Viewing the Scope of Application of the Government Procurement Agreement from WTO Dispute Cases

LABEL： Financial institution , One Belt One Road International LegalBusiness , Dispute Resolution and Litigation ,

preface

The Government Procurement Agreement (GPA) is a multilateral agreement of the World Trade Organization (WTO) aimed at integrating the government procurement market into the world trading system, implementing basic principles such as national treatment and non discrimination, transparency, and procedural fairness. The GPA Agreement was originally a negotiation outcome of the Tokyo Round of the General Agreement on Tariffs and Trade (GATT) (hereinafter referred to as the "Tokyo Round GPA Agreement"). It became a plurilateral agreement under the WTO in 1994 (hereinafter referred to as the "1994 GPA Agreement") and was revised in 2012 (hereinafter referred to as the "2012 GPA Agreement"). [1]

Since the start of negotiations to join the GPA agreement at the end of 2007, China has submitted seven bidding lists for the opening scope of the government procurement market, which not only includes the procurement activities of central and local government agencies, but also further expands to the procurement activities of some state-owned enterprises, universities, hospitals, military departments and other entities. [2] This year, the State Council has explicitly requested that China's domestic government procurement system should benchmark international rules such as the GPA agreement and further improve government procurement laws and regulations. [3] In this context, studying and clarifying the core concepts and scope of application related to the GPA agreement is helpful for China's government procurement negotiations and improving regulations, as well as for relevant enterprises to anticipate rule changes and prepare for contingency.
1、 Government Procurement Covered by GPA Agreement - Subject, Purpose, Means, Content, and Value

According to Article 2.1 of the GPA Agreement [4], this agreement applies to any measures related to "covered procurement". Based on the second paragraph of this article and the list of attachments of member parties, the so-called "covered procurement" refers to the procurement that meets the following main conditions: (1) conducted by a procuring entity; (2) Procurement for government purposes; (3) The procurement content refers to goods, services, or any combination thereof; (4) Conducted through contractual means; (5) Not within the scope of exceptions to the agreement or not excluded by Appendix 1 of the member states; (6) The value is equal to or exceeds the threshold amount specified in Appendix 1 of the member party.

The scope of "covered procurement" is not the same for each WTO member that signs the GPA agreement, as participating members need to list the open scope of their government procurement market in Appendix 1 in the form of attachments, including the procuring entity and its threshold amount (Attachments 1-3), the scope of goods, services, and engineering (Attachments 4-6), and the general remarks (including exceptions listed by member states, etc.). Among them, "procurement entities" include central government entities (Attachment 1), sub central government entities (Attachment 2), and all other entities [5] (Attachment 3, such as state-owned enterprises, public institutions, etc.).

In general, for a WTO member that has signed the GPA agreement, the "covered procurement" covered by the agreement usually refers to procurement activities made by Appendix 1 procuring entities that comply with the scope of goods/services/works in Appendix 1, have a value that meets the threshold amount in Appendix 1, do not trigger any exceptions, and are for "government purposes". Although the attachments and notes in Appendix 1 are detailed, the GPA agreement does not directly address key concepts such as "conducted by a procuring entity" and "for government purposes". In treaty practice, since the birth of the GPA agreement in the Tokyo Round negotiations, the dispute settlement mechanisms under GATT and WTO have further clarified, interpreted, and applied key concepts under the GPA agreement in dispute cases. These cases are of great significance for us to understand the definition and scope of "government procurement" under the GPA agreement. This article provides the following summary and analysis.
2、 Debate on the Scope of "Procuring Entity" as the Subject of Government Procurement

As mentioned earlier, the GPA agreement applies to procurement activities conducted by the "procuring entity" listed by the contracting parties as the main body. This "positive list" mechanism establishes a principle: contracting parties define the scope of procurement activities under the jurisdiction of the GPA agreement from a subject perspective by specifying the procuring entity. However, government procurement practices in various countries are diverse, and seemingly straightforward legal principles can also lead to disputes when implemented. Previous dispute cases have shown that there is also room for exceptions to the above principles. When a procurement activity is not directly implemented by the entities listed in the attachment, it may still be subject to the discipline of the GPA agreement.

The 2000 Korea Measures Affecting Government Procurement case was a lawsuit filed by the United States against South Korea based on the 1994 GPA agreement, involving procurement activities for the Incheon Airport construction project in South Korea. The airport project was initially managed by the Ministry of Transport (later changed to the Ministry of Construction and Transport, abbreviated as MOCT) and its subsidiary, the New Airport Development Group (NADG). Afterwards, South Korea introduced the Seoul Airport Act, which stipulated that an operator would be designated for the airport project. Since the start of the airport construction project, the actual responsible operator has changed several times, from the Korea Airport Authority (KAA) to the Korea Airport Construction Authority (KOACA). Subsequently, the project responsibility authority has been transferred to Incheon International Airport Corporation (IIAC). [7]

Article 1.1 of the 1994 GPA Agreement stipulates that the Agreement shall apply to any laws, regulations, procedures or practices related to entity procurement covered by this Agreement as listed in Appendix 1. The focus of the dispute in this case is whether entities such as KAA, KOACA, and IIAC responsible for subsequent procurement for airport construction projects belong to the "covered entities" of the agreement. The expert group believes that the discussion should be divided into two steps: first, the entity responsible for the airport project procurement in this case should be examined whether it falls within the scope of entities listed in the annex and remarks of Appendix 1 of the 1994 GPA agreement by South Korea; Secondly, even if the entity is not explicitly listed, are there any other criteria to determine whether the entity falls within the scope of the GPA agreement, especially whether the "control" standard proposed by the United States constitutes that standard.

In the first step, the expert group believes that it is necessary to first determine which entities fall within the scope of the annex, and notes that MOCT has been listed as a central government entity in Annex 1, while entities such as KAA have not been explicitly listed. The expert group believes that since the member parties have made commitments in the form of an appendix to cover the scope, the annotations in the appendix can be used to explain the entity scope. South Korea states in footnote 1 of its Annex 1 that "central government entities" include subordinate linear organizations, special local administrative organizations, and attached organizations as defined in the Government Organization Act. After examining the definition of the above-mentioned institutions in the law, the expert group believes that entities such as KAA are not included. [8]

However, considering the use of the term "include" in footnote 1 of Annex 1, which makes the overall meaning of Annex 1 somewhat ambiguous, the expert group further examined the negotiation history of South Korea's accession to the GPA agreement. The expert group noted that South Korea clarified the meaning of Note 1 in Annex 1 during the negotiation process, which aims to clarify the scope of central government entities rather than expand it, and limit the scope of central government entities to the three types of institutions listed in the note. Based on the clarification opinion, the expert group also noted that only the Seoul and Busan Regional Airport Authority is included as a local administrative agency in Note 1, but entities such as KAA are not included. [9]

The expert group believes that although the three types of institutions listed in Note 1 are almost identical to the central government entities listed in Annex 1, there is still a certain gap between the two. For example, NADG, as an ad hoc agency, is not included in the definition of the Government Organization Act, but in reality, the Minister of MOCT assigns tasks to the agency by issuing laws. In this sense, NADG may also be considered to fall within the scope of Annex 1 (although not included in Note 1). On the contrary, KAA has not been assigned any tasks by the minister and is not included in Annex 1 or its notes. [10]

The above analysis by the expert group indicates that its determination of the scope of the procurement entity covered by the agreement is primarily based on the interpretation of the appendix text and its intentions provided by the member parties. In fact, the expert group in this case further emphasized in the conclusion that if a member party explicitly excludes a certain entity in the attachment remarks, then the exclusion is accurate. However, entities not mentioned in the attachments and notes do not necessarily have their procurement activities excluded from the scope of application of the agreement, and it is necessary to further verify whether there is any association between the entity and the covered entity that may also be covered. [11]

Therefore, in the second step, the expert group further examined whether the relationship between MOCT and KAA could potentially encompass KAA's procurement activities. After careful consideration, the expert group believes that overly restrictive interpretations of the listed entities may result in the scope of the attachment being smaller than the intentions of the member parties, while overly broad interpretations may also include entities that the member parties did not intend to cover. The expert group further believes that even if an entity is not included in its GPA appendix by a contracting party, it cannot be ruled out that the entity's procurement behavior may still be subject to obligations under the GPA agreement in specific circumstances, but such exceptions should follow strict standards. The expert group believes that there is no basis for the "direct control" or "control" standards proposed by the United States and does not recognize them. [12]

The expert group believes that a reasonable standard for this should be: (1) whether the entity (KAA, etc.) constitutes a substantial part of the listed central government entity (MOCT) or is legally unified (essentially a part of a listed central government entity/legally unified) (referred to as the "confusion standard" in this article); And (2) whether the entity acts on behalf of the listed central government entities (referred to as the "agency standard" in this article). The rationality of the confusion standard lies in the fact that if entities that meet this standard are not considered as covered entities under the GPA agreement, the actual scope of the agreement will have great uncertainty, as the members of the agreement will have difficulty knowing the internal structure of the entities listed by other members. The rationality of the agency standard lies in its ability to prevent member parties from evading their obligations under the GPA agreement by entrusting agents who are not listed in the appendix to purchase on their behalf. [13]

Based on the above two criteria, the expert group further examined the relationship between entities such as KAA and MOCT. Firstly, the expert group believes that KAA is not legally part of MOCT and the two are not confused. KAA is an independent legal entity established in accordance with the law, with its own articles of association, management, and employees (non-governmental personnel). At the same time, KAA independently released tenders and proposals, entered into contracts with bidders in its own name, and supported some airport construction projects with its own funds. Although MOCT has the power to appoint senior members of the KAA board of directors, and other board members are appointed by these senior members, the expert group believes that this "control" is a mix of supervision rather than physical identity. This' control 'is adopted in the public sector to achieve government functions, and it does not necessarily make one entity a part of another government entity. In addition, the criteria for determining this "control" relationship are uncertain and do not align with the goal of clearly defining the scope of obligations of all parties based on the commitments made in the annex list of the GPA agreement. Therefore, the expert group does not believe that KAA is a component of MOCT. [14]

Secondly, the expert group reviewed whether the situation in the case met the "agency standard" and concluded that KAA did not act on behalf of MOCT (in relation to the airport construction project). According to Korean law, MOCT itself is not responsible for the construction of all airports in Korea under Korean law. According to the Seoul Airport Act, KAA is responsible for the construction project of the airport, while MOCT is only responsible for formulating the overall plan, including the overall direction of construction, the framework and duration of the construction plan, and general supervision matters such as financing plans. Although the execution plan developed by KAA requires approval from MOCT, the expert group believes that this is still a supervisory responsibility and cannot demonstrate that KAA acts on behalf of MOCT. In addition, as the current number of employees of the operator IIAC far exceeds the number of employees responsible for related affairs at MOCT, this also indicates that IIAC is not just an empty shell. Therefore, the expert group does not believe that KAA is acting on behalf of MOCT. [15]

In addition to the aforementioned dispute cases, we also note that as early as 1992, the European Community sued the United States based on the Tokyo Round GPA Agreement [16], claiming that one of the covered entities included in the GPA Agreement, the National Science Foundation (NSF) of the United States, signed a service contract with a private company, the Antarctic Support Association (ASA), requiring ASA to provide materials and other support for US Antarctic research projects and to procure for them. Therefore, ASA's procurement activities should comply with the discipline of the Tokyo Round GPA Agreement. Although Article 1 (a) of the Tokyo Round GPA Agreement stipulates that the agreement applies to activities that cover physical procurement of products, the expert group in this case believes that the fact that ASA is not explicitly included in the US procurement entity list does not necessarily exclude the application of the agreement, and proposes analytical elements such as procurement funds, procurement purposes, and control rights. Among them, the expert group determined that ASA would not gain any commercial benefits from procurement, and was not like a private buyer, but more like representing NSF in procurement. This is similar to the "agency standard" proposed by the later South Korean case expert group. After considering various factors comprehensively, the expert group of the US case believes that the procurement conducted by ASA also applies to the Tokyo Round GPA agreement. [17]

From the above treaty provisions and dispute cases, it can be seen that the list of "procuring entities" listed by the contracting parties of the GPA agreement when joining the agreement plays an important role in defining the jurisdiction of the GPA agreement. Once a dispute arises, the dispute resolution body generally respects the texts and intentions listed by the member parties in the annex, but there are exceptions in specific circumstances. If the entity does not meet the "mixing standard" or "agency standard", its procurement activities may still be governed by the GPA agreement.
3、 The purpose of government procurement - the debate on "for government purposes"

As mentioned earlier, the "covered procurement" applicable to the GPA agreement must be procurement activities conducted "for government purposes". Article 2.2 (a) (ii) further excludes "procurement for the purpose of commercial sale or resale or production of goods or services for commercial sale or resale" from the scope of "covered procurement". However, the GPA agreement itself does not provide a positive definition of what constitutes "for government purposes".

It is worth noting that both Article 3.8 (a) of GATT and Article 13.1 of the General Agreement on Trade in Services (GATS) explicitly exclude procurement activities "for government purposes" from the scope of application of relevant agreement obligations. According to the work report of the WTO Secretariat, the scope of application of GATT/GATS and GPA agreements is complementary and mutually reinforcing, and government procurement activities excluded from the scope of application of GATT/GATS are precisely the objects of application of GPA agreements. [18] Therefore, the expression "for government purposes" under GATT/GATS should be interpreted in a coordinated and consistent manner with Article 2.2 of the GPA. We can understand the meaning of this expression under the GPA agreement by referring to the interpretation of "for government purposes" in relevant dispute cases under GATT and GATS.

In the Canada Certain Measures Affects the Renewable Energy/Feed In Tariff Program, the WTO Appellate Body elaborated on the meaning of "for governmental purposes" in Article 3.8 (a) of GATT. [19] Firstly, based on the literal interpretation of GATT in English, French, and Spanish, the appellate body considers that "for government purposes" here refers to products used by the government or purchased for the government to perform its functions. At the same time, in the context of Article 17.2 of GATT, considering that Article 17.2 uses a more restrictive expression of "for immediate or ultimate consumption in government use", the Appellate Body considers that the "government purpose" referred to in Article 3.8 (a) is not limited to the requirement of "for direct or ultimate consumption in government use". In summary, the appellate body considers that Article 3.8 (a) of GATT, which refers to products purchased for government purposes, refers to products used by the government itself or provided by the government to the recipient to perform its public functions, and such functions should be recognized in individual cases. At the same time, the expression 'for' requires a reasonable connection between the purchased product and the performance of government functions. [20]
Summary and Inspiration

The above dispute cases indicate that, on the basis of the scope of coverage stipulated in the annexes and notes of the GPA agreement, the actual binding scope of the agreement discipline may be further expanded or limited. On the one hand, the procurement entity listed by the contracting parties is the basic scope of coverage, but procurement activities conducted by entities not included in the scope of the annex may still be subject to the agreement. On the other hand, relevant procurement activities should be limited to "for government purposes", that is, for use by the government or provided by the government in the process of performing public functions. Contracting parties may claim that non government procurement activities undertaken by the procuring entity are not within the scope of the agreement. We believe that the above case has the following beneficial implications for the Chinese government and related enterprises during the negotiation stage of joining the GPA agreement and for the development of government procurement activities after joining the agreement:

Firstly, the procurement entities listed in the attachment list should be carefully listed. Due to the fact that the determination of the binding scope of the agreement should first be based on the interpretation of the annexes and notes of the member states, China should carefully consider and comprehensively consider the content of the annexes during the negotiation process of joining the GPA agreement; For the procurement activities of important and sensitive entities that we do not wish to include at this stage, we will strive to clearly exclude them in the attachment, in order to reduce the risk of disputes or even unfavorable interpretations by dispute resolution agencies in the future.

Secondly, the actual scope of the agreement should be evaluated rationally. Generally speaking, the procurement activities of procurement entities included in the "positive list" of contracting parties are governed by the GPA agreement. If the entity does not meet the "mixing standard" or "agency standard", its procurement activities may still be governed by the GPA agreement. In addition, if an unspecified entity purchases according to specific requirements of the procuring entity, this behavior may also be subject to agreement constraints. However, entities outside the "positive list" will not necessarily be subject to the jurisdiction of the GPA agreement solely due to their equity, control, or other related situations with the procuring entity, and the possibility of the "positive list" being arbitrarily expanded is relatively small. On the other hand, even for the entities included in the list, their procurement activities are not fully governed by the GPA agreement, as Article 2 of the GPA agreement also stipulates conditions such as "for government purposes", procurement amount, procurement subject matter, etc., and the agreement provisions only apply when they are met. The commercial procurement activities of the procuring entity are generally not subject to the GPA agreement.

Thirdly, the government procurement rules of the agreement should be aligned with high standards. If China joins the GPA agreement in the future, for the listed procurement entities, whether they are government departments, public institutions, or state-owned enterprises, they should develop procurement processes and requirements applicable to their own entities based on the requirements of the GPA agreement with high standards. At the same time, the procurement behavior of their subordinate departments and other entities entrusted or instructed by their own entities should be taken into consideration to ensure the standardization and consistency of the procurement process requirements and reduce the risk of violating the agreement's discipline.