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Government Procurement Agreement Should Permit Environmental and Social Linkages

By Rachel Denae Thrasher | June 5, 2014

CREDIT: vredeseilanden (CC).

This policy briefing is based on Thrasher's full working paper: "On Fairness and Freedom: The WTO and Ethical Sourcing Initiatives."

The Committee on Government Procurement at the World Trade Organization seeks to expand membership of the plurilateral Government Procurement Agreement (GPA), with a special focus on developing nations. The WTO considers this goal a matter "of tremendous significance," both to improve market access and to increase the "systemic relevance of the Agreement." Pressure from the European Union and others has led to a revised GPA agreement. The new text reflects some of the needs of the developing world, as well as a growing consensus in favor of social and environmental policy linkages in procurement.

The revised agreement does not go far enough, however, in allowing governments to prioritize social and environmental concerns. It must also, to the extent possible, keep governments from preferring certain sourcing and sustainability labels, thus contributing to "label wars."

In the area of public procurement, interests in ethical and sustainable trade and the prevailing economic view in favor of free trade come head to head. Proponents of free trade argue that governments should employ a straightforward "value for money" assessment, in which they consider the best commercial value of goods or services, and be transparent in doing so.

Others argue that governments should be permitted (indeed, maybe even obliged) to promote justice and equality by way of "linkages" to social policy, such as ethical and sustainable sourcing initiatives. Proponents of the latter view propose a life-cycle approach in which governments "consider and reconcile" the economic, social, and environmental impacts over the whole duration of the procurement contract. This approach, taken by the EU, makes space for social and environmental policies but also must remain consistent with the principles of non-discrimination and transparency in the WTO. The balance is certainly a delicate one.

Revised GPA Analysis

The revised GPA incorporates the traditional "value for money" assessment language, but also contains three new exceptions which may provide the desired policy space of social and environmental linkages. First, the scope of the agreement specifically excludes "procurement conducted for the specific purpose of providing international assistance, including development aid" (Art. II.3). While the intended application of this provision likely covers only government aid taking place within a developing country, it could conceivably be interpreted more broadly to refer to ethical sourcing initiatives as development aid to the target population.

Second, the text acknowledges general exceptions where "necessary to protect human, animal or plant life or health" (Art. II.2). A finding of necessity can be one of the most burdensome, legally speaking. However, an appellate body report in the Brazil-Tyres case noted that necessity may be found where a certain policy was part of a multi-prong strategy at addressing health and safety concerns (in that case, an import ban on waste tire products). An analogy may be made with sustainable and ethical public procurement, if the policy is part of an overall government strategy prioritizing certain public (social and environmental) benefits.

Third, the revised GPA specifically allows governments to use technical specification in their procurement contracts "to promote the conservation of natural resources or protect the environment" (Art. X.6). This could have broader social impacts since sustainable environmental practices often have positive social consequences, and allowing for environmental protection may indicate an openness to related policies in the future.

Public Procurement in the European Union

The European Union provides a limited example of what challenges the widespread use of social and environmental policies in procurement might face. In 2011, the European Commission issued a directive explicitly permitting government entities to use life-cycle costing in evaluating contractor offers, and to incorporate eco and social labels in their procurement schemes. In the Netherlands, a contractor challenged one such policy as discriminatory.

The province of Groningen invited suppliers of hot beverage machines with the requirement that the coffee and tea be certified Max Havelaar (the original fair trade label) and EKO (organic). Douwe Egberts, an UTZ-certified contractor, sued and the court ruled in favor of the province. The court determined that the certification requirements were "sufficiently related" to the contract and "in accordance with European and national policy to pursue sustainability and positively influence social and environmental standards." The court also found no discrimination since there were plenty of qualified suppliers both inside and outside of the country.

The context of the Douwe Egberts case is unique in two ways. First, their commitments under the GPA (which extend almost exclusively to the EU) exist within a framework of permissible regional policies toward policy linkages. Second, the wide array of Max Havelaar certified suppliers in the region means that the requirements can be applied without discrimination. On the global scale, this would not be the case. Even if a fair trade procurement requirement does not discriminate on its face, there would be de facto discrimination because of the unequal distribution of fair trade suppliers globally.

A Revised Approach

Both ethical sourcing and free trade have their downsides in practice. Free trade agreements have faced both economic and environmental criticism. Growing trade volumes from open markets have increased global transportation, worsening air and water pollution and depleting natural resources. Rapid industrialization in places such as Mexico and China has taken its toll on the environment. Economically, trade liberalization has lifted many out of poverty, but overall has not been able to shrink the gap between rich and poor.

Though proponents of ethical sourcing initiatives target these very shortcomings, the various movements face their own obstacles to effectiveness. Competition between the certification organizations can muddy the waters with respect to which approach is best at promoting economic growth and development. Critics of fair trade argue that the price floor and premium paid to producers can actually demotivate farmers from improving their efficiency and product quality. The EU, traditionally a vocal supporter of fair trade standards, has also argued that alternative consumption models, though not as comprehensive, should be encouraged as well. Others argue that the labeling organizations do not go far enough to protect small producers and workers.

Future revisions of the GPA should address these challenges on both sides. Since government procurement makes up such a large percentage of global trade (10–15 percent of GDP), we should encourage governments to make positive purchasing choices with social and environmental benefits for all.

Furthermore, sustainable public procurement, and even fair trade public procurement, are accepted practices in Europe and beyond. If the GPA seems to preclude such policies it could undercut the legitimacy of the agreement itself. With that in mind, any new GPA text should allow for technical specifications promoting social as well as environmental sustainability.

Second, and equally as important, the GPA should keep governments from engaging in competition between ethical sourcing and sustainability labels. The EU has attempted to sidestep these "label wars" by requiring states to focus on the underlying environmental and social standards rather than on a particular label. A future GPA revision should fortify this approach through its non-discrimination provisions, ensuring that technical specifications point to the social and environmental benefits rather than the labels.

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External Link: READ THE FULL PAPER: On Fairness and Freedom: The WTO and Ethical Sourcing Initiatives

Read More: Business, Development, Economy, Food, Globalization, Governance, Trade, Brazil, Global

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