Trade Law Implications of Procurement Practices in Sustainable Energy Goods and Services1 This sheet is a Q&A based summary of the issues paper ‘Trade Law Implications of Procurement Practices in Sustainable Energy Goods and Services’ (2012) by Alan Herve and David Luff, produced by ICTSD in collaboration with the Peterson Institute for International Economics and the Global Green Growth Institute. Why are Government Procurement and the WTO’s Government Procurement Agreement Important in the Relationship between Trade and Sustainable Energy? Governments are a major consumer of goods and services, including those focussed on sustainable energy, and can therefore play an important role in steering the consumption of sustainable energy. Traditionally, government procurement has generally been used as a policy tool to favour domestic producers. Therefore, because of their effect on trade, these practices have been addressed in WTO law and more particular in the Government Procurement Agreement (GPA). The Model Law on Procurement of Goods, Construction and Services of the UN and other regional non-binding instruments are an attempt to regulate public procurement as well. Additionally, many Free Trade Agreements (FTAs) include “WTO-plus” obligations to regulate public procurement. As the GPA is a plurilateral agreement, it only creates rights and obligations for WTO Members who have signed the agreement. Each party to the GPA has specified which government entities will be covered by the rules of the agreement. Can Governments Proactively Favour Sustainable Energy Goods and Services to the Exclusion of their Non-Sustainable Counterparts? Favouring the procurement of Sustainable Energy Goods and Services, SEGS, may be seen in some situations as discriminatory practices. If a procuring country is party to the GPA and the procurement is covered by its list of GPA commitments, discriminations favouring SEGS in public procurement can therefore be successfully challenged under the GPA. However,the GPA offers some flexibilities, providing that the procurement procedures are applied in a nondiscriminatory manner. For example, government entities are not required to award the contract based on the lowest price but can choose the “economically most advantageous” tender, which leaves room to take other policy objectives into account. Even if a procurement practice is considered discriminatory, a country can invoke the exception provision under the GPA which mirrors the exceptions under article XX of the General Agreement on Tariffs and Trade, GATT. These allow a country to take certain ‘measures necessary for the protection of 1
Herve, Alan and David Luff (2012); Trade Law Implications of Procurement Practices in Sustainable Energy Goods and Services; International Centre for Trade and Sustainable Development, Geneva, Switzerland. The full paper is accessible at: http://ictsd.org/i/publications/146446/.
human, animal or plant life’ as long as these don’t constitute a means of ‘arbitrary or unjustifiable discrimination between countries where the same conditions prevail‘,neither a disguised restriction on international trade. If the procuring country is not party to the GPA, a challenge against discriminations favouring SEGS might be more difficult. The outcome of the pending cases between the EU, Japan and Canada concerning the promotion of renewable energy will have an influence on future SEGS procurement policies and measures. Table 1: SEGS prescriptions based on PPMs and gaps in the current multilateral trade law Gaps in the current multilateral trade law Legitimate SEGS are not defined in any WTO Agreement. SEGS prescriptions based on process or production methods can be considered as discriminatory if they do not sufficiently relate to the physical characteristics of the products concerned.
If considered discriminatory, SEGS prescriptions based on process or production methods cannot be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade.” Traditional case law is not sympathetic to unilateral PPMs that have not been negotiated beforehand with the affected trade partners. Source: Luff, 2012.
Can the SETA fill the gap? A SETA should provide a definition of SEGS. A SETA could contain an acknowledgment by its parties that products and services complying with SEGS requirements that are consistent with the SETA are different from the products and services not complying with these prescriptions. The SETA could specify that SEGS prescriptions that are consistent with the SETA are assumed not to be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade.”
How Can a SETA Clarify Ambiguities and Enable a More Supportive Framework for SEGS Procurement? A Sustainable Energy Trade Agreement, SETA, can take into account the possible discriminations favouring SEGS and provide for the legal basis to allow and to promote SEGS-related procurement. A SETA should provide for a clear definition of SEGS. A SETA could furthermore include an acknowledgement that products and services complying with SEGS requirements, defined in the SETA, are different from products and services that do not comply with these requirements. This would allow countries to treat them differently without having to rely on the exception provisions. In any case, a SETA could specify that SEGS prescriptions that are consistent with the SETA are assumed not to be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade�.
ICTSD is grateful for support from the Ministry of Foreign Affairs of Denmark (Danida), the Ministry of Foreign Affairs of Norway and from the Global Green Growth Institute to the SETA-project. In addition, ICTSD wishes to thank its core and thematic donors including; the UK Department for International Development (DFID); the Swedish International Development Cooperation Agency (SIDA); the Ministry of Foreign Affairs of Denmark (Danida); the Netherlands Directorate-General of Development Cooperation (DGIS); the Ministry for Foreign Affairs of Finland; Australia’s AusAid; the Inter American Development Bank (IADB); Oxfam Novib and the Deutsche Gesellschaft fßr Internationale Zusammenarbeit (GIZ). About the International Centre for Trade and Sustainable Development (ICTSD) Founded in Geneva in September 1996, the International Centre for Trade and Sustainable Development (ICTSD) aims to influence the international trade system such that it advances the goal of sustainable development. In advancing its mission, the Centre has become a leading broker of knowledge and information on trade policy and sustainable development. www.ictsd.org