliers of other parties than to domestic suppliers and shall not
discriminate among suppliers of other parties.” In addition, when evaluating the
financial or technical capacity of a potential supplier under Article VIII, both “the
supplier’s global business activity as well as . . . its activity in the territory of the²⁴
procuring entity” shall be taken into account. Moreover, Article VIII provides that
nothing in the listed requirements “shall preclude the exclusion of any supplier on
grounds such as bankruptcy or false declarations, provided that such an action is

¹⁷ (...continued)
Agreements Act of 1979, P.L. 96-39, 93 Stat. 236 (1979), infra note 98 and accompanying
text. Pursuant to this statute the United States Customs Service issues both final definitions
and rulings with respect to country of origin. See 19 C.F.R. §§ 177.21 et seq. (2003).
¹⁸ AGP, supra note 1, at Art. IV:2.
¹⁹ Id. at Art. VII:1.
²⁰ Id. at Art. VII:2.
²¹ Id. at Art. VII:3(a)-(c).
²² Id. at Art. VIII.
²³ Id. at Art. VIII(b)
²⁴ Id.

consistent with the national treatment and non-discrimination provisions of this
Agreem ent . ”²⁵
Selective Tendering Procedures (Article X)
Article X requires that for every covered procurement, the selection of suppliers
be fair, non-discriminatory and that international competition be ensured by “inviting
tenders from the maximum number of domestic suppliers and supplier of other
parties, consistent with the efficient operation of the procurement system.”²⁶ As
provided in Article VIII, Parties may establish qualification procedures and keep lists
of qualified suppliers. However, in cases where there is sufficient time to complete
the qualification procedures, suppliers requesting participation “shall be permitted
to submit a tender and be considered.”²⁷ The only exclusionary principle is the
efficient operation of the procurement system. In other words, additional suppliers
who meet the qualification procedures must be permitted until the admission of
additional suppliers would make the operation of the procurement system inefficient.
Limited Tendering Procedures (Article XV)
Parties may utilize limited tendering procedures as provided for in Article VII
if they are “not used with a view to avoiding maximum possible competition or in a
manner which would constitute a means of discrimination among suppliers of other
Parties or protection to domestic producers or suppliers.”²⁸ Article XV provides²⁹
numerous situations where limited tender provisions are appropriate. The situations
include:
^!The absence of tenders under open or selective procedures.
^!When the tenders received are collusive.
^!When the tenders received are not in conformity with the essential
requirements of the tender.
^!When the tenders received are from suppliers who do not comply
with the conditions for participation established in accordance with
the AGP.
^!When the products or services can only be supplied by a particular
supplier and no reasonable alternative or substitute exists, such as in
the case of art work or other exclusive rights arraignments (i.e.,
patents or copyrights).

²⁵ Id. at Art. VIII(h)
²⁶ Id. at Art. X:1.
²⁷ Id. at Art. X:3.
²⁸ Id. at Art. XV:1.
²⁹ Id. at Art. XV:1(a)-(j).

^!When the products or services can not be obtained in time by means
of an open or selective tendering procedure.³⁰
^!In the case of additional deliveries, (i.e., replacement parts for
existing supplies or installations) by the original supplier, or in
situations where a change in supplier would require the purchase of
equipment or services that are not interchangeable with existing
supply.
^!In the case of prototypes, first products or services that are
developed in the course of contracts for research, experiment, study
or original development.
^!Where additional construction, within the objectives of the original
tender, are necessary to complete the terms of the original tender.³¹
^!New construction services that are the repetition of similar
construction services for which an initial contract was awarded
under open or selective tender procedures.
^!Products purchased on the commodities market.
^!Purchases made under exceptionally advantageous conditions arising
in the very short term.³²
^!Contracts awarded to the winners of design contests, provided the
contest is consistent with the principles of the AGP.
Offsets (Article XVI)
Pursuant to the AGP, governmental entities may not impose, seek, or consider
offsets either in qualifying and selecting suppliers, products, or services, or in
evaluating tenders and awarding contracts.³³ Offsets are defined in the AGP as
“measures used to encourage local development or improve the balance-of-payments
accounts by means of domestic content, licensing of technology, investment
requirements, counter-trade or similar requirements.”³⁴ At the same time a
developing country, may, subject to certain limitations, negotiate conditions for the

³⁰ This exception is limited to “reasons of extreme urgency brought about by events
unforeseeable by the entity.” Id. at Art. XV:1(c)
³¹ This exception is limited to situations where “the total value of the contracts awarded for
the additional construction services may not exceed 50 per cent of the amount of the main
contract.” Id. at Art. XV:1(f).
³² This exception specifically provides that it is “not intended to cover routine purchases
from regular suppliers.” Id. at Art. XV:1(i).
³³ Id. at Art. XVI:1.
³⁴ Id. at note 7.

implementation of offsets. For example, at the time of accession to the AGP, a
developing country may bargain to obtain “requirements for incorporating domestic
content.”³⁵
Challenge Procedures (Article XX)
In addition to the possibility of party-to-party dispute settlement under the
general WTO dispute resolution procedures, the AGP requires that suppliers have
access to separate challenge procedures for alleged breaches in the context of
government procurement. In the event that a supplier complains of a breach, each
Party must initially encourage the supplier to seek resolution of its complaint in
consultations with the procuring entity.³⁶ The procuring entity is then committed to
“accord[ing] impartial and timely consideration to any such complaint, in a manner
that is not prejudicial to obtaining corrective measures under the challenge system.”³⁷
The AGP then sets forth requirements for the challenge procedures themselves,
generally requiring that they be “non-discriminatory, timely, transparent and
effect i v e.”³⁸
Dispute Settlement (Article XXII)
The WTO Dispute Settlement Understanding (DSU) applies to consultations³⁹
and dispute settlement involving the AGP with certain exceptions. For example,
only AGP Parties may participate in decisions or actions by the DSU in AGP⁴⁰⁴¹
disputes. Also, cross-retaliation is not available with respect to the AGP. As
such, WTO Members may not suspend AGP benefits as a countermeasure in a⁴²
dispute arising under a separate WTO agreement.
Exceptions (Article XXIII)
The AGP contains a national security exception, which is generally patterned⁴³
after Article XXI of the 1994 GATT. The exception states that:

³⁵ Id. at Art. XVI:2.
³⁶ Id. at Art. XX:1.
³⁷ Id.
³⁸ Id. at Art. XX:2-8.
³⁹ Id. at Art. XXII:1; see also CRS Report RS20088, Dispute Settlement in the World Trade
Organization: An Overview, by J. Grimmett (providing an overview of the WTO Dispute
Settlement procedures and requirements).
⁴⁰ AGP, supra note 1, at Art. XXII:3.
⁴¹ Id. at Art. XXII:7.
⁴² Id. Conversely, WTO Members may not suspend benefits under other WTO agreements
in a dispute arising under the AGP. Id.
⁴³ Id. at Article XXIII:1.

Nothing in this Agreement shall be construed to prevent any Party from taking
any action or not disclosing any information which it considers necessary for the
protection of its essential security interest relating to the procurement of arms,
ammunition or war materials, or to procurement indispensable for national⁴⁴
security or for national defense purposes.
In addition to the national security exemption, the AGP also contains a number
of general exceptions, which are to some extent modeled on the general exceptions
contained in Article XX the GATT 1994.⁴⁵ Examples of exemptions include, but are
not limited to, public morals, order or safety, intellectual property and philanthropic
institutions.
Rectifications and Possible Compensation (Article. XXIV)
A Party to the AGP has an opportunity to make rectifications to its Appendix,
to transfer an entity from one Annex to another, and “in exceptional cases” to make
“other modifications” by notifying the WTO Committee on Government
Procurement.⁴⁶ A WTO Member seeking such action must also provide information
as to the likely consequences of the change for the “mutually agreed coverage of the
Agreement.”⁴⁷ If these changes are of a “purely formal or minor nature,” they will
become effective if there is no objection within 30 days of notification.⁴⁸ In other
cases, the Chairman of the Committee is required to promptly convene a Committee
meeting, where proposals and claims for “compensatory adjustments” will be
considered. Consideration of proposals and claims is to be done “with a view to
maintaining a balance of rights and obligations and a comparable level of mutually
agreed coverage provided in this Agreement prior to such notification.”⁴⁹ If an
agreement is not reached, Parties are then free to pursue the matter under WTO
consultation and dispute settlement procedures.

⁴⁴ Id. This exception contains the same “self-judging” language as Article XXI of the GATT,
namely, the exception states that the action that the Party may take is one that “it considers
necessary for the protection of its essential security interest” relating to the described
procurement. Id. (emphasis added). The United States has consistently treated national
security determinations as falling outside the jurisdiction of any WTO dispute settlement
panel. See GATT Analytical Index, Guide to GATT Law and Practice 603-04 (6th Ed.
1995); Dapo Akande & Sope Williams, International Adjudication on National Security
Issues: What Role for the WTO?, 43 Va. J. Int’l L. 365, 375-78 (2003); see also David E.
Sanger, U.S. Won’t Offer Trade Testimony on Cuba Embargo, N.Y.T^IME^S, Feb. 21, 1997
at A1; Paul Blustein and Anne Swardon, U.S. Vows to Boycott WTO Panel; Move Escalates
Fight with European Union over Cuba Sanctions, W^ASH.P^OST., Feb. 21, 1997 at A1. This
position, however, has never been adjudicated by an international tribunal. Under current
WTO dispute procedures, it is possible that a panel could be established to consider a claim
under the AGP, notwithstanding an announced Article XXIII:1 defense, only to determine
that it has no jurisdiction in the case.
⁴⁵ AGP, supra note 1, at Art. XXIII:2.
⁴⁶ Id. at Art. XXIV:6(a).
⁴⁷ Id.
⁴⁸ Id. at Art. XXVI:6(b).
⁴⁹ Id. at Art. XXVI:7(b).

The United States Appendix to the AGP
To fully understand the scope of U.S. obligations, it is essential to examine the
U.S. Appendix to the Agreement, which includes the U.S. government and quasi-
government agencies covered by the AGP, the U.S. threshold for procurement
contracts, and various exceptions that the U.S. has taken to AGP obligations.⁵⁰
Federal Agencies (Annex I). Subject to monetary threshold requirements,⁵¹
the AGP applies to all federal (including legislative and judicial branch) agencies,⁵²
except the Federal Aviation Administration. While the Department of Defense
(DOD) is a listed entity, the Agreement does not apply to specified DOD purchases,⁵³
such as textiles and specialty metals. Furthermore, DOD purchases in 14 Federal
Supply Classification (FSC) categories are generally not covered by the AGP for⁵⁴
national security reasons. Moreover, the United States Department of Agriculture
listing does not include procurement of agricultural products made in furtherance of⁵⁵
agricultural support or human feeding programs. Finally, the U.S. Agency for
International Development is not covered with respect to procurement for the direct⁵⁶
purpose of providing foreign assistance.
The United States has invoked the Article XXIII national security exception for
various federal procurements. Specifically, regarding the Department of
Transportation, the Annex states that “pursuant to Article XXIII, the national security

⁵⁰ See generally, U.S. Appendix to the AGP, WT/Let/330, March 1, 2000, as amended
October 16, 2002 (WT/Let/431), available at [http://www.wto.org/
english/tratop_e/gproc_e/apend_e.htm#us] [hereinafter U.S. Appendix]. For example, some
restrictions include purchases under minority and small business preference programs, as
well as Berry Amendment-type restrictions for DOD textile purchases. Id.
⁵¹ The current U.S. thresholds for procurements by central government entities, as specified
by the USTR are $193,000 for goods and services and $7,407,000 for construction services.
See USTR Threshold Notice, supra note 10.
⁵² U.S. Annex I lists 87 executive branch agencies that are covered by the AGP. As
explained in the Uruguay Round Statement of Administrative Action, the FAA was not
included “since other Code signatories were not willing to extend comprehensive coverage
to the purchase of air traffic control equipment.” U.S. Appendix, supra note 50 at Annex
1. On Jan. 15, 2004, the United States notified WTO members that procurements by the
Department of Homeland Security, except those of the Transportation Security
Administration, would also be subject to the terms of the AGP. See U.S. Tells WTO That
Homeland Agency Now Covered Under Procurement Act, Daily Rep. for Executives (BNA)
No. 11, at A-5 (Jan. 20, 2004).
⁵³ See U.S. Appendix, supra note 50 at Annex 1. In addition to the DOD exemptions, the
U.S. has recently notified WTO members that the same exemptions will apply to the United
States Coast Guard, which is currently under the authority of the Department of Homeland
Security. See U.S. Tells WTO That Homeland Agency Now Covered Under Procurement
Act, Daily Rep. for Executives (BNA) No. 11, at A-5 (Jan. 20, 2004).
⁵⁴ See infra note 60 and accompanying text.
⁵⁵ U.S. Appendix, supra note 50, at Annex I.
⁵⁶ Id.

considerations applicable to the Department of Defense are equally applicable to the
Coast Guard, a military unit of the United States.”⁵⁷ With respect to the Department
of Energy, the Annex states that “pursuant to Article XXIII, national security
exceptions include procurements made in support of safeguarding nuclear materials
or technology and entered into under the authority of the Atomic Energy Act, and oil
purchases related to the Strategic Petroleum Reserve.”⁵⁸ The United States has also
provided that 14 FSC categories “are not generally covered” with respect to DOD
procurements “due to the application of Article XXIII, paragraph 1.”⁵⁹ Finally, the
United States has reserved the right to invoke Article XXIII, paragraph 1 with respect
to purchases by all covered federal entities in 56 FSC categories.
State Agencies (Annex II). Thirty-seven states and their covered agencies⁶⁰
are currently listed in the U.S. Annex II. Commitments regarding state procurement
are subject to the U.S. General Notes, any exceptions listed for a particular state, and
the following Annex II general exceptions:
^!for specified states the AGP does not apply to the procurement of
construction-grade steel (including requirements on subcontracts),
motor vehicles and coal;
^!the AGP does not apply to preferences or restrictions associated with
programs promoting the development of distressed areas and
businesses owned by minorities, disabled veterans and women;
^!Annex II may not be construed to prevent any state entity from
applying restrictions that promote the general environmental quality
in the state, as long as the restrictions are not disguised barriers to
trade;
^!the AGP does not apply to any procurement made by a covered
entity on behalf of non-covered entities at a different level of
government (e.g., a county or city); and

⁵⁷ U.S. Appendix, supra note 50, at Annex I.
⁵⁸ Id.
⁵⁹ These categories, with their FSC group numbers are: weapons (10); fire control
equipment (12); ammunition and explosives (13); guided missiles (14); aircraft and airframe
structural components (15); aircraft components and accessories (16); aircraft launching,
landing, and ground handling equipment (17); ships, smallcraft, pontoons, and floating
docks (19); ship and marine equipment (20); engines, turbines, and components (28);
bearings (31); communication, detection, and coherent radiation equipment (58); electrical
and electronic equipment components (59), and metal bars, sheets, and shapes (95).
⁶⁰ The current U.S. thresholds for state procurement contracts are $526,000 for procurement
of goods and services, and $7,407,000 for construction contracts. See USTR Threshold
Notice, supra note 10.

^!the AGP does not apply to restrictions attached to Federal funds for
mass transit and highway projects.⁶¹
“All Other Entities” (Annex III). This Annex covers procurement by the
following entities: Tennessee Valley Authority (TVA); the Power Marketing
Administrations (PMAs) of the Department of Energy; the Port Authority of New
York and New Jersey; the Port of Baltimore; the New York Power Authority; and,
Rural Electrification Administration Financing.⁶² Procurements by some of these
entities are subject to specific exceptions stated in the Annex as well as the General
Notes. In addition, the AGP does not apply to restrictions attached to federal funds
for airport projects with respect to all of the listed entities.
Services (Annex IV). Annex IV includes only those services that are not
covered by AGP obligations. The U.S. Annex states that the following services from
the Universal List of Services,⁶³ are excluded:
^!all transportation services, including launching services, and
transportation services where incidental to a contract for the
procurement of supplies;
^! dredgi ng;
^!all services purchased in support of military forces located overseas;
^!management and operation contracts of certain government or
privately-owned facilities utilizedd for government purposes,
including federally-funded research and development centers;
^!public utilities services, including telecommunication and ADP-
related telecommunication services except enhanced (i.e. value-
added) telecommunications services;
^!research and development and;
^!printing services (for Annex II entities only).⁶⁴
Also applicable to the Annex are the U.S. General Notes. For example, General
Note 8 contains the U.S. reciprocity requirement for services that is explained in the

⁶¹ U.S. Appendix, supra note 50, at Annex II.
⁶² Id. at Annex III. The PMAs include the Bonneville Power Administration and the St.
Lawrence Seaway Development Corporation. Id. The current thresholds for Annex III
entities, except for supplies and services contracts for the TVA and the PMAs, are $593,000
for procurement of goods and services, and $7,407,000 for procurement of construction
services. See USTR Threshold Notice, supra note 10.
⁶³ The Universal List of Services is contained in document MTN.GNS/W/120, available at,
[ h t t p : / / www.wt o.or g/ engl i s h/ t r at op_e/ s er v_ e/ mt n_gns_w_120_e.doc] .
⁶⁴ U.S. Appendix, supra note 50, at Annex IV.

Statement of Administrative Action submitted to Congress along with the Uruguay
Round agreements. The Administration described this requirement as follows:
Most countries limited their coverage of services to those sectors in which they
were willing to make market access commitments under the General Agreement
on Trade in Services. The United States offered coverage of services
procurement in all but seven services sectors, but only on the basis of reciprocal
access from other signatories. Most Code members were willing to apply the

1996 Code to procurement of key services, such as computer, environmental, and⁶⁵

value-added telecommunications services.
Construction Services (Annex V). Annex V defines a construction
services contract as “a contract which has as its objective the realization by whatever
means of civil or building works, in the sense of Division 51 of the Central Product
Classification [CPC],”⁶⁶ and includes within its AGP commitment all services listed
in Division 51 of the CPC. The threshold levels for the procurement of construction
services are listed in Annexes I-III.⁶⁷ A higher threshold for certain construction
services of the Republic of Korea, however, is provided for in the U.S. General
Notes.
General Notes. The United States has claimed exceptions in its General
Notes for set-asides on behalf of small and minority businesses.⁶⁸
The General Notes also state that except as otherwise specified in its Appendix,
procurement in terms of U.S. coverage does not include
non-contractual agreements or any form of government assistance, including
cooperative agreements, grants, loans, equity infusions, guarantees, fiscal
incentives, and government provision of goods and services to persons or
government authorities not specifically covered under U.S. annexes to this⁶⁹
agreement.
In addition, procurement does not include the acquisition of fiscal agency or
depository services, liquidation and management services for regulated financial
institutions and sale and distribution services for government debt.⁷⁰ Further, for
contracts to be awarded by non-covered entities, the AGP may not be construed to
cover any goods or service component of that contract.⁷¹

⁶⁵ 1994 Statement of Administrative Action submitted to Congress along with the Uruguay
Round agreements, H.Doc. 103-316, v.1, at 1038-1039 [hereinafter cited as Uruguay Round
SAA]; see also the World Trade Organization website, available at [http://www.wto.org/].
⁶⁶ U.S. Appendix, supra note 50, at Annex V.
⁶⁷ Id. at Annex I-III.
⁶⁸ U.S. Appendix, supra note 50, at Note 1.
⁶⁹ Id. at Note 2.
⁷⁰ Id. at Note 3.
⁷¹ Id. at Note 4.

As noted earlier, the United States has established a reciprocity requirement for
services, stating that “[a] service listed in Annex 4 is covered with respect to a
particular Party only to the extent that such Party has included that service in its
Annex 4.”⁷²
The U.S. General Notes also contain several country-specific exclusions:
^!Canada: AGP does not apply to procurement of goods and services,
including construction, by Annex II and III entities.⁷³
^!Korea: for construction services, AGP applies only to procurement
by Annex II and III entities above a 15 million SDR threshold.⁷⁴
^!Japan: AGP does not apply to procurement of goods and services,
including construction, by NASA⁷⁵
^!Japan: U.S. will not extend AGP benefits regarding the award of
contracts by Annex III entities that are responsible for the generation
or distribution of electricity.⁷⁶
The North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement (NAFTA), as approved and
implemented by Congress, entered into force on January 1, 1994.⁷⁷ Chapter 10 of
NAFTA contains extensive procurement obligations, which generally follow and
build upon provisions contained in the 1979 GATT Procurement Code.⁷⁸ Since
Mexico is not currently a party to the WTO AGP, its procurement obligations with
the United States are governed solely by NAFTA. Procurement obligations between
the United States and Canada had been, prior to NAFTA, contained in the U.S.-
Canada Free Trade Agreement, whose $25,000 threshold for federal goods contracts⁷⁹
has been carried forward into the NAFTA agreement.

⁷² Id. at Note 8.
⁷³ Id. at Note 5.
⁷⁴ Id. at Note 6.
⁷⁵ Id. at Note 7. Bids by Japanese firms were excluded from the NASA commitment “in
light of Japan’s refusal to cover its National Space Development Agency.” Uruguay Round
SAA, supra note 65, at 1038.
⁷⁶ Id. at Note 9.
⁷⁷ The NAFTA Implementation Act, P.L. 103-182, 107 Stat 2057 (1993).
⁷⁸ See The North American Free Trade Agreement Statement of Administrative Action, H.
Doc. 103-159, v.1, 583-88 (providing background information and a discussion on Chapter

10).

⁷⁹ See id. at 584. The NAFTA thresholds as applied to Mexico are generally subject to
(continued...)

In addition to exceptions in individual schedules, NAFTA procurement
obligations, like those of the AGP, are subject to national security and general
exceptions.⁸⁰ Article 1018, paragraph 1 contains the Agreement’s national security
exemption, stating that:
Nothing in this Chapter shall be construed to prevent a Party from taking any
action or not disclosing any information which it considers necessary for the
protection of its essential security interests relating to the procurement of arms,
ammunition or war materials, or to procurement indispensable for national⁸¹
security or for national defense purposes.
The NAFTA general exception, set forth in Article 1018 paragraph 2, states:
Provided that such measures are not applied in a manner that would constitute
a means of arbitrary of unjustifiable discrimination between Parties where the
same conditions prevail or a disguised restriction on international trade between
the Parties, nothing in this Chapter shall be construed to prevent any Party from
adopting or maintaining measures:
(a) necessary to protect public morals, order or safety;
(b) necessary to protect human, animal, or plant life or health;
(c) necessary to protect intellectual property; or
(d) relating to the products or services of handicapped persons, of ⁸²
philanthropic institutions or of prison labor.
Procurement Obligations Under Other
Free Trade Agreements
In addition to the WTO and NAFTA, many of the other Free Trade Agreements
(FTAs) that the United States has in effect contain provisions with respect to
government procurement. The agreements vary in their respective details, but all
share provisions in common, including, but not limited to, exemptions for certain
Department of Defense procurements and threshold requirements. For example, the
U.S.– Israel FTA contains provisions for the waiver of any buy national provisions

⁷⁹ (...continued)
adjustment for inflation. The thresholds are currently as follows: for federal government
entities listed in the U.S. Schedule $64,786 for goods and services, and $8,422,165
for construction services; for government enterprises listed in the U.S. Schedule,
$323,929 for goods and services, and $10,366,227 for construction services. See
USTR Threshold Notice, supra note 10.
⁸⁰ See The North American Free Trade Agreement, Art. 1018, available at,
[http://www.nafta-sec-alena.org/ Defau ltSite/legal/index_e.aspx?articleid=138#A1018].
⁸¹ Id. at Art. 1018:1.
⁸² Id. at Art. 1018:2.

for contracts with a value greater than $50,000.⁸³ Moreover, our most recent FTAs
such as the U.S.– Chile FTA, U.S.– Singapore FTA, U.S.– Morocco FTA and the
U.S.– Australia FTA ⁸⁴ each contain procurement provisions that closely track those
provided for by the AGP.⁸⁵ With respect to threshold requirements, however, some
of the newer FTAs contain thresholds that are much lower compared to the AGP.⁸⁶
It is also important to note that while there are “essential security” provisions in the
agreements with both Chile and Singapore,⁸⁷ currently, neither the Morocco or
Australia agreements contain a national security exception specifically applicable to
government procurement obligations. Furthermore, the Dominican Republic-Central
American Free Trade Agreement (DR-CAFTA) also contains provisions relating to
government procurement that are similar to those contained in the U.S.- Morocco
and U.S.-Australia FTAs (i.e., without a national security exception), however, while
implementing legislation has been enacted for DR-CAFTA, the agreement has not
yet taken effect.⁸⁸

⁸³ U.S. – Israel Free Trade Agreement, available at [http://www.us-israel.org/jsource/ US-
Is rael/FT A_T ext.html ].
⁸⁴ Due to the fact that neither Chile, Morocco, or Australia are a party to the WTO AGP, the
FTAs will be the main source of U.S. government procurement obligations with respect to
these countries.
⁸⁵ See 68 Fed. Reg. 70859 (Dec. 19, 2003) (implementing the U.S.–Chile FTA); see also 68
Fed. Reg. 70860 (Dec. 19, 2003) (implementing the U.S.–Singapore FTA).
⁸⁶ See USTR Threshold Notice, supra note 10; see also Annex 13A of the U.S.-Singapore
Free Trade Agreement, available at [http://www.ustr.gov/new/fta/Singapore/final/text%
20final.pdf.]; Annex 9.1, Sec. A of the U.S.– Chile Free Trade Agreement, available at
[http://www.ustr.gov/new/ fta/Chile/final/09.procurement.pdf].
⁸⁷ The U.S.– Chile FTA contains a general national security exception at Art. 23.2, which
provides, inter alia, that nothing in the FTA may be construed, inter alia, “to require a Party
to furnish or allow access to any information the disclosure of which it determines to be
contrary to its essential security interests; or ... to preclude a party from applying measures
that it considers necessary for ... the protection of its own essential security interests.” See
Annex 9.1, Sec. A of the U.S.–Chile FTA, available at [http://www.ustr.gov/new/
fta/Chile/final/09.procurement.pdf]. Although not expressly stated, a national security
exception specific to procurement appears to be alluded to in Annex 9.1, Section A of the
U.S.– Chile Free Trade Agreement, regarding generally exempt Defense Department
purchases. See Id.
The U.S.–Singapore FTA contains an “essential security” exception at Article 21.2,
which provides, inter alia, that nothing in the FTA may be construed, inter alia, “to require
a Party to furnish or allow access to any information the disclosure of which it determines
to be contrary to its essential security interests; or ... to preclude a party from applying
measures that it considers necessary for .. the protection of its own essential security
interests.” See generally, U.S. – Singapore FTA, available at [http://www.ustr.gov/
new/fta/Singapore/final.htm]. Also, the U.S. Appendixes and Annexes that are incorporated
or referenced in the FTA, however, invoke the AGP national security exception with respect
to certain procurements. Id.
⁸⁸ See Chapter 9 of the Final Text of DR-CAFTA, available at
[http://www.ustr.gov/assets/Trade_Agr eements/Bilateral/ CAFT A/ CAFT A-
DR_Final_T exts/asset_upload_file766_3926.pdf].

United States Statutes that Effect International
Government-Procurement Obligations
Buy American Act⁸⁹
Initially adopted in 1933, the Buy American Act is the major domestic
preference statute that governs procurement by the federal government.⁹⁰ The Buy
American Act requires that the government buy domestic “articles, materials, and
supplies” when they are acquired for public use unless a specific exception applies.⁹¹
Goods qualify as domestic under the statute if they are “such unmanufactured
articles, materials, and supplies as have been mined or produced in the United
States,” or “such manufactured articles, materials, and supplies as have been
manufactured in the United States substantially all from articles, materials, or
supplies mined, produced, or manufactured, as the case may be, in the United⁹²
States.” Federal regulations define the term “substantially all” as meaning that the
“cost of domestic components must exceed 50 percent of the cost of all the⁹³
components.”
There are five primary exceptions to the Buy American Act. The Act does not
apply to procurements where its application would be inconsistent with the public⁹⁴
interest or unreasonable in cost. In addition, the Act does not apply to procurements
of products for utilization outside the United States, or of products not produced or
manufactured in the United States in sufficient and reasonably available commercial
quantities and of satisfactory quality.⁹⁵ Lastly, the Act does not apply to⁹⁶
procurements under $2,500.
Trade Agreements Act of 1979 (TAA)
When Congress approved the GATT Procurement Code in the Trade
Agreements Act of 1979, it also authorized the President to waive procurement

⁸⁹ See generally, CRS Report 97-765A The Buy American Act: Requiring Government
Procurements to Come From Domestic Sources, by J. Luckey (containing a much more
detailed discussion of the Buy American Act).
⁹⁰ 41 U.S.C. §§ 10a - 10d. (2000).
⁹¹ 41 U.S.C. §§ 10a & 10b (2000).
⁹² 41 U.S.C. § 10b (2000) (emphasis added).
⁹³ 48 C.F.R. § 25.101(a).
⁹⁴ 41 U.S.C. § 10a. (2000).
⁹⁵ Id.
⁹⁶ 41 U.S.C. 10a. (2000).

restrictions such as the Buy American Act in implementation of international
obligations.⁹⁷ Specifically, the statute permits the President to:
waive, in whole or in part, with respect to the eligible products of any foreign
country or instrumentality designated under ... [§ 301](b) ..., and suppliers of
such products, the application of any law, regulation, procedure, or practice
regarding Government procurement that would, if applied to such products and
suppliers, result in treatment less favorable than that accorded –
(a)to United States products and suppliers of such products; or
(b)to eligible products of another foreign country or instrumentality
which is a party to the [WTO AGP] Agreement and suppliers of such
products.
The President may designate a foreign country for purposes of the TAA only if
he determines that the country or instrumentality:
^!is a party to one of the WTO Agreement on Government
Procurement or the NAFTA and will provide appropriate reciprocal
competitive government procurement opportunities to U.S. products
and suppliers of such products;
^!is a country or instrumentality, other than a major industrial country,
which will otherwise assume WTO procurement obligations and
will provide such opportunities to such products and suppliers;
^!is a country or instrumentality, other than a major industrial country,
which will provide such opportunities to such products and
suppliers; or
^!is a least developed country.⁹⁸
A provision added in the NAFTA Implementation Act of 1993 makes the waiver⁹⁹
authority inapplicable to any small business or minority preference.
To encourage additional countries to join the WTO AGP, and to provide
reciprocal competitive government procurement opportunities to U.S. goods and
suppliers, the TAA requires the President, with regard to procurement covered by the

⁹⁷ Trade Agreements Act of 1979, Pub. L. No. 96-39, 93 Stat. 236 § 301(a) (July 26, 1979)
(codified as amended at 19 U.S.C. § 2511(a) (2000)).
⁹⁸ 19 U.S.C. § 2511(b). The 1979 Procurement Code was implemented by President Carter
in Exec. Order 12260. See 46 Fed. Reg. 1653 (December 31, 1980); see also 46 Fed. Reg.
1657 (December 31, 1980) (containing lists of designated countries issued by the Office of
the USTR at the time); 51 Fed. Reg. 6964 (February 27, 1986) (containing the subsequent
waiver for Caribbean Basin Economic Recovery Act countries).
⁹⁹ NAFTA Implementation Act of 1993, Pub. L. No. 103-182 § 381(a)(3), 107 Stat. 2128
(1993) (codified as amended at 19 U.S.C. § 2511(e) (2000)).

Agreement, to prohibit procurement of products of a foreign country or
instrumentality that has not been designated by the President.¹⁰⁰
The prohibition does not apply, however, in the case of procurement for which
there are no offers of U.S. products or services or of eligible products, or such offers
are insufficient to fulfill U.S. Government requirements.¹⁰¹ As amended by the
Uruguay Round Agreements Act, the TAA also authorizes the President to waive the
prohibition on procurement of products from a non-Party country or instrumentality
where the country has: (1) agreed to apply transparent and competitive procedures
to its government procurement equivalent to those in the Agreement and (2)
maintains and enforces effective prohibitions on bribery and other corrupt practices
in connection with its government procurement. The TAA also permits the President
to authorize agency heads to waive the prohibition on a case-by-case basis when in
the national interest, and to authorize the Secretary of Defense to waive the
prohibition for products of countries or entities that enter into a reciprocal
procurement agreement with the Department of Defense.¹⁰²
Specific amendments to the TAA have been made through the years to
implement procurement obligations contained in U.S. FTAs.¹⁰³ At this time,
however, no statutory changes have been made to implement the procurement
chapters of the U.S. FTAs with Jordan, Chile or Singapore.

¹⁰⁰ 19 U.S.C. § 2512(a)(1) (2000).
¹⁰¹ Id. at § 2512(a)(2).
¹⁰² Id. at § 2512(b).
¹⁰³ See e.g., Uruguay Round Agreements Act, Pub. L. No. 103-465 § 342(f)(2)(A), 108 Stat.

4953 (1994) (codified as amended at 19 U.S.C. § 2518(4)(C)) (implementing the U.S. –

Israel FTA); see also id. at § 342(f)(2)(B) (codified as amended at 19 U.S.C. § 2518(4)(D))
(implementing NAFTA).