1. Purpose and Structure

The core purpose of the Chapter is non-discrimination in the conduct of
government procurement. In this context non-discrimination requires
each government to afford the suppliers, goods and services of the other
country the same treatment that applies to domestic suppliers, goods and
services.

The Chapter sets out specific rules, procedures and transparency standards
to be applied in the conduct of government procurement, consistent with non-discrimination.

The Government Procurement Chapter consists of 15 Articles, eight Annexes
and a side letter dealing with blood plasma. The annexes determine
which government entities are covered by the Chapter and the specific types
of procurements and procurement arrangements that each Party has specified
for exemption from application of the Chapter.

Readers should also refer to the definition of government procurement contained
in Chapter One and provisions relating to the management of confidential
information and essential security interests contained in the Chapter 22.

2. Implications for Australia

Australia is currently not a "designated" country under the US
Trade Agreements Act as it does not have an agreement with the US on government
procurement. This prevents US Federal Government entities from being
able to consider bids from Australian suppliers. Australian companies
currently wishing to sell to the US Federal Government must establish operations
in the US, or in a designated country, or establish partnering arrangements
with US firms.

By contrast, access to the Australian market is open - based on non-discrimination,
without any legal or policy barriers to foreign suppliers.

By virtue of the non-discrimination provisions in Article 15.2, Australia
will become a designated country under the US Trade Agreements Act. The
non-discrimination provisions will also require the US to provide Australia
with a waiver from the
"Buy American Act" (1933, 41 USC 10) for contracts to which the Chapter
applies (see Section 3 below). The
"Buy American Act" (1933, 41 USC 10) imposes a 6% penalty
on foreign goods (not services). The waiver will enable Australian
suppliers, for the first time, to compete in the US procurement market on
equal terms with suppliers from the US and from over 60 other designated
countries.

In return, Australia has agreed to tender procedures and transparency arrangements
that will require some changes to the way procurement is conducted in Australia
(see Section 5 below) and the adoption of regulations to ensure compliance
by procuring entities.

3. Coverage

The Chapter applies only to procurements by entities listed in the annexes
with a value equal to or above certain thresholds. Annex 15-A lists
79 US Federal Departments including the new Department of Homeland Security. Subsidiary
agencies of the US listed entities are covered unless specifically excluded.

Australia's list in Annex 15-A includes all Federal Departments and all
other agencies covered by the Financial Management and Accountability Act
1997. In addition, Australia has listed in Annex 15-B, 33 entities
covered by the Commonwealth Authorities and Companies Act 1997.

The US and Australian Departments of Defence are listed in Annex 15-A. Both
sides have exempted procurement of items that are critical to their national
security such as military equipment, systems and essential supplies. Australia
has also reserved the right to maintain the Australian Industry Involvement
Program for defence procurement.

Thresholds vary for different groups of entities and for supplying goods
and services or construction services and are set out at the beginning of
Annexes 15-A, 15-B and 15-C. A higher threshold applies to construction
than for other goods and services. The general goods and services
thresholds for federal entities for Australia and the United States are A$81,800
and US$58,550 respectively.

In addition to the value thresholds, the Government Procurement Chapter
is limited in application by:

1.general exclusions set out in paragraph 3 of Article 15.1 being specific
types of procurements that both countries agreed the Chapter should not apply
to;

2.the exceptions set out in Article 15.12 ;

3.exclusions and reservations specific to a country, entity or group of
entities as set out in the Government Procurement Chapter Annexes;

4.exclusion of purchases of goods or services for resale or for the production
of goods or services for resale; and

5.the general "essential security" provisions of the Agreement.

In Annex 15-G, the US has reserved their preference policies in respect
of small and minority businesses. Australia has similarly specifically
reserved in Annex 15-G a right to continue with procurement policies that
assist small and medium enterprises and those which provide economic and
social assistance to indigenous persons.

At the time of writing, the issue of inclusion of State and Territory level
governments in the Chapter had yet to be resolved. More time has been
allowed for further states and territories to join. The current Australian
and US offers are set out in Annex 15-C.

4. Price Preferences and Offsets

The principle of non-discrimination means that neither country may apply
local preference arrangements, including price preferences, for procurements
to which the Chapter applies.

Article 15.2.5 also specifically bans offsets, defined broadly to cover
any requirement built into a procurement, for such things as local content,
technology transfer or export performance. However, this ban is itself
subject to the Chapter exclusions mentioned above and therefore does not
apply to Australian policies supporting small and medium enterprises.

The ban on offsets will prevent government procurement being used to promote
industry development such as through requiring suppliers to engage in activities
that are considered offsets and are not covered by the exclusions to the
Chapter. This will require modification to the Australian Government
Endorsed Supplier Arrangement assessment procedure and to general Australian
Government policies such as the Model Industry Development Criteria (which
currently may apply to contracts of $5 million or more).

5. Tender Procedures

A number of Articles in the Chapter are devoted to setting out specific
procedures and rules to apply to the conduct of procurement related activities. They
detail rules and procedures for three procurement methods that government
entities may use (Article 15.2.3):

• Open Tendering in which all interested suppliers may submit a tender;
• Selective Tendering in which the procuring entity selects the suppliers
  eligible to tender; and
• Limited Tendering which is a more restricted form of selective tendering
  to which many of the Chapter's procedures do not apply.

The GP Chapter creates a presumption of open tendering, with the other forms
of tendering allowed only in specific conditions (as set out in Article 15.7
and 15.8). The general requirement for open tendering is expected
to lead to more tenders being subject to open tendering procedures in Australia.

The Chapter imposes minimum standards for public notices of procurement
activities. Of importance to industry are the requirements for notices regarding
the advertisement of tender opportunities (referred to as "notices of
intended procurement") (Article 15.4) as well as in respect of contract
awards (Article 15.9).

Coupled with the public notice requirements are minimum times to allow suppliers
to respond to the requests for tenders. Time Limits (Article 15.5)
provide for tenders to remain open for at least 30 days, or 25 days where
tender notices are published on the Internet (as is commonly the case in
Australia). Under specific or exceptional circumstances, detailed
in Article 15.5.3, time limits may be reduced to no less than 10 days. One
important circumstance is where an entity procures commercial goods or services
(see the definition of commercial goods and services in Article 15.15(2)).

6. Domestic Review of Supplier Challenges

The Chapter sets minimum procedures for dealing with supplier challenges
to the process or outcome of a procurement. These procedures, detailed in
Article 15.11, confirm a supplier's right to challenge in the event that
a procuring entity has failed to comply with measures put in place by a government
to implement the Chapter. Article 15.11 does not, however, give suppliers
rights to challenge the adequacy or compliance of measures put in place by
a government. The existing court systems in Australia satisfy the
requirements set out in the Chapter. This understanding is confirmed
in a side letter to the Agreement.

7. Exchange of Letters - Blood Plasma

This exchange of letters includes a side letter from Australia to the United
States and concerns the treatment to be provided to blood plasma products
and blood fractionation services. The side letter is an integral part
of the Free Trade Agreement and is subject to the dispute settlement provisions
of the Agreement. In Australia decisions on the blood supply are a
joint responsibility of the Commonwealth, State and Territory Governments
under the National Blood Agreement. Plasma fractionation
services are purchased by the National Blood Authority on behalf of all Governments.

7.1. CSL Contract (Paragraph 1)

The Commonwealth of Australia currently has a contract with CSL Limited
for the supply of plasma fractionation services that will expire at the end
of 2004. The National Blood Authority is negotiating a new contract
with CSL Ltd which will commence from 1 January 2005. Under the terms
of paragraph 1, this new contract will conclude no later than 31 December
2009, or earlier if Australian governments decide that is appropriate.

7.2. Review of Plasma Fractionation Arrangements

(Paragraph 2)

By no later than 1 January 2007, Commonwealth, State and Territory governments
will undertake a review of the arrangements for the supply of plasma fractionation
services. The Commonwealth Government will recommend to the States
and Territories that, in future, suppliers of such services are selected
through tender processes consistent with the Government Procurement Chapter
of the Agreement.

7.3. Reservation to Government Procurement Chapter (Paragraph 3)

The Government Procurement Chapter of the Agreement applies to purchase
of goods and services, except where specifically excluded, by listed government
agencies. Procurement of Plasma Fractionation Services has been excluded
from coverage of the Government Procurement Chapter (See Annex 15-E Services). If
the review of plasma fractionation arrangements results in agreement to move
to tender processes consistent with the Government Procurement Chapter, Australia
has undertaken to remove this exception to the provisions of the Government
Procurement Chapter.

7.4. Regulatory Requirements (Paragraph 4)

This paragraph acknowledges the importance of each party maintaining regulatory
requirements for ensuring the safety, quality and efficacy of blood plasma
products and supply of blood fractionation services. In the case of
Australia, the Therapeutic Goods Administration (TGA) will continue to regulate
blood products. The TGA will keep regulatory control of standards,
wherever the fractionation process takes place, and who ever is the fractionator. However,
consistent with our obligations under the World Trade Organisation Technical
Barriers to Trade Agreement, regulatory requirements should not unnecessarily
obstruct trade.

7.5. Policy on Self-Sufficiency (Paragraph 5)

This paragraph acknowledges the right of governments to have policies that
blood plasma products are derived from blood plasma collected in their own
territory. This allows Australia to preserve its policy on using plasma
collected from Australian blood donors.

7.6. Appendix 19 (Paragraph 6)

Australia has undertaken not to require that blood plasma products produced
in the United States demonstrate significant clinical advantage over Australian
produced products. This obliges Australia to remove the requirement
in Appendix 19 of the Australian Guidelines for the Registration of Drugs
that foreign products demonstrate significant clinical advantage over local
products for registration in Australia.

March 6, 2004

Australia - US Free Trade Agreement home page