The European Union and seven other parties to the WTO Government Procurement Agreement (GPA) have, for the first time, requested the use of arbitration to resolve their objections to a proposed withdrawal of procurement from the Agreement. On March 26, they invoked the GPA’s arbitration procedures to resolve their objections to the proposal of the United States to remove more than 300 medicines and medical devices from its federal agency commitments under the GPA. This post looks at this precedent-setting use of arbitration under the GPA.
At the end of November 2020, the U.S. Trade Representative (USTR), as directed by then-president, Donald Trump, proposed the removal, for all federal government entities covered under the GPA, of “any goods that are deemed necessary for responding to threats arising from chemical, biological, radiological, and nuclear (CBRN) threats and public health emergencies, including emerging infectious diseases such as COVID-19.” For the list of goods to be removed, it referred to a Food and Drug Administration website.
A number of GPA parties objected to the USTR proposal, contending that its filing was incomplete because it did not include “information as to the likely consequences of the change for the mutually agreed coverage” under the Agreement. In early February, the Biden administration supported the proposed modification with a submission that provided information on the value of procurement likely to be affected by the proposed withdrawal of goods.
According to Inside U.S. Trade, the EU, Canada, Japan, Australia, Korea, Switzerland, the United Kingdom and Israel invoked the arbitration process. This referral to arbitration moves the U.S. proposed modification into uncharted water as it will be the first use of the arbitration procedures adopted by the GPA committee in 2016, as called for in the revision of the GPA. Moreover, the U.S. proposal is the first time a withdrawal of coverage involves goods rather than entities.
The arbitration rules require a single arbitration for all objections to a proposed modification. The first step is the selection of three arbitrators, unless the parties to the arbitration agree to a different number. If they cannot agree on the selection of arbitrators within 20 days after the referral to arbitration, the WTO Director-General, at the request of a party to the arbitration, must appoint arbitrators within 10 days, after consulting the parties to the arbitration and the chair of the GPA committee. Unless the parties to the arbitration otherwise agree, their citizens and government officials of any third parties may not be appointed as arbitrators.
The arbitration procedures call for adoption of a timetable by the arbitrators, written submissions by the parties to the arbitration, a substantive meeting with oral statements by the parties unless the parties agree that such a meeting is unnecessary. Substantive meetings of the arbitrators must be open to the public, except to protect confidential information.
The arbitration rules allow for participation by third parties. Any GPA party with a substantial interest in the proposed modification may participate in an arbitration, provided it notifies its interest to the committee within 10 days after the referral to arbitration.
The arbitrators will be required to determine whether the U.S. proposed modification “maintains a balance of rights and obligations and a comparable level of mutually agreed coverage provided in the Agreement and, where appropriate, the level of compensatory adjustment.” They must issue their report with “its reasoned determination” to the parties to the arbitration within 90 days or, if they modify the timetable proposed in the rules, no later than 120 days after their appointment. The time period may be extended by agreement. The parties must accept the arbitrators’ determination as final.
While the arbitration is proceeding, one or more objecting parties could reach an agreement with the U.S. that resolves the issues between them. In such a case, the rules require them to notify promptly the arbitrators who will terminate the proceedings for those parties. Any mutually agreed solution must be notified to the GPA committee, where any party may comment.
Jean Heilman Grier
April 12, 2021
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UPDATE: On April 16, 2021, the U.S. withdrew its proposed modification, thus negating the need for arbitration or further proceedings. For more information, see Biden Team Pulls Proposed GPA Modification to Remove Medicines.