The WTO and Green Public Procurement in Australia

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1 The WTO and Green Public Procurement in Australia Jocelyn Bosse i Supplementary notes prepared for the National Environmental Law Association (NELA) Conference Friday 4 August 2017 (Brisbane) Contents 1 Introduction to the World Trade Organization (WTO) 2 WTO Agreement on Government Procurement 3 Government Procurement Process 4 Sustainability in Government Procurement 4.1 Green Public Procurement 4.2 Revised WTO Government Procurement Agreement 5 Commonwealth Procurement Rules 5.1 Commonwealth Procurement Rules Amended Commonwealth Procurement Rules Accession to the Government Procurement Agreement 1 Introduction to the World Trade Organization (WTO) The WTO was created on the 1 January 1995 pursuant to the Marrakesh Agreement Establishing the World Trade Organization. ii The treaty has four annexes, which contain the substantive obligations of WTO Parties: Annex 1: Multilateral Agreements the legal rights and obligations of all WTO members. The treaties cover broad subject matter, including trade in goods, services, and intellectual property. iii Annex 2: Dispute Settlement Understanding the rules and procedures for the interpretation and enforcement of WTO Agreements. Annex 3: Trade Policy Review the mechanism for review and assessment of the policies adopted by each WTO member. Annex 4: Plurilateral Agreements the optional treaties that are open to WTO members. There are two currently in force: the Agreement on Trade in Civil Aircraft and the Agreement on Government Procurement. 1

2 The treaties in Annexes 1-3 form an indivisible, all-or-nothing package of obligations called the single undertaking. Thus, when Australia signed the Marrakesh Agreement on the 15 April 1994, it accepted the whole suite of WTO instruments in Annexes 1-3. By contrast, the plurilateral treaties in Annex 4 are not compulsory for WTO members. Australia has no obligation to become a party to the Government Procurement Agreement (GPA), but in light of the considerable economic opportunities that GPA membership entails, announced its intention to sign the agreement in mid iv Australia is expected to complete the GPA accession process later this year. 2 WTO Agreement on Government Procurement The purpose of the GPA is to remove protectionist trade barriers and liberalise the procurement process, in keeping with three core principles: non-discrimination (including the most favoured nation and national treatment requirements), transparency, and procedural fairness. There are currently 47 parties to the Agreement (if the members of the European Union are counted separately). The combined value of the procurement market of GPA members is estimated at $1.7 trillion, v although that value will increase dramatically if China completes the accession process. The WTO GPA has two parts: (a) the main text of the Agreement; and, (b) the coverage schedules. The main text reflects the general principles of international trade law by setting out general rules to ensure openness, transparency, and non-discrimination during the procurement process. During accession to the Agreement, a proposed signatory negotiates with the existing GPA members to develop its individual coverage schedules in Appendix I, which set out: Entities covered Types of goods and services covered Threshold values above which procurement activities are covered Exceptions The schedule of exceptions can provide space for public policy objectives; for example, New Zealand has an exception for preferential treatment for Māori businesses pursuant to the Treaty of Waitangi. vi The United States and Canada each negotiated an exception for small or minority-owned businesses. vii 2

3 3 Government Procurement Process Public procurement is when a government entity (i.e. department or agency) purchases goods or services with public moneys and for public purposes. It accounts for approximately 10-15% of Gross Domestic Product (GDP) in OECD countries. The Australian Government awarded 69,236 procurement contracts with a total value of $59,447 million in the financial year. viii The procurement process is divided into four stages: 1) Specifications sets out the relevant evaluation criteria for the award of the procurement contract; 2) Qualification assessment of the tenderers compliance with the conditions for participation, and determination of whether their bid will be considered by the procuring entity; 3) Evaluation selection of a tender in accordance with the evaluation criteria from the specification stage; and, 4) Award final decision and negotiation of the procurement contract between the government entity and successful bidder. Traditionally, government purchasing decisions are made on the principle of value for money, which is determined based upon price and quality. However, there has been a trend for governments to consider the whole-of-life costs associated with a purchase. Strategically awarding procurement contracts is an effective tool for governments to leverage public spending to implement national goals, such as protection of the environment. ix 4 Sustainability in Public Procurement The Preamble to the Marrakesh Agreement recognises that international trade should allow for the optimal use of the world s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment. Those objectives are given content in several WTO treaties, which contain exceptions for trade-related measures aimed at protecting the environment. Furthermore, the WTO Committee on Trade and Environment provides an important venue for discussion about the linkage between sustainable development and international trade law. 3

4 One such linkage arises under the rules of the Government Procurement Agreement. As recently noted by a WTO Deputy Director-General, Xiaozhun Yi: x Government procurement is a key sector and policy area in which WTO Members can and, increasingly, do seek to promote sustainability, including in its environmental and, for many countries, its social dimensions. It is, therefore, logical and important to examine the ways in which sustainability and government procurement activities can support and reinforce each other. Equally important is that this be done in ways that are consistent with international trade obligations and with the principle of value for money in public procurement. 4.1 Green Public Procurement Sustainable public procurement is a broad term for procurement rules which consider economic factors, environmental factors, as well as social development factors like labour standards, gender equality, and poverty eradication. A subset is green public procurement, wherein government bodies use their purchasing power actively to encourage the production and use of environmentally friendly goods and services. xi Thus, green procurement involves environmental considerations like the use of renewable resources, energy efficiency, and the reduction of greenhouse gas emissions in the provision of goods and services. xii Article XXIII:2 of the original GPA 1994 contained a general exception in for measures necessary to protect human, animal or plant life or health. Modelled upon the chapeau principles in GATT Article XX, the general exception was subject to three requirements: that the measure is (a) necessary to achieve the legitimate policy objective intended, (b) not applied in an unjustifiably or arbitrarily discriminatory manner, and (c) not a disguised restriction on international trade. However, even before the changes under the Revised GPA detailed below, the WTO Members took a flexible attitude towards environmental considerations in government procurement. WTO GPA Members also made no objection to the horizontal environmental policies contained in the 2004 European Union Directive on government procurement, that contracting authorities may contribute to the protection of the environment and the promotion of sustainable development, whilst ensuring the possibility of obtaining the best value for money for their contracts. xiii 4

5 4.2 Revised WTO Government Procurement Agreement As required by Article XXIV:7(b) of the GPA, the parties undertook renegotiation of the agreement. The revision of the GPA took place against the backdrop of the Doha Round of Trade negotiations, during which the issue of trade and protection of the environment was an important agenda item. In the WTO Doha Development Agenda Ministerial Declaration, it was stated that: xiv We are convinced that the aims of upholding and safeguarding an open and nondiscriminatory multilateral trading system, and acting for the protection of the environment and the promotion of sustainable development can and must be mutually supportive We welcome the WTO s continued cooperation with UNEP and other inter-governmental environmental organizations. The new GPA was concluded in 2012, and entered into force in April xv A key outcome of the Revised GPA was the clarification of the legality of technical specifications to promote the conservation of natural resources and to protect the environment It includes a new provision about technical specifications under Article X:6, which clarified the legality of certain green public procurement measures: For greater certainty, a Party, including its procuring entities, may, in accordance with this Article, prepare, adopt or apply technical specifications to promote the conservation of natural resources or protect the environment. The Revised GPA also allowed environmental characteristics as part of the evaluation criteria under Article 6:9. Thus, the Revised GPA represented a mindset change from the previous concerns about implementation of environmental public policy objectives in the government procurement process. 5 Commonwealth Procurement Rules While each Australian Government entity makes its own procurement decisions, they are regulated by the overarching policy framework embodied in the Commonwealth Procurement Rules These rules are issued by the Minister for Finance pursuant to s 105B(1) of the Public Governance, Performance and Accountability Act 2013 (Cth). The Commonwealth procurement framework seeks to encourage competition and non-discriminatory processes, as well as the use of public resources in an, efficient, effective, economical and ethical manner. 5

6 5.1 Commonwealth Procurement Rules 2014 The previous rules entered into force in July 2014, and contained sustainability provisions in Rule 4.5, which states that: When conducting a procurement, an official must consider the relevant financial and nonfinancial costs and benefits of each submission including, but not limited to: [ ] e. environmental sustainability of the proposed goods and services (such as energy efficiency and environmental impact); 5.2 Amended Commonwealth Procurement Rules 2017 On Wednesday 30 November 2016, the Commonwealth Procurement Rules were amended in order to secure the passing of the Australian Building and Construction Commission Bill (ABCC). xvi Amongst other changes, Rule requires government officials to make reasonable enquiries into the tenderers practices regarding, inter alia, environmental impacts. xvii 6 Accession to the Government Procurement Agreement On 2 June 2015, Australia announced its intention to join the World Trade Organization (WTO) Agreement on Government Procurement (GPA), and submitted its initial accession offer to the Government Procurement Committee in September of that year. If Australia becomes a party, the treaty obligations would apply to procurement across the Commonwealth, State and Territory, and local governments. The total value of public procurement in Australia is estimated at A$100 billion each year. On average, the WTO GPA accession process takes about three years, and the Committee has indicated that Australia s negotiations may be competed this year. xviii i PhD candidate, TC Beirne School of Law, University of Queensland, St Lucia, Qld 4072, Australia. This paper was inspired by the discussions at the 19 th Model World Trade Organization conference in April 2016 (St Gallen/Geneva). Special thanks are owed to Rahel Erlemann and Nicolas Somogyi of the University of St Gallen, Switzerland, whose comprehensive chairpaper for the Committee on Sustainability and Green Procurement provided an important foundation for this presentation. ii Marrakesh Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995). 6

7 iii Annex 1A Multilateral Agreements on Trade in Goods (e.g. Agreement on Agriculture or Agreement on the Application of Sanitary and Phytosanitary Measures ); Annex 1B ( General Agreement on Trade in Services ); and Annex 1C ( Agreement on Trade-Related Aspects of Intellectual Property Rights ). iv Minister for Trade and Investment, Australia's bid to join global procurement agreement (2 June 2015) < v World Trade Organization, Agreement on Government Procurement < vi New Zealand - General Notes - Annex 7: Provided that such measures are not used as a means of arbitrary or unjustified discrimination against persons of the other Members or as a disguised restriction on trade in goods and services, nothing shall preclude the adoption by New Zealand of measures it deems necessary to accord more favourable treatment to Māori in respect of matters covered by this Agreement including in fulfilment of its obligations under the Treaty of Waitangi. < vii Canada s appendix includes the following exception: This Agreement does not apply to any measure adopted or maintained with respect to Aboriginal peoples. It does not affect existing aboriginal or treaty rights of any of the Aboriginal peoples of Canada under section 35 of the Constitution Act, viii Australian Government Department of Finance, Statistics on Australian Government Procurement Contracts (17 November 2016) < ix For examples of other procurement policy measures, see the Commonwealth Indigenous Procurement Policy (IPP) and the Workplace Gender Equality Procurement Principles and User Guide (3 November 2016) < x Speech given on Wednesday 22 February 2017 to the Committee on Government Procurement, < xi WTO Secretariat, Harnessing trade for sustainable development and a green economy (2011) World Trade Organization, 12 < xii UN Department of Economic and Social Affairs, Public Procurement as a tool for promoting more Sustainable Consumption and Production patterns (August 2008) 5 Sustainable Development Innovation Briefs < xiii Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts [2004] OJ L 134/114. xiv Doha WTO Ministerial 2001: Ministerial Declaration (Adopted on 14 November 2001) WT/MIN(01)/DEC/1 < xv World Trade Organization, Revised WTO Agreement on Government Procurement enters into force (7 April 2014) < xvi Phillip Coorey, Malcolm Turnbull secures ABCC bill with Nick Xenophon deal (30 November 2016) Australian Financial Review < xvii Commonwealth Procurement Rules 2017 (Cth) Rule xviii Annual Report 2017p