On June 22, the WTO procurement committee finally adopted arbitration procedures that are intended to provide a means of resolving disputes over proposed changes in procurement covered under the WTO Government Procurement Agreement (GPA). As described in an earlier post, stalemates result when GPA signatories cannot agree on whether an entity should be withdrawn from a party’s GPA commitments. With the adoption of the procedures, the arbitration process, established by the revised GPA that entered into force more than two years ago, is now available for the resolution of such disputes. This post examines the new process, which draws from the WTO dispute settlement mechanism.
The context for the procedures is the GPA provision that a party cannot withdraw or otherwise modify the procurement that it covers under the Agreement without the consent of – or absence of objections from – the other parties. When a party wants to withdraw an entity from its list of covered entities or make other changes to the procurement that it opens under the GPA, it must notify the other members. They have 45 days to file an objection; if they do so, an objection freezes the proposed modification until it is resolved.
Most objections are resolved through consultations, based on clarifications and exchanges of information. Disputes arise when a party has taken steps to privatize a government enterprise and wants to remove it from the GPA, but another member contends that the privatization measures are not sufficient to eliminate government control or influence over the entity. If such control or influence has been effectively eliminated, the assumption is that the entity will undertake its purchases under market conditions and foreign suppliers will have a fair opportunity to compete; thus, it need not be subject to GPA rules.
Prior to its recent revision, the GPA provided no means of resolving such disagreements. That changes with the implementation of the new arbitration procedures. Now, when a disagreement arises over a proposed modification, either the party proposing the change or an objecting party may invoke the arbitration process; and any party with a substantial interest in the proposed modification may participate in the arbitration.
Normally, there will be three arbitrators, who will be appointed by the WTO Director-General if the parties cannot agree on the selection. The arbitrators must meet the same requirements, and follow the same Rules of Conduct, as panelists in WTO dispute settlement cases.
The arbitration process provides for participation by the interested parties through written submissions and oral arguments. It emphasizes transparency by requiring meetings of the arbitrators, except their deliberations, to be open to the public, unless a participant in the arbitration requests that they be closed to protect confidential information. The procedures include a proposed timeline for the conduct of an arbitration, which generally should be completed within three to four months.
The arbitrators may consult experts in making their determination. The issues that they must determine, depend on the type of the proposed modification:
- Whether the government’s control or influence over the covered procurement of the entity proposed to be withdrawn has been effectively eliminated; or
- Whether the proposed modification maintains a balance of rights and obligations and a comparable level of coverage under the GPA.
The parties to the arbitration are bound by the arbitrators’ determination. If the party proposing the modification does not comply with a negative determination (and withdraws its entity from the GPA), it must provide compensation to the objecting party/parties or they may withdraw substantially equivalent coverage. The arbitrators may be asked to determine the appropriate level of compensation.
In adopting the arbitration procedures, the GPA parties reiterated their intention to adopt indicative criteria, also mandated by the revised GPA. The criteria are intended to facilitate the determination of whether government control or influence has been eliminated. Such criteria might include, for example, a cap on the level of government ownership in an entity that is being privatized; ownership above that cap could indicate continuing control or influence.
Effective use of the arbitration process would represent an important improvement in the implementation of the GPA, and could provide assurance to countries joining the GPA that they will be able to remove government enterprises from the GPA when they are privatized.
Jean Heilman Grier
July 19, 2016