Free Trade Agreement

A Free Trade Agreement with a government procurement chapter creates reciprocal obligations between the United States and the partner country to open their respective government procurement markets to each other's suppliers above specified contract value thresholds.

What is a Free Trade Agreement in Procurement?

A Free Trade Agreement (FTA) is a treaty between two or more countries that reduces barriers to trade in goods, services, and investment. For federal procurement purposes, the relevant FTAs are those that include a government procurement chapter imposing non-discrimination obligations on the signatory governments' public purchasing.

The United States has procurement-inclusive FTAs with:

• Australia, Bahrain, Canada and Mexico (USMCA), Chile, Colombia, the Dominican Republic and Central American countries (CAFTA-DR), Israel, Jordan, Morocco, Oman, Panama, Peru, Singapore, South Korea.

Each FTA specifies coverage thresholds for its procurement chapter, procurement entities covered (federal agencies, state agencies, Crown corporations, etc.), and the procurement categories included. The U.S. FTA procurement chapters are broadly modeled on the WTO GPA and generally impose similar procedural and non-discrimination requirements.

For a supplier to benefit from FTA treatment in U.S. federal procurement:

1. The supplier's country must be an FTA partner with a government procurement chapter.
2. The procurement must exceed the applicable FTA threshold.
3. The product or service must be covered (some FTAs exclude certain sectors).
4. The end product must originate from the FTA country (substantial transformation test).

The Trade Agreements Act (TAA) designates FTA country suppliers as eligible under the same framework as WTO GPA parties. FTA countries appear as "designated countries" in FAR 25.003.

Why Free Trade Agreements matter for government contractors

U.S. contractors pursuing opportunities in FTA partner countries benefit from the partner government's reciprocal obligation not to discriminate against U.S. suppliers. This creates a legal right of access (and a bid challenge mechanism) that does not exist in countries without FTA or GPA relationships with the United States.

Example

A U.S. cybersecurity firm wants to compete for a Canadian federal IT security contract valued at approximately CAD $3 million. Under the USMCA government procurement chapter, Canada must treat U.S. suppliers no less favorably than Canadian suppliers on procurements above the applicable threshold. The firm submits a proposal directly to the Canadian agency, meets Canadian disclosure requirements equivalent to those in the USMCA procurement chapter, and is evaluated under the same criteria as Canadian competitors. The USMCA's procurement chapter gives the firm a legal challenge mechanism if it believes it was discriminated against.

Frequently Asked Questions

Do FTA procurement obligations apply to state and local procurement?

U.S. state and local governments are not bound by the federal government's FTA obligations. The U.S. explicitly carved out sub-federal procurement from many of its FTA obligations (U.S. state governments are partially covered under the WTO GPA but only for entities and categories specifically listed). Contractors bidding on state or local government contracts cannot rely on FTA non-discrimination rights unless the specific sub-federal entity has opted into GPA coverage.

Are FTA thresholds the same as WTO GPA thresholds?

Not always. Each FTA sets its own coverage thresholds in its procurement chapter, which may differ from WTO GPA thresholds. For U.S. procurement, the applicable thresholds for FTA countries are set in the USTR's periodic threshold adjustment notices and incorporated into FAR 25.402. Contractors should verify the current threshold for the specific FTA country involved in each transaction.

Can an FTA supplier challenge a procurement award?

The FTA procurement chapters include challenge mechanisms that broadly parallel domestic bid protest procedures. In the United States, FTA suppliers from designated countries have access to GAO bid protest procedures under the same rules as domestic suppliers. In partner countries, challenge procedures vary based on the specific domestic administrative law and the FTA's implementing legislation.

What happens when a product's country of origin is different from the supplier's country?

FTA benefits attach to the product's country of origin (determined by substantial transformation), not the supplier's corporate nationality. A supplier incorporated in a FTA country that sells products manufactured in China cannot claim FTA eligible product status for those Chinese-origin products. The substantial transformation analysis focuses on where the product was last substantially transformed, regardless of the seller's location.