Mexico is seeking to limit the ability of U.S. companies to bid on Mexican government contracts as part of the talks to renegotiate the North American Free Trade Agreement.
U.S. companies have long been highly competitive in the bidding, so limiting them would harm some contractors. Mexico’s move is likely an attempt to counter efforts by the Trump administration to rewrite NAFTA’s rules on government contract bidding to directly favor U.S. companies. The fifth round of talks to renegotiate the 1993 trade deal concluded Tuesday in Mexico City.
Mexico’s specific proposal would be to limit the amount U.S. companies could win when bidding to the same amount that Mexico companies win when bidding for U.S. government contracts, according to sources cited by Bloomberg. That would create a significant problem for U.S. companies because Mexican businesses are not competitive bidders for U.S. contracts.
Only 2 percent of all federal contracts were won by foreign-headquartered companies in the last year, according to a June report from the U.S. Chamber of Commerce. Of those, 80 percent were defense contracts obtained by the U.S. affiliates of European countries, which are not covered by NAFTA.
“Just one of the 50 largest contractors to the U.S. government in [fiscal] 2016 was a foreign-headquartered firm. Just one Canadian company showed up in the top 100 contractors. No Mexican companies appeared in the list,” the Chamber said.
NAFTA’s current procurement rule prohibits its members from favoring domestic companies in government contracting. President Trump strongly favors “buy American” policies and has indicated that he wants to eliminate or at least weaken that section of the trade deal. He signed an executive order this year calling on Cabinet agencies to “more narrowly construe” the public interest provisions of federal contracting rules, such as taking into account whether contractors use materials such as steel obtained from outside the U.S.
Rewriting the procurement chapter potentially would allow Canada and Mexico to adopt similar rules favoring their companies in contracting, a move that Mexico is apparently following through with.
The NAFTA renegotiations have been rocky. Canadian and Mexican officials rejected U.S. demands during the latest round to change the rules for determining when a product can be labeled as “made in America” or “made in the U.S.A.,” arguing that the changes would damage the auto industry, whose supply chain is spread throughout the continent, according to an official with knowledge of the talks.
The Trump administration wants to increase the percentage of an automobile’s inputs, such as parts and labor, that come from the U.S. or Canada to have a car be deemed to be “made in America.” Currently, 62.5 percent of a car has to come from the U.S. or Canada to meet the standard, but the Trump administration wants to increase that to 85 percent and to also require that at least half be produced in the U.S.
The administration also pushing to add an end date to NAFTA as well as to allow countries to opt out of its investment dispute settlement system. Canada, meanwhile, has used the talks to challenge the U.S. over its right-to-work laws, which prohibit workers from being forced to join or otherwise support a union as a condition of employment. Twenty-seven states have the laws. Canadian officials, under pressure from their country’s unions, which hate the laws since they lead to fewer members, have tried to use the talks to end the U.S. laws, a push the U.S. is rejecting.
The contentious nature of the talks has increased fears by business groups and Republican lawmakers that the talks will be deemed a failure and that President Trump will follow through on his threats to pull the U.S. out of NAFTA.
