The Government Procurement Agreement, the Most-Favored Nation Principle, and Regional Trade Agreements

Abstract

This chapter examines the application of the most-favored nation (MFN) principle under the WTO Agreement on Government Procurement (GPA) with reference to RTAs with substantive government procurement commitments. The chapter initially looks at the operation of the MFN principle among the parties of the GPA, pursuant to Article IV. It then examines the implications of the GATS Article IIMFN principle with reference to the GPA parties’ commitments in the procurement of services and construction services. The chapter finally turns to assessing the RTA market access commitments for the procurement of goods, services, and construction services, again with reference to the scope of the MFN principle operating under Article IV of the GPA. It undertakes this analysis for selected RTAs between GPA parties, RTAs signed between a GPA party and non-GPA party, and, further, those RTAs with procurement provisions signed between non-GPA parties. The liberalization of government procurement markets under the GPA is based on strict reciprocity and a conditional MFN requirement. Under the GPA, the MFN requirement is frequently set aside with respect to the parties’ market access commitments in goods, services and construction services. These exceptions are formally set out in the Annexes and General Notes, which are included in the Appendix to the Agreement and form an integral part of the Agreement. As such, bilaterally negotiated concessions continue to take precedence over a commitment to provide for liberalization through the principle of unconditional non-discrimination between the parties. This reflects the sensitivity of these negotiations. For the adherence to the strict reciprocity principle detracts from the widely accepted benefits that are attached to an open trading system. Second, with regard to the coverage of procurement in services and construction services under the GPA, any access to procurement markets is conditioned and constrained by the GPA’s “relationship of correspondence” (Blank and Marceau, 1996:p. 48) to the GATS schedules and, consequently, by the application of the MFN principle operating within the GATS. This is because even though government procurement is excluded from the core provisions of the GATS, the GPA itself deals only with government procurement policies; it cannot address measures such as trade restrictions that affect the ability of foreign enterprises to sell services to governments (Anderson and Muller, 2008). One of the significant implications of this distinct relationship of correspondence is that GPA parties do not have the mandate to open up markets for services and contract services for the purposes of government procurement beyond that which has already been committed under their GATS schedules. This could be seen to provoke the need to use RTAs as an alternative and established vehicle from which to negotiate commitments that go beyond that provided under the GPA—so called “GPA+” commitments. This is both for those GPA parties seeking further access into the procurement markets of both other GPA parties, as well as with non-GPA parties. Third and consequently, the negotiation of RTAs with GPA+ commitments set out in their schedules nevertheless raises questions about their prima facie legality under the GPA. For under this agreement, there is a noteworthy absence of a general legal provision to permit and condition exceptions to the MFN principle. This is in stark contrast to the GATT, pursuant to Article XXIV, and pursuant to Article V GATS. This presents a dilemma. It is of potential consequence for those RTAs signed by GPA parties that liberalize procurement markets for goods, services, or construction services markets beyond the GPA obligations and schedules. If it is accepted that GPA parties are dependent upon the existing services and construction services they have already negotiated under their GATS schedules, those parties wishing to open their procurement markets any further are presented with no option other than to ignore their obligation to provide MFN treatment under the GPA. The chapter concludes that these overlapping, possibly conflictual, or even trade restricting legal obligations and the methods of negotiating them work against the wider objectives of the WTO and the GPA. More desirable options would most likely involve WTO members moving away from promoting market liberalization based on strict reciprocity and conditional MFN. This could help to prevent the use of government procurement commitments to protect certain domestic producer interests, rather than to seek and maintain an open trading system.