CHAPTER II

CHAPTER: SCOPE AND NATIONAL TREATMENT

2.1 Scope and coverage

WTO

Entities: The GPA follows a positive list (i.e., inclusions list) approach to determine the scope of the Agreement. Entities for each country are listed in Appendix I of the Agreement, which is divided into five Annexes. Annex 1 contains central government entities; Annex 2 contains sub-central government entities; and Annex 3 contains all other entities that procure in accordance with the agreement (including government enterprises such as utilities). Entities that are listed in the Annexes are subject to the provisions of the Agreement with respect to their procurement of goods and services if: (1) the value of the procurement exceeds certain specified thresholds; and (2) the goods and services that are involved are not exempted from the coverage of the Agreement.
Contractual options: According to Article I of the GPA, the agreement applies, "To any law, regulation, procedure or practice regarding any procurement by the listed entities." The concept of ?procurement? covers all contractual options and includes purchase, and lease, rental or hire purchase, with and without an option to buy, including any combination of products and services.
Product coverage: Product coverage is also determined the by the Annexes. As far as goods are concerned, in principle all procurement is covered, unless specified otherwise in the Annex. Thus, a negative list approach is used to determine the coverage of the GPA for procurement of non-defense related goods by scheduled entities. On the other hand, procurement of services is subject to a positive list: only the procurement by covered entities explicitly scheduled in Annexes 4 and 5 are subject to the Agreement?s rules. The US uses a negative list.
Thresholds: The thresholds for procurement contracts are not uniform because some variances exist between the signatory countries. In general, for most countries, thresholds are the following:

Central Government Entities

(Annex I)

Sub-central Government Entities

(Annex II)

All Other Entities (*) (Annex III)

Goods and services except construction services

SDR 130,000

SDR 200,000

SDR 355.000

Construction services

SDR 5,000,000

(*) All other entities include, in general, public enterprises or public authorities such as utilities.

Many Parties have made explicit derogations to the commitments that are contained in their Annexes. For example, some signatory countries have specified that they will only give nondiscrimination treatment, as to the procurement of entities listed in their Annexes, to firms originating from those Parties that have given comparable access to that country. Other countries have taken a similar approach with regard to commitments on services. They have specified that the services listed are covered only to the extent that other parties to the Agreement have provided reciprocal access to that service.
By virtue of the US - Israel Free Trade Agreement, the threshold for the purchase of goods is US$ 50,000. These obligations were undertaken within the framework of the GATT?s 1979 (Procurement Code) Agreement on Government Procurement.

IDB

The IDB?s Basic Policies and Procedures apply to all projects which are financed with the Bank?s resources. The Bank?s loan contracts establish a threshold for works, and another for goods and related services, equal to or above which such works or goods and related services must be procured through international competitive bidding procedures, whenever foreign currency funds from the Bank?s loan are to be used for such procurement.
The thresholds are established on a case-by-case basis. The fundamental criterion for the establishment of these thresholds is the promotion of international competition. Threshold amounts are set at levels designed to attract the participation of international contractors and suppliers of goods and services.
To help establish these thresholds, the Procurement Policy and Coordination Office of the Bank develops country/sector guidelines. In proposing the threshold for each project, the Bank?s technical team assigned to a project ("project team") takes into account, in addition to the basic guidelines, the following criteria, as they relate to the country/sector of the respective project:

appropriate packaging to encourage international competition and promote economy and efficiency;
the opinion of potential foreign suppliers or contractors specializing in the goods or works in question;
previous foreign participation in projects requiring the goods or works in question;
the threshold amounts established by other international organizations;
the size, complexity, and cost of the procurement in question;
the economic conditions in the country which the procurement will take place; and
the production capacity or availability of contractors at the national level and their capacity to supply the goods or execute the works in question.

As set out in paragraph 3.3 of the IDB?s Basic Procurement Policies and Procedures the threshold amounts may not exceed the equivalent of $5.000.000 for works and $350.000 for goods and related services. For contracts equal to or above these amounts, international competitive bidding is mandatory. Higher threshold amounts may be proposed for approval by the Bank?s Board of Executive Directors if the project team and the Bank?s Procurement Office determine that the application of the established maximum thresholds would have negative effects on international competition and that it is unlikely that said thresholds would ensure the most economic and efficient outcome of the bidding in question.
Procurement of works and goods and related services below the limits specified , is governed by national legislation, provided that it is not in conflict with the policies of the Bank.
The threshold for consulting services is $200,000. Unlike the thresholds for works or goods, the threshold for consulting services is not established on a case-by-case basis, thus, every procurement of consulting services over $200,000 is subject to international bidding procedures..

MERCOSUR

The Treaty does not provide for coverage in government procurement.

NAFTA

Entities: A positive list approach is followed to determine the scope of the agreement. The entities covered are listed in the agreement?s Annexes. Annex 1001.1a-1 covers federal government entities and Annex 1001.1a-2 covers government enterprises. State and provincial governments are not currently covered but will be included in further negotiations that shall take place before December 31, 1998.
Contractual options: According to Article 1001.5 ?procurement? includes contracts by such methods as purchase, lease, or rental, with or without an option. However, it does not include the acquisition of fiscal agency or depository services, liquidation and management of services for regulated financial institutions and sale and distribution of services for government debt.
Product coverage: A negative list approach is used to determine which goods and services will be covered. Consequently, all good, services and construction services will be covered unless they are specified in the Annexes. It is expressly prohibited to design or structure any procurement contract in order to avoid the obligations of the Agreement.
Thresholds: The agreement covers procurement contracts over the following thresholds (Article 1001):

Federal Government Entities

(Annex 1001.1a-1)

Government Enterprises

(Annex 1001.1a-2)

State and Provincial Government Entities (Annex 1001.1a-3)

Goods and non- construction services

$50,000 (*)

$250.000

Has not been negotiated yet.

Construction services

$6,500,000

$8,000,000

Has not been negotiated yet.

(*) Between Canada and the United States the threshold for goods is $25,000.

CENTRAL AMERICAN COMMON MARKET

The Agreement does not cover government procurement.

ANDEAN GROUP

The Agreement does not cover government procurement.

CARICOM

The Agreement does not cover government procurement.

GROUP OF THREE ACCORD

Entities: (Article 15-02.1) A positive list approach is followed to determine the scope of the Agreement. Thus, it only applies to entities listed in the Annexes. Federal government entities and government enterprises are covered by Annexes I and II, respectively. State and Departmental governments are to be included in future negotiations, but no date has been specified.
Contractual options: (Article 15-02.1) They apply to any measure regarding the procurement of goods, services and any combination thereof or construction services, by any of the listed entities. Procurement includes procurement contracts by such methods as purchase, lease, or rental, with or without an option. However, it does not include non-contractual agreements or any form of governmental assistance, including cooperation agreements, loans, capital transfers, fiscal incentives and government procurement of goods and services granted to persons or state, regional or municipal governments. In addition, the acquisition of fiscal agency or depository services, liquidation and management of services for regulated financial institutions and sale and distribution of services for government debt are not considered as contractual options either.
Product coverage: (Article 15-02.1) The Agreement provides for coverage of all goods and services except for those that are otherwise specified in Annexes 3 and 4. Construction services are covered by Annex 5 and will apply to all the services specified therein. Procurement includes contracts by methods such as purchase, lease or rent with or without an option.
Thresholds: (Article 15-02.1) It covers procurement contracts over the following thresholds:

Federal Government Entities

(Annex 1)

Government Enterprises (Annex 2)

State and Provincial Government Entities

Goods and non-construction services

$50,000

$250,000

Not included. Subject to be included in future negotiations.

Construction services

$6,500,000

$8,000,000

Subject to be included in future negotiations.

(Article 15-02.2) "Reservations" of 45% (in 1996) of the procurement of goods, services and construction services have been made for Federal entities and some government enterprises of all three countries. Furthermore, it provides for reservations of 45% (in 1996) of the total procurement of all goods, services and construction services above the specified thresholds purchased during a year period, excluding the contracts for those entities or enterprises where reservations were previously applied. Both of these type of ?reservations? will be reduced every two years until the year 2004, when they will be completely eliminated. In addition to these reservations, each Party has a permanent reservation of 5% of the total annual purchases. This reservation can be assigned to any of the Federal Entities or Government Enterprises.

BILATERAL AGREEMENTS WITH MEXICO

Mexico-Bolivia

Entities: (Annexes 1 , 2 and 3 to Article 14-02. ) The Agreement currently covers the federal government entities and government enterprises that are listed in Annex I and II of the Agreement. Annex III lists Bolivia?s Departmental entities which are subject to the Agreement. There are no entities listed for Mexico at the State and Provincial level. State and provincial governments are subject to further negotiations (Annex III). The Parties have undertaken to initiate negotiations no later than January 1, 1998. The Parties will consult with their State and Provincial governments in order to include these entities on a voluntary and reciprocal basis (Article 12-24).
Contractual options: (Article 14-02.5 ) They apply to any measure regarding the procurement of goods services and any combination thereof or construction services, by any of the listed entities. Procurement includes procurement contracts by such methods as purchase, lease, or rental, with or without an option. However, it does not include: non-contractual agreements or any for of governmental assistance, including cooperation agreements, loans, capital transfers, fiscal incentives and government procurement of goods and services granted to persons or state, regional or municipal governments; the acquisition of fiscal agency or depository services, liquidation and management of services for regulated financial institutions and sale and distribution of services for government debt.
Product coverage: (Annexes 4, 5 and 6 to Article 14-02) All goods are covered except for those listed in Annex 4 of the Agreement which are expressly excluded. The excluded goods are mainly defense related goods which are specified the lists of both countries. For Bolivia, agricultural products destined for human consumption by certain government agencies are also excluded. All services, including construction services are included for the entities listed in Annexes 1-3. However, these goods and services are subject to ?transition mechanisms? and local content requirements which limit the coverage of the agreement.
Thresholds: (Article 14-02.1 ( c ) and Annex 9) Mexico?s thresholds are at the same level as in NAFTA. For Bolivia the current threshold for Federal Government Entities is $90,000 for purchases of goods and services and $7.75 million for purchases of construction services. For Government Enterprises the current threshold is $450,000 for purchases of goods and services, and $11 million for purchases of construction services. The transition mechanisms provide Bolivia a phase-out period of five years. The goal is to reduce the above figures by the year 2000, as indicated below. This table illustrates the aforementioned procurement contract thresholds:

Federal Government Entities

Government Enterprises

State and Provincial Governments

Goods and non-construction services

For Bolivia $80,000 in 1997. It will be gradually reduced by 10,000 each year down to 50,000 by the year 2000.

For Bolivia $400,000 in 1997. It will be gradually reduced by 50,000 each year down to 250,000 by the year 2000.

For Bolivia, US$ 80,000 in 1997. The threshold will be progressively reduced by US$ 10,000 each year down to US$ 50,000 by the year 2000. The list only includes Bolivian entities. For Mexico entities are not listed. They are subject to negotiations before January 1, 1998.

Construction services

For Bolivia $7,500,000 in 1997. It will be gradually reduced each year down to 6,500,000 by the year 2000.

For Bolivia $10,000,000 in 1997. It will be reduced each year down to 8,000,000 by the year 2000.

For Bolivia, US$ 7,500,000 in 1997. The threshold will be progressively reduced each year down to US$ 6,500,000 by the year 2000. The list only includes Bolivian entities. For Mexico entities are not listed. They are subject to negotiations before January 1, 1998.

Mexico?s procurement contracts over the specified thresholds are subject to ?reservations? or set asides for Pemex, CFE. which will be progressively eliminated by the end of the year 2003.

Mexico - Costa Rica

Entities: (Annexes 1, 2 and 3 to Article 12-02.1) Provides coverage for federal government entities and government enterprises of the entities listed in Annexes 1 and 2 of the agreement. State and municipal entities listed in Annex 3 and only entities pertaining to Costa Rica are lited. Article 12-02.1 (iii) provides that the thresholds will be applied according to the amounts specified in Annex 3, which are the same as for federal government entities. For Mexico, entities are subject to further negotiations for its inclusion in the Agreement. Prior to such negotiations, the Parties shall endeavor to consult with their State and Municipal governments with a view to obtaining commitments, on a voluntary and reciprocal basis, to include within this Chapter procurement by State and Municipal government entities and enterprises. The Parties will initiate negotiations when determined by the Commission (Article 12-24).
Contractual options: (Article 12-02.5) They apply to any measure regarding the procurement of goods services and any combination thereof or construction services, by any of the listed entities. Procurement includes procurement contracts by such methods as purchase, lease, or rental, with or without an option. However, it does not include: non-contractual agreements or any for of governmental assistance, including cooperation agreements, loans, capital transfers, fiscal incentives and government procurement of goods and services granted to persons or state, regional or municipal governments; the acquisition of fiscal agency or depository services, liquidation and management of services for regulated financial institutions and sale and distribution of services for government debt.
Product coverage: (Article 12-02.1) Coverage is provided for the goods and services, including construction services which are listed respectively in Annexes 4, 5 and 6 of the Agreement. The agreement applies to procurement by methods such as purchase, lease, rental or hire purchase, with or without an option to buy, including any combination of products and services.
Thresholds: (Article 12-02.1)They are subject to the ?transition mechanisms? established in Annexes 9 and 8 of the agreement. A phase-out period is provided for Mexico. The goal is to eventually reduce the current level of reservations for Pemex and CFE and the construction sector by the year 2003. The thresholds are the same as NAFTA, $50,000 for purchases of goods and services of federal government entities and $6.5 million for construction services. For government enterprises, the goal is to reduce the current thresholds to $250,000 for goods and services and 8 million for construction services.

BILATERAL AGREEMENTS WITH CHILE

Not covered.

2.2 Obligations regarding sub-central levels of government

WTO

The WTO agreement provides coverage for purchases of goods and services by sub-central government entities. The threshold for these entities is not uniform. According to Annex 2 for good and services the threshold is SDR 200,000 for most countries, except for Canada, the US and Israel. For the US and Canada the threshold is of SDR 355.000 and for Israel SDR 250,000. The threshold for construction services is in general SDR 5,000,000. However, for Israel, Korea and Japan, the thresholds are SDR 8,500,000 for the first country and SDR 15,000,000 for the other two.

IDB

The IDB?s Basic Procurement Policies and Procedures apply to all entities which are beneficiaries of an IDB loan (paragraph 2.1).

MERCOSUR

Not covered.

NAFTA

Only federal level coverage but Parties have undertaken to consult with state and provincial governments with a view to obtaining commitments on a voluntary and reciprocal basis. The Parties shall commence further negotiations no later than December 31, 1998 (Article 1024.).

ANDEAN GROUP

Not covered.

CENTRAL AMERICAN COMMON MARKET

Not covered.

CARICOM

Not covered.

GROUP OF THREE ACCORD

Only federal level coverage but Parties have undertaken to consult with state and provincial governments with a view to obtaining commitments on a voluntary and reciprocal basis. No date has been specified for further negotiations (Articles 15-02, (ii) and 15-26).

BILATERAL AGREEMENTS WITH MEXICO

Mexico-Bolivia: Annex III lists Departmental entities from Bolivia which are subject to the Agreement and the applicable thresholds, which are the same as for Federal government entities. There are no Mexican State or Departmental entities listed yet. State and Departmental entities are subject to further negotiations (Article 14-24). The Parties have undertaken to consult with State and Departmental governments with a view to obtaining commitments, on a voluntary and reciprocal basis, to include procurement by State and Departmental government entities and enterprises. The Parties undertaken to commence negotiations before January 1, 1998 (Annex 3 and Articles 14-24).
Mexico-Costa Rica: State and Municipal entities are listed in Annex 3. Only entities from State and municipal governments pertaining to Costa Rica are listed. Article 12-02.1 (iii) provides that thresholds for State and Municipal entities will be applied according to the amount specified in Annex 3, which are the same as for Federal government entities.. However, for Mexico, entities are subject to further negotiations for their inclusion in the Agreement. Prior to that negotiation, the Parties shall endeavor to consult with State and Municipal Governments with view to obtaining commitments, on a voluntary and reciprocal basis, to include procurement by State and Municipal government entities and enterprises. The Parties will initiate negotiations when determined by the Commission (Article 12-24).

BILATERAL AGREEMENTS WITH CHILE

Not covered.

2.3 Government enterprises

WTO

Government enterprises are listed in each country?s schedule. Coverage for government enterprises includes purchases of goods and services over SDR 355,000 and SDR 400,000 for the United States and purchases of construction services over SDR 5,000,000 (Article I and Annex 3).

IDB

The IDB?s Basic Procurement Policies and Procedures apply to all entities which are beneficiaries of an IDB loan (paragraph 2.1 of the BPPP).

MERCOSUR

Not covered.

NAFTA

Government enterprises are listed in each country?s schedule. Coverage for government enterprises includes purchases of goods and services over $250,000 and purchases of construction services over $8,000,000 (Article 1001 and Annex 1001.1a-2.)

ANDEAN GROUP

Not covered.

CENTRAL AMERICAN COMMON MARKET

Not covered.

GROUP OF THREE ACCORD

Coverage is the similar to NAFTA (Article 15-02 (ii)).

CARICOM

Not covered.

BILATERAL AGREEMENTS WITH MEXICO

Government enterprises are listed in each country?s schedule. For Mexico coverage is the similar to NAFTA. For Bolivia, the current level of coverage (1996) for government enterprises is $450,000 for goods and services, but will be reduced by $50,000 each year until the year 2000 when it will reach $250,000 (Article 14-02 and Annexes 2 and 9) . For construction services the threshold for Bolivia is currently $11.000,000 and will be reduced every year until the year 2000 when it will be $8,000,000. For Costa Rica the coverage is at the same level as NAFTA.

BILATERAL AGREEMENTS WITH CHILE

Not covered.

2.4 Valuation of contracts

WTO

Article II of the GPA states that "Valuation shall take into account all forms of remuneration, including any premiums, fees, commissions and interest receivable."
The selection of the valuation method by the entity shall not be used, nor any procurement divided, with the intention of avoiding the application of the agreement. If an individual requirement for procurement results in an award of more than one contract, or in contracts being awarded in separate parts, the basis for valuation shall be either:

(a) The actual value of similar recurring contracts concluded over the previous fiscal year or 12 months adjusted, where possible, for anticipated changes in quantity and value over the subsequent 12 months; or

(b) The estimated value of recurring contracts concluded over the previous fiscal year or 12 months subsequent to the initial contract.

In cases of contracts for the lease, rental or hire purchase of products or services, or in the case of contracts which do not specify a total price, the basis for valuation shall be:

(a) in the case of fixed term contracts, where their term is 12 months or less, the total contract value for their duration, or, where their term exceeds 12 months, their total value including the estimated residual value;

(b) in the case of contracts for an indefinite period, the monthly installment multiplied by 48; and

(c) if there is any doubt, the second basis for valuation, namely (b), is to be used.

In cases where an intended procurement specifies the need for option clauses, the basis for valuation shall be the total value of the maximum permissible procurement, inclusive of optional purchases.

IDB

The IDB does not have specific rules for the valuation of contracts. The valuation is done jointly by the Bank and the Borrower during the General Procurement Plan phase and is eventually subject to the approval of the Bank.
The Borrower must prepare a general procurement plan to be agreed upon with the Bank during the analysis of the operation. The plan must set forth in detail as a minimum the following information: (i) the thresholds for international competitive bidding to be applied in the project; (ii) all of the goods, works and services required to carry out the project; (iii) the characteristics and estimated costs of the various contracts under which the items to be procured will be grouped; (iv) the source of financing and the method of procurement foreseen for each contract, given due consideration to the rules established for each method; (v) the prequalification and bidding that will be required to acquire the goods, works and services; and (vi) the estimated dates of the principal stages of the procurement process, including completion dates of works and related services, and the delivery dates for goods. The general procurement plan can only be modified during the execution of project with the agreement of the Bank (paragraph 2.4 (a) of the BPPP).

MERCOSUR

Not covered.

NAFTA

Contains a similar provision to the WTO Government Procurement Agreement (Article 1002).

ANDEAN GROUP

Not covered.

CENTRAL AMERICAN COMMON MARKET

Not covered.

CARICOM

Not covered.

GROUP OF THREE ACCORD

Contains a similar provision to the WTO Government Procurement Agreement (Article 15-03).

BILATERAL AGREEMENTS WITH MEXICO

Contains a similar provision to the WTO Government Procurement Agreement (Article 14-03 for Mexico-Bolivia and 12-03 for Mexico Costa Rica).

BILATERAL AGREEMENTS WITH CHILE

Not covered.

2.5 National treatment and non-discrimination

WTO

The basic principles governing the GPA are non-discrimination and national treatment (Article III). They refer to a legal prohibition to discriminate, with respect to laws, regulations, procedures and practices covered by the agreement.
Parties shall provide immediate and unconditional treatment to products and/or services and suppliers of other Parties, that is no lees favorable than that accorded to domestic products, services and suppliers or any other Party?s products, services and suppliers.
Article III:2 of the Agreement prohibits discrimination against locally established firms or suppliers on the basis of their degree or foreign affiliation or ownership. Furthermore, this provision prohibits discrimination 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 on rules of origin.
The two fundamental obligations apply irrespective of the customs treatment of the products or services that will affect the procurement contract. Thus, the national treatment and non-discrimination obligations 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, or other import regulations and formalities; and measures affecting trade in services other than laws, regulations procedures and practices regarding government procurement covered by the Agreement.
Signatories have specified derogations to non-discrimination and national treatment with respect to other signatories in their schedules of concession.

IDB

Prospective bidders from the Bank?s member countries have the opportunity to participate under equitable conditions in the provisions of goods, works, and services. The principal rule applicable to the use of resources of the Bank, established in its Charter, is that they must be used with strict attention to considerations of economy and efficiency. This rule applies to all procurement financed by the Bank. The method that best lends itself to the application of this rule is international competitive bidding.
The Bank recognizes the following basic principles of public bidding: publicity, equal treatment of bidders, competition, and due process (paragraph 3.2 of the BPPP).
The principle of competition has as its objective the participation of the maximum number of qualified bidders so that Borrowers can obtain the best conditions that the market offers. In order for effective competition to exist, the participants must be treated equally. This principle requires avoiding any type of preference or discrimination that favors or jeopardizes one bidder to the detriment of or benefit of others.
Under the principle of publicity, access to all information related to a bidding process must be available to all contractors, not only in the initial stages of the bidding procedure but also in the opening of bids and any subsequent clarification.
Under the principle of due process, the Bank requires that Borrowers institute procedures that ensure full discussion of controversies and permit bidders both to contest other offers and to defend their offers against objections that may be lodged against them.

MERCOSUR

Not covered.

NAFTA

The two basic provisions of non-discrimination and national treatment governing the NAFTA Chapter on Government Procurement are in line with the ones on the WTO Government Procurement Agreement and other agreements in the Western Hemisphere where Mexico is a party (Article 1003).
Parties shall accord to goods and/or services of any other Party, as determined in accordance with the rules of origin, and to the suppliers of those goods and services, treatment no less favorable than the most favorable treatment accorded to domestic products, services and suppliers or any other Party?s products, services and suppliers.
Article 1003.2 of the Agreement prohibits discrimination against locally established firms or suppliers on the basis of their degree or foreign affiliation or ownership. Furthermore, this provision prohibits discrimination against locally established suppliers on the basis of the country of production of the good or service being supplied.
The two fundamental obligations apply irrespective of the customs treatment of the products or services that will affect the procurement contract. Thus, the national treatment and non-discrimination obligations 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, or other import regulations, including regulations and formalities.

ANDEAN GROUP

Not covered.

CENTRAL AMERICAN COMMON MARKET

Not covered.

CARICOM

Not covered.

GROUP OF THREE ACCORD

Contains a similar provision to NAFTA (Article 15-04). Colombia and Venezuela apply their national legislation for tendering procedures, therefore, various articles pertaining to Section B of the Agreement (Tendering procedures) do not apply to these countries. Consequently, Annex to article 15-09 states that concerning tendering procedures Colombia and Venezuela will grant Mexico no less favorable treatment than the most favorable treatment accorded to other countries which are not Parties to the Agreement.

BILATERAL AGREEMENTS WITH MEXICO

Contains a similar provision to NAFTA (Article 14-04 for Mexico-Bolivia and 12-04 for Mexico-Costa Rica).

BILATERAL AGREEMENTS WITH CHILE

Not covered.

2.6 Rules of Origin

WTO

Article IV of the GPA does not allow for the application of rules of origin, which are different from the ones applied in the normal course of trade at the time of the transaction in question, to imports of the of the same products or services from the same Parties. This provision is subject to be amended following the conclusion of the work program for the harmonization of rules of origin for goods to be undertaken under the Agreement on Rules of Origin of the WTO and negotiations regarding trade in services.

IDB

The Bank has strict rules as to the use of the funds provided in its loans. These funds can be disbursed only to pay for expenses resulting from the procurement of eligible goods, works, or services that comply, among other things, with rules concerning the nationality of suppliers and the origin of the goods (Paragraph 2.5 of the BPPP).
In tendering for works, only contractors from member countries of the Bank may participate (paragraph 2.6 of the BPPP).
Nationality of the firm (paragraph 2.7 of the BPPP). The Bank uses the following criteria to determine the nationality of a construction firm and its eligibility to carry out works:

a) the firm must be incorporated and operating in conformity with the provisions of the laws of a member country in which the firm has its principal domicile;

b) the firm must have its principal business office in the territory of a member country;

c) more than 50% of the firm?s capital must be owned by one or more persons or legal entities of one or more member countries or by citizens or "bona fide" residents of such eligible countries;

d) the firm must constitute an integral part of the economy of the member country in which it is domiciled;

e) no arrangement may exist under which any substantial part of the net profits or other tangible benefits of the firm will accrue or be paid to natural persons who are not citizens or "bona fide" residents of members countries, or to legal entities that are not eligible in accordance with the nationality requirements set forth in this paragraph; and

f) in the case of a contract for the execution of works, at least 80% of the personnel who will render services in the country where the construction is to be carried out must be citizens of a member country, whether employed directly by the contractor or by a subcontractor. In making this computation with respect to a firm from a country other than that where the construction takes place, citizens or permanent residents of the country where the construction takes place shall not be counted.

The above rules are also applied to each member of a joint venture or consortium (a collaborative effort of two or more firms) and to any firm that such consortium may propose as subcontractor for part of the work.
Origin of goods (paragraph 2.8 of the BPPP). Goods may be acquired only if the country of origin is a member of the Bank. The term country of origin means:

a) the country in which the material or equipment has been mined, cultivated, produced, manufactured or processed; or

b) the country in which, through manufacture, processing or assembly, another commercially recognized article results that differs substantially in its basic characteristics from its imported components. The nationality or country of origin of the firm that produces, assembles, distributes, or sells the goods or equipment is not relevant in determining their origin.
Goods shall be considered to be of national origin if the cost of the national materials, labor, and services used to produce them constitutes not less than 40% of their total cost.
Goods shall be considered to be of regional origin if it originates in a country that is a party to an integration agreement to which the Borrower is also a party, and complies with the standards governing origin and together matters relating to trade liberalization programs established in the respective agreements.
Transportation and insurance of goods (paragraph 2.9 of the BPPP). The Bank finances the transportation of goods only if it is carried out by firms from eligible countries. The source is considered eligible when any of the following criteria is met:

a) the flag of the vessel is from a member country of the Bank;

b) the owner of the vessel is from a member country of the Bank;

c) the vessel is registered in a member country of the Bank; or

d) the company that transports the goods and issues the bill of lading is from a member country of the Bank.
- Under the criteria of sub-paragraphs (b), (c) and (d) above, it is not necessary that the vessel bear the flag of a Bank member country.
- Insurance for contracts financed by the Bank is eligible for Bank financing only when it is provided by insurers from member countries. The bidding documents should indicate the type and conditions of the insurance to be provided by the bidders. For civil works, the ordinary requirement is that the contractor provide all-risk insurance.
- The bank encourages the participation of suppliers and contractors from the Borrower?s country in order to further the development of national industries. National suppliers, industries, and contractors may bid independently or in joint ventures with foreign firms, but the Bank does not accept mandatory formation of joint ventures, nor any other form of obligatory association, nor the establishment of obligatory percentages of national participation.
MERCOSUR
- Not covered
NAFTA
- Article 1004.1 of the Agreement sets out the rules of origin for goods. It states that a Party to the agreement "shall not apply rules of origin to goods imported from another Party, which are different or inconsistent with the rules of origin the Party applies in the normal course of trade."
- Article 1005 (Denial of Benefits) of the agreement contains a non circumvention provision for services: It states that "Parties may deny the benefits of the agreement to an enterprise that is a supplier of services of another Party, if nationals of any non-Party own or control that enterprise, and such enterprise has no substantial business activities in the territory of the Party under whose laws it is constituted."
ANDEAN GROUP
- Not covered.
CENTRAL AMERICAN COMMON MARKET
- Not covered.
CARICOM
- Not covered.
GROUP OF THREE ACCORD
- Article 15-05 of the Agreement sets out the rules of origin for goods. It states that a Party to the agreement "shall not apply rules of origin to goods imported from another Party, which are different or incompatible with the rules of origin" established in Chapter VI of the Agreement.
- Article 15-06 of the Agreement sets out the rules of origin for services: A Party to the Agreement may deny the benefits of the agreement to an enterprise that is a supplier of services of another Party, when the Party determines that the service is being provided by an enterprise that has no substantial business activities in the territory of any of the Parties and nationals of non-Party own or control that enterprise. A Party shall previously notify the enterprise and carry out consultations before it can make such determination.
BILATERAL AGREEMENTS WITH MEXICO
- Contains a similar provision to the Chapter on Government Procurement of the Group of Three Agreement (Articles 14-05 and 14-06 for Mexico-Bolivia and 12-05 and 12-06 for Mexico-Costa Rica).
BILATERAL AGREEMENTS WITH CHILE
- Not covered
2.7 Offsets

WTO
- Article XVI of the GPA explicitly prohibits the use of offsets insofar as they imply discrimination. The use of policies such as the imposition of conditions that encourage local development or improve a Party?s balance- of -payments account by such methods as local-content requirements, licensing of technology, or investment are forbidden for developed countries.
- Developing countries may continue to require offsets, as long as these are objective and clearly defined, non-discriminatory, and are used only for qualification to participate and not as a criterion in awarding contracts.
- Offsets shall be specified in each country?s schedule and may include precise limitations on their imposition in any contract subject to the Agreement. The existence of such measures shall be notified to the Committee and included in the notice of intended procurement and other documentation.
IDB
- In international competitive bidding for the procurement of goods, the Bank allows, for up to 15% of the value of the corresponding bid, the application of margins of preference to goods of national or regional origin. The purpose of allowing these margins of preference is to encourage the development of the national and regional manufacturing industry in the borrowing countries. The Borrower may, at its option, apply such margins of preference, however their application must be explicitly stated in the bidding documents (paragraph 3.8 (h)).
- National margin of preference(paragraph 3.8 (h) (i)). The national margin of preference applies when comparing bids offering domestic goods with bids offering goods from other countries. Where suppliers offering goods from the country of the Borrower participate in bidding, such local suppliers of goods may be granted a margin of preference of up to 15% or the actual import duty that a nonexempt good would have paid, whichever is less. This margin of preference is added to the CIF price of the foreign offers expressed in their local currency equivalent. The following criteria shall be used for the application of this type of preference:
  
  a) Goods shall be considered to be of national origin if the cost of the national materials, labor, and services used to produce them constitutes not less than 40% of their total cost.
  
  b) In comparing local and foreign offers, the bid or offered price of the national origin goods shall be the delivered price at the project site, with deductions for (1) import duties paid on significant raw materials or manufactured components, and (2) local sales, consumption and value added taxes incorporated in the cost of the item or items being offered. Proof of the amounts to be deducted under (1) and (2) shall be established by the local bidder. The foreign bid or offered price shall be the CIF price (excluding import duties, consular fees and port taxes) to which will be added port handling charges and any local transportation form the port or border to the project site.
  
  c) The rate of exchange to be used in such comparison shall be the selling rate of the selected currency, as published in an official source and applicable to similar transactions. The effective date of the rate of exchange should be stated in the bidding documents, but such date shall not be earlier than 30 calendar days prior to the date specified for the opening of bids.
- Regional margin of preference (paragraph 3.8 (h) (ii)). The regional margin of preference applies when comparing bids offering goods from regional countries which are members of the integration agreements recognized by the Bank, with bids offering goods from countries not parties to such integration agreements. For purposes of this policy, the Bank recognizes the following subregional or regional integration agreements: (a) the Central American Common Market; (b) the Caribbean Community; (c) the Cartagena Agreement; and (d) the Latin American Integration Association. In cases in which the country of the Borrower signed more than one integration agreement, the subregional or regional margin of preference may be applied, depending on the country of origin of the goods to be procured. The Borrower may recognize the regional margin of preference utilizing the following criteria.
1. goods shall be considered to be of regional origin if it originates in a country that is a party to an integration agreement to which the Borrower is also a party, and complies with the standards governing origin and other matters relating to trade liberalization programs established in the respective agreements.
2. The local value added in its manufacture shall not be less than that stipulated for the national margin of preference.
3. In comparing foreign offers, the Borrower may add to the price offered for the goods originating in countries not parties to the respective integration agreement, either a maximum of 15% or the difference between the import duty applicable to such goods from countries not parties to the integration arrangement and from countries which are parties to the agreement, whichever is less.
MERCOSUR
- Not covered.
NAFTA
- Article 1006 of the NAFTA prohibits the use of offsets. It requires each Party to ensure that its covered entities do not impose offsets such as the imposition of domestic content requirements or licensing of technology. Unlike the WTO agreement where the prohibition is only for developed countries, in NAFTA the prohibition is applied equally for all the Parties.
ANDEAN GROUP
- Not covered.
CENTRAL AMERICAN COMMON MARKET
- Not covered.
CARICOM
- Not covered.
GROUP OF THREE ACCORD
- The prohibition of offsets is set forth in Article 15-07 of Chapter XV of the Agreement. It requires each Party to ensure that its covered entities do not impose offsets such as domestic content requirements or licensing of technology. Unlike the WTO agreement, where the prohibition is only for developed countries, here the prohibition is applied equally for all the Parties.
- The Parties will exchange information on the results of the application of programs directed to support the local industries or the activities of the comities created such as consultative comities. If from the application of such programs a Party considers to have been subject to discrimination, it can resort to the dispute settlement mechanisms set forth in Chapter XIX of the Agreement.
BILATERAL AGREEMENTS WITH MEXICO
- Contains a similar provision as the NAFTA Chapter on Government Procurement (Article 14-07 for Mexico-Bolivia and 12-07 for Mexico-Costa Rica).
BILATERAL AGREEMENTS WITH CHILE
- Not covered.
2.8 Technical Specifications

WTO
- The provisions on technical specifications of the GPA are similar to those in all the other agreements which cover trade in government procurement.
- Article VI. 1 of the GPA prohibits procuring entities to prepare, adopt or apply technical specifications that lay down characteristics of the products or services procured with a view to, or with the effect of, creating unnecessary obstacles to international trade .
- Article VI.2 states that when procuring entities decide to prescribe technical specifications, they should be in terms of performance rather than design or descriptive characteristics and based on international standards if available. Otherwise, national standards or technical regulations can fulfill the requirement.
- Article VI.3 prohibits requirements or references to a particular trademark, trade name, patent, design, specific origin, producer or supplier, unless there is no sufficiently precise or intelligible way of describing the requirements and provided that such words as "or equivalent" are included in the tender documentation.
- Article VI.4 contains a prohibition against seeking or accepting, in a manner that would have the effect of precluding competition, advice which may be used in the preparation of specifications for a specific procurement from a firm that may have a commercial interest in the procurement.
IDB
- As described in Section VII of the Standard Bidding Documents of the IDB, technical specifications shall be precise, not ambiguous and drafted in a way to allow for the broader possible competition, making sure that they are not restrictive.
- If the bidding documents mention standards of quality that the equipment or materials must meet, the specifications shall also indicate that the goods complying with other recognized standards, which assure equal or higher quality than the mentioned standards, are acceptable (paragraph 3.8. (d) of the BPPP)
- Specifications should not refer to brand names, catalog numbers or types of equipment from a particular manufacturer, except when it has been decided that it is necessary in order to guarantee the inclusion of a particular essential design, or characteristic of functioning, construction or fabrication. In these cases, the references should be followed by the words "or equivalent", together with the criteria for determining such equivalence. The specifications permit the acceptance of offers for equipment with similar characteristics that provide performance and service at least equal to that specified. In special cases and with the prior approval of the Bank, specifications may require the furnishing of an article from a designed manufacturer (paragraph 3.8 (e) of the BPPP).
MERCOSUR
- Not covered.
NAFTA
- The provisions on technical specifications are similar to the ones on the WTO Government Procurement Agreement (Article 1007).
ANDEAN GROUP
- Not covered.
CENTRAL AMERICAN COMMON MARKET
- Not covered.
CARICOM
- Not covered.
GROUP OF THREE ACCORD
- The provisions on technical specifications are similar to the ones on the WTO Government Procurement Agreement (Article 15-08).
BILATERAL AGREEMENTS WITH MEXICO
- The provisions on technical specifications are similar to the ones on the WTO Government Procurement Agreement (Article 14-08 for Mexico-Bolivia and 12-08 for Mexico-Costa Rica).
BILATERAL AGREEMENTS WITH CHILE
- Not covered.
2.9 Special and differential treatmen

WTO
- Transitional rules have been set out for Hong Kong and Korea which may delay the application of the provisions of the Agreement to a date no later that January 1, 1997. The rights and obligations between Hong Kong and the other signatories of the GPA, are governed until then by the 1979 Government Procurement Agreement as amended on 1987.
- Although in principle no discrimination is allowed in favor of domestic firms by the covered entities, differential treatment is provided for developing countries. Article V of the GPA states that the Parties shall duly take into account the development, financial and trade needs of developing countries, in particular the least-developed ones.
- Developing countries may modify their coverage, although subject to request for compensation, or seek of approval for exclusion from the rules on national treatment, in order to safeguard their balance-of-payments position; ensure an adequate level of reserves; promote the development of local industries; support industrial units "so long as they are substantially dependent on government procurement" and encourage their economic development through regional or global arrangements among developing countries.
- Article V:4 of the GPA allows developing countries to negotiate, at the time of accession, "mutually acceptable exclusions for the rules on national treatment with respect to certain entities, products or services that are included in their lists of entities". Such negotiations may also be initiated ex post, that is, after signing the agreement. The use of offsets are also negotiable at the time of accession.
IDB
- Not covered.
MERCOSUR
- Not covered.
NAFTA
- Not covered.
ANDEAN GROUP
- Not covered.
CENTRAL AMERICAN COMMON MARKET
- Not covered.
CARICOM
- Not covered.
GROUP OF THREE ACCORD
- Without prejudice of the provisions of the Chapter on Government Procurement, Colombia and Venezuela will apply their own national legislation with respect to tendering procedures and will only apply Articles 1509-15-16 on their relevant parts. Nevertheless, they will grant Mexico treatment no less favorable than the most favorable treatment granted to any other non-Party country. Bid challenge procedures (Article 15-17) do not apply to Colombia and Venezuela.
- The Agreement establishes transitory and permanent reserves or set asides to protect industries identified as ?sensitive? for each country. They are generally entities related to the energy and defense sectors.
- Paragraph 4 of Article 15-20 (Information requirements) with regards to additional or ex post information requirements does not apply to Colombia and Venezuela. They are also granted a period of three years after the entry into force of the agreement to fully comply with the reports on government procurement statistics on number and value of contracts awarded by the entities listed in the their respective schedules. To that effect, Mexico undertakes to collaborate with the other two countries in a technical cooperation program to facilitate the fulfillment of the obligations set forth in Article 15-20.
- The procurement derived from loans received from regional and multilateral financial institutions will not be included for purposes of calculating the percentage of the total annual set-asides.
BILATERAL AGREEMENTS WITH MEXICO
- The agreement with Bolivia establishes ?transition mechanisms? for that country?s procurement of goods and services of the entities listed in its respective schedule. Furthermore, for Bolivia, the Chapter on government procurement will not apply until the year 2002 to procurement of pharmaceuticals whose patents have expired, purchased by health and social security institutions; insurance, and other services listed in Annex 8 of the Agreement. No transition mechanisms are provided for Costa Rica.
- Mexico has made the same reservations it has made in the Group of Three Accord for PEMEX , CFE and for constructions services sector other than energy in both agreements.
- As in the G-3 the procurement derived from loans received from regional and multilateral financial institutions will not be included for purposes of calculating the percentage of the total annual set-asides.
BILATERAL AGREEMENTS WITH CHILE
- Not covered.
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