A Comparative Guide to the Chile-United States Free Trade Agreement and the
The Chile-U.S. FTA text consists of twenty Articles, including one on definitions and one Annex. A short preamble states the objectives of the Chapter. The only Annex (Annex 9.1) is divided into 8 sections7 which list thresholds, entities at the central, sub-central level and other covered entities separately under each section. It also lists goods, services and construction services, provides threshold adjustment formulas and general notes. This last section is used to list each Party’s horizontal exceptions to coverage. The text makes no cross-references to the WTO Government Procurement Agreement (GPA), (Chile has not signed the GPA but has observer status to the WTO GPA Committee).
The structure of DR-CAFTA is very similar to that of the Chile-U.S. FTA. The text consists of seventeen Articles including definitions and three Annexes. Annex 9.1.2(b)(i) applies between the U.S. and each other Party and Annex 9.1.2(b)(ii) applies between the Central American Parties. Annex 9.1.2(b)(iii) applies between the Central American Parties and the Dominican Republic. Annexes 9.1.2(b)(i) and Annex 9.1.2(b)(ii) are divided into nine sections while Annex 9.1.2(b)(iii) is divided into 5 sections8. The Chapter does not state any objectives. It also does not include provisions regarding issues such as the treatment of public information, the operation of a Committee on Procurement and further negotiations. Among all the Parties to this Agreement, only the U.S. is a signatory to the WTO GPA, consequently, as in the Chile-U.S. FTA text, this Agreement does not make any cross-references to the WTO Government Procurement Agreement.
Scope and Application and Exceptions: there are some differences in the content and language of this Article regarding the application of the Chapter and the obligation of the Parties to ensure that their entities comply with the Chapter. The Chile-U.S. FTA establishes the scope as applicable to any measure adopted or maintained by a Party as it relates to a procurement by any contractual means, undertaken by a listed entity and subject to the conditions established in the Annex. In contrast DR-CAFTA, seems to expand the scope to any measure, including any act or guideline of a Party, regarding a covered procurement. It then defines a “covered procurement” as a procurement of goods, services or both by any contractual means that is subject to the conditions specified in the Annex, as applicable among the respective Parties, that is conducted by a procuring entity and is not excluded from coverage. The exclusions to the Scope and Coverage of the Chapter in the Agreements are basically the same; however, for procurements between the U.S. and the other Parties, DR-CAFTA also excludes any good or service component of any contract of a procuring entity that is not listed under the covered entities in Annexes. In addition, DR-CAFTA also excludes firesales, or purchases made under exceptionally advantageous conditions such as a business in liquidation. Articles 9.16 and 9.14 concerning Exceptions in both Chile and DR-CAFTA respectively, replicate the same text, allowing the use of restrictive trade measures on grounds that the measure is necessary to protect public morals, human, animal or plant life, intellectual property and goods and services made by handicapped persons, philanthropic institutions and prison labor.
General Principles: the Chile-U.S. FTA organizes this Article into four sections: (1) National Treatment and Non-Discrimination; (2) Determination of Rules of Origin; (3) Offsets and (4) Measures Not Specific to Procurement. Although DR-CAFTA does not use subheadings, it respects the order almost exactly and mirrors most of the same Chile-U.S. FTA text. The difference between the Agreements is found in the subsection dealing with Determination of Rules of Origin. The Chile-U.S. FTA is the only FTA that establishes that non-preferential rules should be used as the basis for the application of provisions of non-discrimination. In contrast, DR-CAFTA states that the determination of origin shall be consistent with the Chapter on Rules of Origin, which are preferential in nature.
Publication of Procurement Measures: while the spirit of disclosure is the same in Article 9.3 of both FTAs, the scope differs. The Chile-U.S. FTA stipulates that “measures of general application” and “any changes in such measures” shall be published, whereas DR-CAFTA stipulates that “any law and regulation and the modification thereof”, and “any procedure, judicial decision or administrative ruling of general application relating to procurement” shall be published. DR-CAFTA also adds a subparagraph that requires a Party to provide to the other Party, upon request, a copy of a procedure, judicial decision or administrative ruling relating to procurement.
Publication of Notice of Intended Procurement: the content of the Notice of Intended Procurement for procurement covered by the Agreements is very similar, but there are a few differences. The Chile-U.S. FTA sets forth the type of information that is to be included in the notice, which is essentially the same for both Agreements. In contrast, DR-CAFTA explicitly gives the procuring entity flexibility to provide additional information in the notice so long as the minimum requirements enumerated by this Article are included. DR-CAFTA also requires the procuring entity to indicate that the procurement is covered by the Agreement, to provide notice for any fee associated with the purchase of the tender documentation as well as to provide the address for the submission of tenders. Concerning the duration of the publication, Chile states that the notice “shall be accessible during the entire period established for tendering for the relevant procurement” whereas DR-CAFTA is silent on the matter. Additionally, DR-CAFTA adds a paragraph encouraging entities to publish future procurement plans as early as possible in the fiscal year. Chile locates this provision in Article 9.17.3 on Public Information.
Time Limits: the Chile-U.S. FTA establishes a 30-day time period between publication of the Notice of Intended Procurement and the submission of tenders. DR-CAFTA provides for 40 days for the same. DR-CAFTA does not include a provision for recurring procurement.
Information on Intended Procurement/or Tender Documentation: the texts are essentially the same and present only minor differences. DR-CAFTA adds a short sentence whereby a procuring entity may satisfy the dissemination requirement by publishing the tender documentation by electronic means that is accessible to all interested suppliers. In a departure from the Chile-U.S. FTA, DR-CAFTA makes one important change to the timing of modifications in a footnote. The five Central American countries may make modifications to the information provided to suppliers prior to the opening of tenders whereas the U.S. may make modifications prior to the award of contracts. The Chile-U.S. FTA is silent on the matter.
Technical Specifications and Conditions for Participation: there are no substantive differences between the texts in these sections. The Articles on Technical Specifications establish that entities shall not prepare, adopt, or apply any technical specification (TS) with the purpose or the effect of creating unnecessary obstacles to trade between the Parties. In addition, the Article on Conditions for Participation incorporates some stylistic changes in the language in DR-CAFTA, while preserving the primary intent. These Articles stipulate the procedures for qualification of suppliers and prohibits certain barriers that limit the participation of suppliers.
Tendering Procedures: both the Chile-U.S. FTA and DR-CAFTA establish the use of open tendering procedures as the default methodology; however, Article 9.9.2 of both Agreements describe the conditions and circumstances where alternative tendering procedures are allowed. It should be noted that Article 9.17 defines “Open Tendering” as “any type of procurement method of a Party, except direct purchasing methods as specified in Article 9.9.2”.
Awarding Contracts / Information on Contract Awards: both FTAs prescribe similar procedures, although there are some stylistic differences such as the elimination of subheadings under DR-CAFTA in this Article. The Article establishes the conditions for a tender to be considered for award, specifying that an entity shall award the contract to the supplier considered to be fully capable of performing in accordance with the criteria provided in the tender documentation. Paragraph three stipulates that an entity may not cancel procurement, or terminate or modify a contract that has been awarded in order to avoid the obligations of the Chapter. Both Agreements require that participating suppliers be notified of decisions concerning contract awards and provide information to suppliers who were not selected. Both Agreements also require the publication of information concerning the winning contract award. In addition, a record-keeping requirement is established for a period of no less than three years.
Ensuring Integrity in Procurement Practices: both Agreements contain an Article on this subject; however, there are major differences between the two. The Chile-U.S. FTA criminalizes actions by procurement officials, of any Party, that solicit or accept any gift, article, money or any benefit. Also, actions by any individual, directly or indirectly, in exchange for actions affecting procurement officials’ decisions are made illegal. In contrast, DR-CAFTA does not make violations of this Article a criminal offense but rather precludes a supplier from participating in the procurement. The Article requires each Party to adopt or maintain procedures, pursuant to Article 18.8 concerning Anti-Corruption Measures, that would have the effect of declaring ineligible for participation in the Party’s procurements, suppliers that the Party has determined to have engaged in fraudulent or other illegal actions relating to procurement. DR-CAFTA also provides for the exchange of the information among the Parties regarding those suppliers.
Domestic Review and Challenge Mechanisms: there are differences between the two Articles concerning interim measures that may be taken by the impartial authority. The Chile-U.S. FTA states that the authority must act “to preserve the supplier’s opportunity to participate in the procurement and to ensure that the Party complies with its measures implementing this Chapter.” In contrast, DR-CAFTA states that the authority may take prompt interim measures “to preserve the opportunity to correct potential breaches of this Chapter.”
Modifications and Rectifications: regarding the procedures for modifications and rectifications, DR-CAFTA uses the Chile text as the model and makes some adjustments. First, DR-CAFTA adds the word “technical” to qualify “rectifications of a purely formal nature.” Second, in the Chile-U.S. FTA case, where the Parties agree to a proposed modification, rectification or minor amendment, where there have been no objections with the 30 day period established for such modifications and rectifications, the Commission shall immediately reflect such changes in coverage in the Annex. In contrast, DR-CAFTA does not require agreement among the Parties, but rather proceeds directly to action undertaken by the Commission.
Non-Disclosure of Information: paragraph 1 of both Articles serves as the basis for the protection of confidential information unless disclosure is formally authorized or the conditions established in paragraph 2 are met. Article 9.15 (2) of the Chile-U.S. FTA states that “Nothing in this Chapter shall be construed as requiring a Party or its entities to disclose confidential information the disclosure of which would impede law enforcement or otherwise be contrary to the public interest”. DR-CAFTA redrafts this paragraph and expands the instances under which information may be released without the consent of the source of the information. Article 9.12 (2) of DR-CAFTA states that “Nothing in this Chapter shall prevent a Party or their procuring entities from withholding the release of information where release might impede law enforcement; …or otherwise be contrary to the public interest…”. In addition to the two elements established in the Chile-U.S. FTA, DR-CAFTA determines that “the prejudice of fair competition between suppliers and the prejudice of the legitimate commercial interests of particular suppliers or entities, including the protection of intellectual property” are also justification for withholding the release of information.
Definitions: both Agreements contain basically the same definitions. DR-CAFTA adds definitions for “Open Tendering Procedures”; “Procuring Entity”; and “Services.” DR-CAFTA does not include a definition for “International Standard,” and “Procurement Official” as the Chile-U.S. FTA does. Both the Chile-U.S. FTA and DR-CAFTA employ the same definition for “Entity” and “Procuring Entity,” respectively.
This Chapter covers a contract only if its value is the same or above thresholds specified in the corresponding annexes. The following is a summary table of the established thresholds by levels of governments in each Agreement:
TABLE 9.1: Thresholds for Goods, Services and Construction Services
* For Central American Countries and the Dominican Republic for a 3-year-period.
1. For specified American entities (List B)
The calculations of thresholds of goods and services shall be made in accordance with Section G for Chile and Section H for DR-CAFTA: Threshold Adjustment Formulas. There are differences between both Agreements. Paragraph 2 for Chile, and paragraphs 2 and 3 for DR-CAFTA establish that thresholds for goods and services in Sections A through C shall be adjusted according to inflation, calculated by a given formula and measured by the Producer Price Index for Finished Goods published by the U.S. Bureau of Labor Statistics and will be adjusted in two year intervals. Chile also applies the formula to construction services. DR-CAFTA establishes that thresholds for construction services in Section A and thresholds to List B entities in Sections B and C are the same as in the U.S. Appendix 1 to the GPA9, and they shall be adjusted based on the daily conversion rates of the U.S. dollar in terms of Special Drawing Right (SDR). Chile does not have such provision. All Parties, except for El Salvador, which will use the value expressed by the United States in U.S. dollars, shall convert the U.S. dollar into its own currency. Adjustments should also be made every two years.
· Covered Entities
In accordance with the reference to the Annexes established under the Articles 9.1 concerning the Scope and Coverage of the Agreements, the following table lists the number of covered entities according to the level of governments, for each Party, for each Agreement.
TABLE 9.2: Number of Covered Entities
· Transition Mechanisms (Section I)
Costa Rica (during the two years following the entry into force of this Agreement)
1. Article 9.4.2 (inclusion of an indication that the procurement is covered by this Chapter in the notice of intended procurement)
2. Article 9.5.1 (40 days time limit for the tendering process)
3. Article 9.6.3 (written communication of modification to tender documentation)
4. Article 9.11.2 (publication of a notice regarding the contract award)
5. Article 9.15.6(a) (period provided to suppliers to prepare and submit written challenges)
Notes to the
Dominican Republic Schedule
Guatemala (during the two years following the entry
into force of this Agreement)
Honduras (during the two years following the entry into
force of this Agreement)
Nicaragua (during the two years following the entry
into force of this Agreement)
· Transition Mechanisms for Coverage of Construction Services – The Dominican Republic (Section J)
This Section allows the Dominican Republic to maintain these specific offsets:
The offsets can be applied using the following guidelines:
The limitations permitted under paragraph 1 shall be reduced over a period of 15 years as follows:
During the 13th year after the date of entry into force of this Agreement, the Dominican Republic and the United States shall enter into consultations with regard to the treatment of the offsets described in paragraph 1, following the end of the 15-year period referred to in paragraph 3, with a view to the elimination of the offsets. The consultations shall take into consideration, inter alia, the general and economic developments in the Dominican Republic, its implementation of this Chapter, and the need to maintain the offsets. If, by the end of the 15th year after the date of entry into force of this Agreement, the Dominican Republic and the United States are unable to reach agreement on the treatment of the offsets from the end of the 15th year, the United States may reduce the access that it accords to the Dominican Republic, as set out in the Schedules of the United States to this Annex.
At the end of each period specified in paragraph 3, the Dominican Republic shall provide written reports to the United States on the implementation of the transitional mechanism provided for in this Section.
7Annex 9.1 - Section A: Central Level Government Entities; Section B: Sub-Federal or Sub-Central Level Government Entities; Section C: Other Covered Entities; Section D: Goods; Section E: Services; Section F: Construction Services; Section G: Threshold Adjustment Formulas; Section H: General Notes
8Annex 9.1.2 (b)(i) and Annex 9.1.2 (b)(ii)- Section A: Central Level Government Entities; Section B: Sub-Central Level Government Entities; Section C: Other Covered Entities; Section D: Goods; Section E: Services; Section F: Construction Services; Section G: General Notes; Section H: Threshold Adjustment Formulas; Section F: Transition Mechanisms. Annex 9.1.2 (b)(iii) - Section A: Entities; Section B: Goods; Section C: Services; Section D: Construction Services; Section E: General Notes.
9 WTO Government Procurement Agreement