The WTO Government Procurement Agreement: Assessing the scope for green procurement

1 December 2015

What can be said about the revised GPA and the relevant work programme when it comes to green public procurement, from a European perspective?  

The WTO's revised General Procurement Agreement (GPA) covers government purchasing of goods, services, and construction work valued at US$1.7 trillion annually. The most serious threat to the aim and purpose of the GPA are "buy national" policies, which act as barriers to trade, potentially limiting the rights of foreign suppliers to bid on contracts they are interested in. Such concerns were for obvious reasons particularly voiced in the aftermath of the 2007/8 world economic crisis, including by the then Director-General of the WTO Pascal Lamy, in his 2009 Annual Report (WT/TPR/OV/12). From a WTO perspective the continued importance of public spending in the future, particularly in emerging market economies, calls for a deepening and broadening of international trade disciplines to ensure that public infrastructure investment and other aspects of government procurement are carried out in a transparent and non-discriminatory manner that maximizes value for money for both governments and taxpayers.

The relevance of the GPA

Although the GPA 1994 was initially partly considered to be a relatively obscure plurilateral treaty, the expansion of GPA membership to potentially encompass emerging actors – China has applied to join – is now more than ever described as a strategic goal within the context of multilateral trade relations. Participation has already increased over the last two decades and the deal now counts 45 WTO members in its ranks. According to Nicholas Niggli, a former chairman of the WTO Committee on Government Procurement, the GPA 2012 could become "a central pillar of the multilateral trading system" not only due to its potential to attract wider membership beyond traditional developed country members but also because of the wider scope agreed in its revision process. [Ref 1] The revision extended GPA coverage by between US$80 and US$100 million annually. It is also worth noting that the GPA has gained significance over time because procurement provisions in bilateral or regional trade agreements are modelled on its strictures.

Mechanics of procurement

Public procurement regulation intends to make sure that public entities describe in a transparent way what they want to buy before purchasing products, services, and construction work. Best value for money, implementing a process of competition, and equal treatment of bidders are key in this context. Many economists and lawyers basically assume that the "invisible hand" of the market does guarantee rational economic behaviour of private enterprises when organising their supply chain and purchasing, whereas public entities have to be urged through regulation to behave like reasonable economic players. When describing a product two notions are very important. The technical specifications define the minimum features of a product. If the specifications are not met the respective bid is not evaluated. If the specifications are fulfilled, the most economically advantageous tender is chosen based on the lowest price or award criteria (specific evaluation criteria), designed in order to discern the offer with best price-quality-ratio. This means that a product of a higher quality – or better total cost of ownership – can be chosen despite being more expensive when considering the purchase price.

Horizontal policy goals and the original GPA
It is not new that public procurement is used by governments as a tool to promote various policies in the social and environmental spheres. And it is also well known that during the nineties the GPA was regularly interpreted as a heavy defence weapon to avoid such secondary or horizontal policy goals because they can have a potential to be abused as disguised protectionism. Public procurement is from this perspective – in slightly simplified terms – only about money and market access. [Ref 2] According to Susan Arrowsmith and Christopher McCrudden, applying a "purity principle" to the purpose of the GPA would establish a system that reduces as far as possible the insertion of non-economic criteria into the procurement process. Secondary or horizontal policy goals were considered to be "government by procure­ment" and hence to be avoided. [Ref 3]

Seen from this angle green public procurement was regarded with a degree of suspicion. At the same time, however, other opinions were voiced pointing out that the link to the subject-matter of the contract is easier to establish when discussing environmental features understood as being part of the quality of the product. In this context a distinction was made between green public procurement on one hand, and the integration of social aspects on the other, the latter being considered as less obvious. According to this approach, technical specifications – as explicitly presupposed in Article VI GPA 1994 – include production processes and methods (PPMs) of the procured products, and consideration of these is therefore permitted as long as they do not create unnecessary obstacles to trade. Technical specifications were from a GPA-perspective perceived to be the easiest way to take into account aspects of green public procurement.

It is important to understand that there is a significant difference between classical economy-related regulation and public procurement. The regulatory behaviour of public entities, for instance using an import ban, leads to a limitation wherein private consumer choice can be exercised whereas government procurement implies choices of the public authorities acting as consumers themselves. The logical conse­quence is that governments must be conceded a wider discretion when making a “consumer choice” compared to their regulatory power with effect on world trade. Therefore the normal PPMs debate rationale, which the classical WTO lawyer is used to, does not apply. The GPA has to be considered as a lex specialis in this context. It is broadly acknowledged that a public authority can ask for energy from renewable energy sources despite the fact that the production method is the decisive feature of the product not distinguishable itself from energy from other sources.

This is also true concerning award criteria as the European Court of Justice found  in 2003 in the case EVN and Wienstrom GmbH v Republic of Austria. The second interesting point in this preliminary ruling was that the possible environmental aspects are not limited to non-economic effects that are in favour of the procuring entity itself – such as the noise levels or nitrogen oxide emissions of buses – but that other globally positive aspects can equally be taken into consideration. Previously, in 2002, in Concordia Bus Finland (C-513/99) the ECJ found that award criteria did not have to relate exclusively to advantages to the contracting authority "of a purely economic nature" (paragraph 55).This case law was enshrined in Article 53 of the European Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts, and public service contracts. [Ref 4] There are two possible attitudes towards this evolution. One possible approach is to declare that Article 53 of the Directive 2004/18/EC is incompatible with the GPA 1994. Another is to say that there has been a mind-set change, not only inside the EU, but also among the scientific community when interpreting the GPA.

Interpreting procurement rules

The GPA 1994 is flexible on whether the contract should be awarded to the lowest offer or to "the most advantageous" tender on the basis of "specific evaluation criteria" (Article XIII:4(b) GPA). The GPA 1994 does not give any examples on suitable award criteria; neither are there indications on what weight should be given to those criteria [Ref 5]. The new European approach enshrined in Article 67 of the Directive 2014/24/EU – which replaced Directive 2004/18/EC and is now about to be implemented in the domestic legislation of the EU member states – is slightly different because it gives a signal that the costs are more than just what you pay when you buy something, in other words, the total cost of ownership is given more weight. Furthermore, the more complex a project is, the more the "price-quality-ratio" should prevail over the "lowest price only" approach when defining the most economically advantageous offer. So the “density” of the EU directives is higher compared to the more flexible GPA.  

The GPA’s approach, however, does provide evidence against the existence of a "purity principle" as described above. The GPA is meant to be compatible with different views on economic policy; a "purity principle" would rather be a possible characteristic of a fully-fledged domestic regulation. Article XIII(4)(b) GPA 1994 on award of contracts should not be interpreted as a negative statement on green public procurement, but as scope for a reasonable balance of interests between the primary goals of public procurement, and the interest of the GPA members to pursue national or international policies in areas such as the reduction of carbon emissions.

The revised WTO GPA and the environment 

Article X(6) of the revised GPA on technical specifications reads as follows: "A Party, including its procuring entities, may – for greater certainty – in accordance with this Article, prepare, adopt or apply technical specifications to promote the conservation of natural resources or protect the environment." From a strictly legal point of view regarding the regulation on technical specifications – presupposing the interpretation of Article VI GPA 1994 inspired by Peter Kunzlik [Ref 6] as described above – this might itself not be that innovative, as has been argued by some experts, since the understanding that the characteristics of goods include processes and methods for their production laid down in Article I(u) of the revised GPA is based on the same approach as Article VI GPA 1994.

But Article I(u) and Article X(6) of the revised GPA are rather spectacular in terms of the political signal they provide. The explicit acknowledgement that when drafting technical specifications it is compatible with the GPA to consider the environmental impact is, to employ the wording used in another context by Arie Reich, beyond the "standard international-trade rationale." [Ref 7] If this is true then the explicit reference to the environment is probably also relevant when interpreting other provisions of the revised GPA. This is also especially valuable when assessing the rules of the revised GPA on award criteria. The revised GPA is as flexible as the GPA 1994 on whether the contract should be awarded to the lowest offer or to "the most advantageous" tender as described in Article XV(5) on treatment of tenders and awarding of contracts. So there is – in contrast to the newly adopted EU Directive – no preference for the best price-quality-ratio. On the other hand the GPA as a minimal standard does not prevent a signatory from expressing such a preference.  

Moreover, if Article XV(5) of the revised GPA is relevant for the assessment how far environmental concerns are allowed when determining the award criteria, Article X(9) on tender documentation is also very significant in this context. According to this provision "the evaluation criteria set out in the notice of intended procurement or tender documentation may include, among others, price and other cost factors, quality, technical merit, environmental characteristics and terms of delivery." As the environmental characteristics were not mentioned in Article XIII(4)(b) GPA 1994, and considering the new text on technical specifications, it is no longer possible to argue that carbon dioxide emissions generated during the production or consumption of a product cannot be considered in the award phase because they do not lead to a direct advantage to the procuring entity but to an extraneous advantage of the society at large. Given the fact that demanding technical specifications have a more important effect on the competition between bidders compared to award criteria meant to assess the quality of a product, which can be outweighed by a lower price, the concept of the GPA being relatively flexible concerning the technical specifications should not be interpreted in a too restrictive manner when discussing the award criteria. Environmental characteristics are now explicitly acknowledged.

The GPA work programme and the EU regime on public procurement

The revised GPA 2012 in Article XXII(8) on final provisions provides for the adoption of work programmes to facilitate its implementation and eventual new negotiations. It is no surprise that one of the items to deal with is "the treatment of sustainable public procurement." The Committee on Government Procurement has decided in this context inter alia to prepare a report listing the best practices on sustainable procurement consistent with the principle of "best value for money" and the international trade obligations of the parties. [Ref 8] Meanwhile, the EU has adopted a "newspeak" formula on horizontal policy goals called the "strategic use of public procurement," which sounds more positive compared to the "secondary policy goals" floated fifteen years ago [Ref 9]. One senior EU Commission official said in May 2013 that, unlike when drafting the directives 2004/17/EC and 2004/18/EC, green public procurement was no longer much of an issue for the revised Directive 2014/24/EU [Ref 10] whereas the consideration of social aspects in public procurement had instead proved a very hot topic. Public purchasing plays a key role in the Europe 2020 growth strategy as one of the market-based instruments to be used to achieve a smart, sustainable, and inclusive growth while ensuring the most efficient use of public funds. Seen from this angle public procurement has the potential to boost the competitiveness of European industry as suppliers by stimulating innovation in eco-technologies and, at the same time, to shape consumption trends on the demand side when leading by example as a public entity.

Coherence of the legal framework, of the policies at EU and member state levels as well as the awareness of public authorities are indispensable, if the supply chain management of enterprises – especially in terms of corporate social responsibility and oversight of reputational risks – and consumption behaviour in general are to be influenced. With the protection of the environment being part of the EU primary law the corresponding strategic use of public procurement on secondary law level should come as no surprise. Environmental externalities have therefore been tackled when reframing the public procurement directive. A new concept is enshrined in Article 68(1)(b) of the Directive 2014/24/EU on life-cycle costing, where it is stipulated that relevant costs can also be "cost imputed to environmental externalities" linked to a product, service, or work during its life cycle, provided the monetary value can be determined and verified.
Past experience suggests that the framing and the application of the EU public procurement directives can have significant effects on the interpretation of the GPA. It is therefore a more or less educated guess that the policy space that can be used in order to foster green public procure­ment is growing. This is due to a new understanding of the GPA and public procurement in general. The important task is now to strike a balance between the main principles of the WTO – and EU – public procurement regulation and the "strategic use" of public procurement. Public procurement regulation is about to be reinvented as the standard trade rationale opens itself, to a certain degree, towards a more coherent legal order taking into account horizontal policy objectives such as the environment. This could also be seen when governance issues like fighting corruption and avoiding conflicts of interest were integrated in the regulation concept during the renegotiation of the GPA.

Marc Steiner. Judge, 2nd Division of the Swiss Federal Administrative Court

[Ref 1] See on the revision of the GPA Arrowsmith, Sue, and Robert D. Anderson, eds. The WTO regime on government procurement: challenge and reform. Cambridge University Press, 2011
 
[Ref 2] Priess Hans Joachim and Christian Pitschas, "Secondary Policy Criteria and Tehir Compatibility with EC and WTO Procurement Law – The Case of the German Scientology Declaration", Public Procurement Law Review 2000, 171
 
[Ref 3] It should be noted, however, that neither Arrowsmith nor McCrudden, support such a view. See Arrowsmith, Sue. Government Procurement in the WTO. Vol. 16. Kluwer Law International, 2003, 331 s.
 
[Ref 4] See on horizontal policies in the European Union in general Arrowsmith, Sue, and Peter Kunzlik. Social and environmental policies in EC procurement law: new directives and new directions. Cambridge University Press, 2009.
 
[Ref 5] Trepte, Peter, "The Agreement on Government Procurement", Macrory/Appleton/Plummer, eds. The World Trade organization: Legal, Economic and Political Analysis, Volume I, Springer 2005, 1123-1163, especially p. 1148
 
[Ref 6] Kunzlik, Peter. "International procurement regimes and the scope for the inclusion of environmental factors in public procurement." The Environmental Performance of Public Procurement (2003), 157-191
 
[Ref 7] See on the revision of the GPA in general Reich, Arie. "The new text of the agreement on government procurement: An analysis and assessment." Journal of International Economic Law 12.4 (2009): 989-1022.
 
[Ref 8] Decision of the Committee on Governmenent Procurement of 30 March 2012 on a Work Programme on Sustainable Procurement (Annex E to the revised GPA).
 
[Ref 9] See on the new concept for instance Piga, Gustavo and Tünde Tatrai, eds. Public Procurement Policy, Routledge 2015, Part IV "Green public procurement", 161-177
 
[Ref 10] Kunzlik, Peter. "From suspect practice to market-based instrument: Policy alignment and the evolution of EU Law’s approach to ‘green’ public procurement." Public Procurement Law review 3 (2013): 97-115.

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