With the globalisation of supply chains, the respect for human rights and labour standards in procurement practices has become a crucial priority.1 Human rights violations and modern slavery are now a real concern in the complex management of public supply chains as demonstrated by recent corporate scandals such as the notorious collapse of the Bangladeshi Rana Plaza. Particularly in European countries, domestic procurement regulations have gradually introduced mechanisms to address the transparency and the sustainability of the associated global supply chains (GSCs). In this context, the 2014 reforms of the European Union (EU) Procurement Directives2 have garnered the attention of academics and practitioners from the fields of supply chain management and public procurement.
There are two reasons for this. First, the regulation of public procurement has opened several new opportunities for the enforcement of human rights and labour standards in support of broader social policy objectives.3 Second, public procurement has increasingly gained importance as a regulatory tool for addressing important aspects of transparency and accountability in GSCs.4 These developments highlight the fact that public procurement regulation has to significantly contribute to the respect of sustainability standards, while ensuring the strategic and efficient use of limited public resources. In this light, the EU 2014 Directives, as well as the jurisprudence of the Court of Justice of the European Union (CJEU), have explicitly recognised the importance of the use of certifications and labels, and the reformed EU Directives have addressed the behaviour of subcontractors.
This paper adds another dimension to the existing discussion on the use of public procurement to achieve social and labour objectives – its extraterritoriality. The paper looks at how the regulation of public procurement extends its jurisdictional reach to better protect human and labour rights abroad in fragmented global supply chains, for instance through the use of private mechanisms of labels and certifications. The EU 2014 Procurement Directives have the potential to directly influence, with the use of certifications and labels, the behaviour and the operation of firms outside the EU jurisdiction via territorial extension, conditioning the access to public contracts on human rights and labour standards.
This paper highlights the complex nature of public procurement regulation as a modern transnational regulation, which includes domestic state actions with extraterritorial implications as well as private voluntary initiatives at the firm level. However, this new dimension of public procurement has the potential to create tension within the framework of multilateral trade governance, specifically, the World Trade Organization (WTO) trade regime. Understanding the practical and normative issues involved in supply chain governance through public procurement can provide valuable insights into these complex regulatory frameworks, which will only become more common in the future.
Based on its analysis of the EU procurement framework, this paper argues that: (1) the development of public procurement as a regulatory tool to ensure human and labour rights is a useful complement to existing approaches of multilateral soft law and private initiatives; (2) the 2014 Procurement Directives, in particular Directive 2014/24/EU, extends its regulatory influence outside the EU territorial jurisdiction and directly impacts the behaviour of firms, suppliers and subcontractors linked by supply chains across different jurisdictions; and (3) that this specific use of public procurement can be compliant with rules of (extraterritorial) jurisdiction under international law and with WTO rules. This article also contributes to the broader discussion on the extraterritoriality of EU law and the role of the EU as a global regulatory power.5
The paper is structured as follows. First, the paper explores the complexity of the governance of GSCs due to the fragmentation of production across borders, which made extraterritorial regulation both necessary and desirable (section 2). In particular, section 2 discusses why both multilateral international efforts and private corporate social responsibility (CSR) initiatives were insufficient, and how the development of domestic procurement regulations to ensure human and labour rights may be particularly useful to mitigate these weaknesses. In the next section, the paper discusses some important features of the use of public procurement to enforce human rights and labour standards, in particular its implications in terms of extraterritoriality and the use of private labels and certifications (section 3). In section 4, the EU public procurement framework’s contribution to the extraterritorial enforcement of human and labour rights along fragmented GSCs is presented. The EU approach is analysed in relation to both the use of labels and certifications in procurement practices and the introduction of a specific regulation of subcontractors in the 2014 EU Procurement Directives. Finally, the paper discusses broader implications at the international level of the extraterritorial use of public procurement to enforce human and labour rights under the WTO multilateral trade regulatory framework (section 5).
2. Transnational efforts to regulate global supply chains and managing their sustainability
The progressive integration of economic markets as a result of the liberalisation of trade and investment and the fragmentation of supply chains has increasingly enabled corporations to extend their operations across national borders.6 Global enterprises usually involve complex networks of subsidiaries, franchisees, suppliers, contractors and subcontractors, sourcing the cheapest components and workforce across borders to maximise profits.7 The global demand for cheap labour exposes workers, particularly from vulnerable groups, to an increasing risk of precarious forms of employment, subpar factory conditions regarding health and safety, overlong working hours and excessively low wages.8 Ruggie’s 2007 study on corporations and human rights reveals how deep the impact of corporations on a wide range of human rights and labour rights can be.9 At the same time, the fragmentation of production across different national markets and jurisdictions makes the effective enforcement of human rights and labour increasingly challenging. Thus, the management and regulation of GSCs is emerging as an intricate network of transnational regulations involving different international, domestic and private actors across multiple levels of economic governance.
Ensuring that multinational corporations provide decent working conditions and guarantee human and workers’ rights is a priority in the agenda of international organisations such as the United Nations (UN), the Organisation for Economic Co-operation and Development (OECD) and the International Labour Organization (ILO).10 Various international instruments have tried to impose human rights commitments on multinational corporations: the OECD Guidelines on Multinational Enterprises,11 the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy,12 and more recently, the UN ‘Protect, Respect and Remedy’ Framework and the UN Guiding Principles on Business and Human Rights implementing this framework.13 While all these instruments have significantly advanced the business and human rights agenda, as soft law instruments they lack binding force and strong enforcement mechanisms. The only serious attempt at the international level to establish binding rules on corporations, the UN Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights,14 failed because of strong protest by States. Even now, in mid 2018, the prospects of an international instrument to regulate corporate conduct are limited.15
Parallel to these international efforts, other actors, including States, non-governmental organisations (NGOs) and private corporations, have recognised the importance of promoting sustainability as well as human and labour rights and have adopted myriad regulatory approaches, often overlapping and not necessarily coherent or coordinated.16 As at mid 2018, the complex challenge of regulating global supply chains has been, in fact, primarily addressed by private actors using a variety of private initiatives and CSR measures.17 As a result of the increased public attention paid to the sustainability record of business enterprises, a plethora of codes of conduct have been established together with private mechanisms to strengthen these codes, particularly independent monitoring, auditing and, ultimately, the adoption of labels and certifications.18 Enterprises, employers’ organisations and industry associations lead these private initiatives with the aim of improving compliance as part of corporate supply chain management.19
However, despite increased scrutiny by the informed public, it is unlikely that private self-regulation alone will suffice to significantly mitigate the risk of violations of human rights and labour standards along GSCs.20 CSR, unfortunately, remains a ‘management-driven add-on’ in which employers and organisations can engage if it is financially beneficial for business operations.21 While companies with strong brands (as measured by the ratio of advertising expenditure to net sales) and those that refer to third-party certification programmes demonstrate strong global supply chain management measures, other companies have lagged behind.22 Thus, only a small number of companies voluntarily apply CSR programmes that provide thorough transparency along their entire global value chain. In response, States and international organisations are increasingly promoting stronger visions of CSR that is more focused on the prevention and the mitigation of negative social impacts. In particular, this development has been encouraged by the debate surrounding business and human rights and particularly by the UN Guiding Principles, which has a clear focus on individual rights violations.23 One of the tools used by domestic governments and recommended by the UN Guiding Principles, which forms the focus of the subsequent analysis, is the increasing use of public procurement regulation to pursue social and environmental goals.
3. The transnational use of public procurement to achieve social objectives
The importance of public procurement to ensure the respect of social policies and objectives of social and individual equality has a long history and it has been widely discussed in the literature.24 In different historical periods, national governments have used the purchasing power of public agencies in support of various policy objectives of social justice (e.g. promoting the social inclusion of disadvantaged groups and the economic development of local communities) or in support of individual equality (e.g. enforcing decent working conditions and ILO standards).25 Grounded on the economic relevance of public spending, socially responsible use of public procurement has seen the inclusion of social and labour considerations at the different stages of the procurement process, from technical specifications, to award criteria and to special performance clauses.26 Major international instruments of procurement regulation openly acknowledge the importance of the social dimension of public procurement. For instance, this aspect clearly emerged in the renegotiations of the UNCITRAL Model Law and the World Bank Procurement Regulations.27 The social influence of procurement regulations has also been officially recognised by the ILO Labour Clauses (Public Contracts) Convention 1949 (No. 94), the only international instrument exclusively focused on the promotion of social equality and minimum wages through public procurement.28
More than ever, international and domestic regulations of public procurement are now addressing the respect of human rights and decent working conditions in the long and complex production and supply chains associated with public contracts. Procurement regulations have more frequently included mechanisms to monitor the behaviour of contractors and subcontractors across different countries, often referring to private initiatives (certifications and labelling) or international standards (like the ILO Conventions). The following sections explore the twofold contribution that modern public procurement offers as a regulatory instrument to enforce social standards on corporations across national borders. First, attention is drawn to the extraterritorial reach of such measures (section 3.1) and second, the specific use of private labels and certifications, resulting in a new form of hybrid regulation, is discussed (section 3.2).
3.1. The extraterritorial use of public procurement as an instrument to enforce sustainable GSCs
Because of the size of public spending and the strong bargaining power of public administrations, the inclusion of social conditionality and the respect for human rights and labour rights have always been a dimension of the use of public procurement regulation.29 However, following the privatisations in the 1980s and 1990s of the delivery of public services and the fragmentation of production across countries, the use of public procurement to achieve social objectives has assumed a new dimension.30 Public procurement decisions are not only attempting to ensure that the winning bidder awarded of the public contract follows socially responsible practices, but also the suppliers and subcontractors involved in the production of the final goods and services procured.31 Therefore, procurement regulation, which progressively affects contractors and subcontractors down the global supply chain, has become a tool to improve working conditions and address violations of human rights abroad.32 The direct impact that public procurement has on companies’ behaviours along their production chains has been clearly recognised in the UN Guiding Principles in the context of the State duty to protect, which encourages ‘States [to] promote respect for human rights by business enterprises with which they conduct commercial transactions’.33 The new UN 2030 Agenda for Sustainable Development also reaffirms the connection.34
In the last 10 years, different European countries’ domestic procurement initiatives have gradually introduced specific provisions regarding contractors and subcontracts to ensure transparency and sustainability within GSCs35 and to promote respect for human rights and decent working conditions.36 For instance, the Netherlands’ procurement regulation requires the tendering company to make ‘reasonable efforts’ to assess the social impacts and the risks in their supply chain.37 Similarly, Sweden’s county councils request that contract awardees have full knowledge of their supply chain.38 Taking it one step further, Switzerland offers another interesting example for the enforcement of labour standards and decent working conditions in relation to goods and services procured from outside the Swiss territory.39 Thanks to the Swiss Federal Ordinance on Public Procurement (OPP), adopted in 1995, Switzerland has implemented an extensive system of sustainable public procurement,40 requiring the bidders and their subcontractors abroad, regardless where situated, to provide certifications to the Swiss authorities to prove their compliance with eight ILO core standards.41
In addition, both at state and federal level, the US procurement regulation has been traditionally characterised by an extraterritorial reach of its social and environmental dimension.42 The Federal Acquisition Regulation (FAR) explicitly prohibits the procurement of goods produced by forced or indentured child labour,43 which is implemented by the US Department of Labour through a ‘List of Products Requiring Contractor Certification as to Forced or Indentured Child Labour’.44 Moreover, the US procurement regulation also monitors the ability of companies to perform due diligence on their subcontractors, even if located abroad, in relation to child labour and human trafficking.45 Another interesting addition to existing US procurement regulation in relation to the transparency of supply chains is the Federal Funding Accountability and Transparency Act, which requires the Executive Branch to disclose contractors, subcontractors and the location of primary performance of the contracted work.46
These governmental efforts to monitor and regulate the sustainability of production across GSCs necessarily imply the extension of territorial jurisdiction and its effects over legal persons, in our case subcontractors along CSCs, whose conduct takes place abroad. Thus, extraterritoriality47 is becoming an essential dimension of modern procurement regulation efforts. This extraterritorial dimension of business and human rights regulations garnered particular attention during Ruggie’s work on the UN Guiding Principles, and several studies were commissioned during the drafting process. However, these studies, although they collected an abundant amount of material, were ultimately inconclusive in resolving the normative question of extraterritoriality.48 Thus, the UN Guiding Principles themselves only included a rather weak compromise, stating ‘States are not generally required under international human rights law to regulate … extraterritorial activities … Nor are they generally prohibited from doing so, provided there is a recognized jurisdictional basis.’49
The normative problem in relation to extraterritoriality stems from a strict interpretation of the principle of sovereign equality.50 As a result, the imposition of duties and rights outside one’s own territory could result in a claim of undue interference in the domestic affairs of another state. For this analysis, Joanne Scott’s distinction between extraterritoriality and the less controversial form of ‘territorial extension’ seems particularly useful. If extraterritoriality is the application of a measure triggered by something beyond territorial connections with the regulating State,51 the term ‘territorial extension’ describes a regulatory measure that is rooted in a territorial connection, but which nonetheless takes into account conduct and circumstances abroad and thus may indirectly affect extraterritorial actors and situations.52 EU law has increasingly expanded the scope of various regulations beyond the limits of territorial jurisdiction using such ‘territorial extension’ in different areas from climate change, to maritime and air transport, to the regulation of financial services.53 The EU’s Due Diligence Regulation on the importation of timber and timber products54 is probably the case that most clearly illustrates the concept of territorial extension applied to the management of GSCs. It requires EU traders who place timber products on the EU market to exercise due diligence along the supply chain and prohibits the placing on the market of illegally harvested timber. According to the EU Regulation, third-party verified schemes can be used when assessing the risks of illegality related to timber or derived products along the supply chain.55 This particular regulation is a territorial extension because the prohibition to place certain goods into the common market is a territorial rule, but in exercising this rule, the regulation takes into account circumstances abroad, namely whether the timber was harvested contrary to local law.
Importantly for the purposes of this paper, the principle of territorial extension is also at work in the regulation of public procurement and, in particular, procurement regulations concerned with the transparency and the sustainability of GSCs. The decision to procure from a specific economic actor, which is the granting of a domestic economic benefit in the form of a public contract, is a territorial act. However, in making the decision, the procuring government agency takes into account the human rights and labour conditions of the supplying companies located abroad. The procurer is thus required to look outside the boundaries of territorial jurisdiction and take into consideration circumstances abroad at the firm level in a third country or along the production chain globally. The practice of territorial extension within sustainable public procurement regulations has the potential to induce change or shape the operation of the contractors and subcontractors providing services outside the jurisdiction of the procuring government’s authority. As explored above, those territorial extensions, such as the system employed by Switzerland, frequently require that both contractors and subcontractors respect the ILO core Conventions and, in particular, the prohibition of child labour.56
3.2. The use of private labels and certificates within public procurement regulations
Procurement regulations increasingly include mechanisms addressing sustainability and transparency in production chains, and support the enforcement of voluntary initiatives of CSR. In particular, strengthening the compliance of suppliers and subcontractors with private initiatives such as codes, labels, certifications and social standards along their chains of production has been identified as a potential tool to enhance transparency in governmental regulation.
The relationship between corporate responsibility and public procurement has been extensively developed over time in the EU regulatory framework on CSR. It was first formally recognised in the 2002 Communication of the European Union (EU) on CSR, which stated that ‘making access to … public procurement conditional on adherence to and compliance with the OECD Guidelines for Multinational Enterprises, while respecting EC international commitments, could be considered by EU Member States and by other States adherent to the OECD Declaration on International Development’.57 Subsequently, the implementation of CSR principles in public procurement practices was further consolidated in the new EU strategy on CSR58 and in the EU Commission’s ‘Action Agenda for the period 2011–2014’ which explicitly recognised public procurement as a valuable policy instrument ‘enhancing market reward for CSR’.59
In particular, private initiatives such as certifications, labels and social standards have acquired the increasingly important role of raising awareness of and promoting compliance with social and environmental considerations among multinational enterprises and across States.60 Labels and certifications ensure that the production of the procured products and services complies with social and ethical criteria, often offering the additional guarantee of third-party certifications.61 These standards, labels and certifications are also often applied throughout a corporate network in the sense that the individual affiliates of a corporate group are also obliged to follow them.62 This way, the standards also necessarily entail extraterritorial effects as the individual affiliates may be well spread out globally.
The main advantage of using certifications and standards in the context of the social use of procurement for the enforcement of human and labour rights is based on their essential function of information sharing.63 Certifications and labels exchange valuable information about the sustainability of the procured goods and services between the various actors involved in the production and supply – procuring authorities, contractors and subcontractors. In practice, they facilitate communication exchange along the global supply chain associated with the award of a public contract across different countries.64 Moreover, certifications and standards are also flexible instruments, as they may be incorporated at different stages during the procurement process. They can be included, for instance, at the beginning of the procurement cycle in the product’s technical specifications, in connection to award criteria during the selection of the supplier, and in association with contract clauses after the winning bidder has been selected.65 Finally, these private initiatives reduce the regulatory burden and the costs for the public authorities tasked with monitoring and verifying predefined sustainable standards among various competing subcontractors and across different jurisdictions.66
4. The 2014 EU regulation of public procurement, the use of certifications along global supply chains and its extraterritorial implications
Since 2014, when the reform of the EU Procurement Directives was finalised, those directives have been described as a far-reaching instrument of public procurement regulation, opening up various opportunities for the achievement of social and labour policies in public procurement.67 Even if there is some criticism about the discretionary nature of many of the new provisions,68 it is undeniable that Directive 2014/24/EU pays considerably more attention to the protection of human and labour rights than previous procurement regulations, particularly with regard to GSC governance.69 Moreover, building on the results achieved in the evolution of the Court of Justice of the EU (CJEU) jurisprudence and on best practices in some countries (as previously explored), the 2014 Directive establishes a more coherent regulatory framework compared to the previous procurement directives, harmonising the inclusion of labour standards and human rights conditionality inside procurement practices across the entire EU. In light of the increased regulatory attention to the use of procurement for social purposes and GSCs, Directive 2014/24 has achieved four significant improvements.
First, compared to the previous EU procurement regulatory framework, Directive 2014/24/EU provides more guidance and clarity regarding the use of public procurement for the protection of social and labour rights.70 In Directive 2014/24/EU, the importance given to the proactive use of procurement to achieve social policies is significantly increased and it is assimilated to the use of public procurement to achieve environmental objectives, traditionally more prominent in domestic and international procurement regulations.71 This is particularly significant when compared to other international instruments of procurement regulation, in particular the WTO Agreement on Government Procurement (GPA) that only refers to environmental considerations in technical specifications and award criteria.
Second, the protection of fundamental labour rights included in domestic and EU regulations, international standards or collective agreements has officially become an objective of the entire regulation of public procurement in Directive 2014/24/EU. This is explicitly recognised in Article 18(2)72 and consolidated in the list of international agreements in Annex X of the Directive.73 Moreover, Directive 2014/24 considerably broadens the spectrum of social and labour policies that could legitimately be achieved in procurement practices. Directive 2014/24 recognises the possibility of using public procurement to achieve both social and individual justice.74 On the one hand, as clarified in recital 37, Directive 2014/24 aims to guarantee non-discrimination in the workplace and the respect of individual working rights (reflected in the various ILO conventions listed in Annex X). On the other hand, Directive 2014/24, as stressed in Article 20, also includes broader considerations of social justice and social inclusion, such as supporting the integration of disadvantaged communities or minority groups.
Third, the Directive pays more attention to the importance of enforcement of social and labour considerations along the entire production and supply chain.75 Thus, the Directive extends the scope of its regulation and compliance not only to the main suppliers, but also to their subcontractors, regardless where they are situated, even if they are located outside the jurisdiction of the procuring country. In particular, Article 71 of the Directive requires EU Member States to make all necessary efforts to ensure respect for the environmental, social and labour obligations referred in Article 18(2).76
Finally, the Directive pays specific attention to labels and certifications77 in the granting of the procurement awards. The 2014 Directive builds upon the conclusions reached in the Max Havelaar case on the possibility of using labels and certifications, which are frequently adopted in the procurement process as proof of compliance with sustainability criteria along the associated production chain.78 In the Max Havelaar judgment, when interpreting the text of the previous public procurement Directive 2004/18/EC, the CJEU introduced the possibility of referring to labels in technical specifications, on the condition that ‘equivalent’ labels would be accepted in the award process in order to limit excessive or unjustifiable restrictions on competition for public contracts.79
Moreover, Directive 2014/24/EU further clarifies the use of labels. According to Article 43 of the Directive, labels are allowed through the entire procurement cycle. The possibility of introducing labels and certifications is not limited to technical specifications at the beginning of the procurement process, but is also extended to other steps, such as award criteria and performance conditions, that require and allow for proof of compliance.80 Article 43 allows a ‘specific label as means of proof that the works, services or supplies correspond to the required characteristics’ in case the ‘contracting authorities intend to purchase works, supplies or services with specific environmental, social or other characteristics’. The Directive therefore permits direct reference to a specific label, subject to a number of requirements.81 Article 43 sets specific conditions to guarantee the non-discriminatory use of labels82 and according to Article 43(2), the requirements specified on the labels must be linked to the subject matter.
These specific provisions on subcontractors and labels considerably expand the possibility of enforcing human rights and core labour standards extraterritorially in the production chain associated with the procurement contract. In particular, the use of labels, which facilitate the exchange of information in relation to the behaviour of contractors and subcontractors wherever they are located, enriches the scope of procurement regulations and makes it possible to monitor and protect human rights and labour standards outside the jurisdiction of the procuring country.
However, while the procurement regulation of Directive 2014/24/EU made considerable attempts to ensure the respect of human and labour rights along GSCs, it remains undeniable that the requirements to respect specific labour conditions in the procurement process may imply some forms of direct or indirect discrimination between suppliers. This was argued in the latest RegioPost judgment83 and in previous CJEU cases,84 where the imposition of social criteria by national procurement authorities was discussed as a form of distortion of the fundamental freedoms in the EU internal market. The implicit risk of distortion and discrimination, grounded on the social use of procurement practices, represents the major concern of compatibility under the WTO law. The following section explores the compatibility of the social use of public procurement in the form of Directive 2014/24/EU with the broader WTO framework.
5. Global supply chains regulations and the concerns under the WTO regulatory framework: The special case of the GPA
Even though widely practised, the use of public procurement to achieve social objectives and its WTO compatibility have attracted little attention; so far, the literature has focused more on the environmental dimension of procurement.85 Moreover, only one dispute in the vast WTO jurisprudence has dealt with the issue of selective public procurement practices with extraterritorial effects grounded on human rights concerns. The establishment of a Panel was requested only once86 in a dispute related to a ban imposed by the procurement legislation of Massachusetts on public contracts with Myanmar (Burma) based on the violation of human rights committed in Myanmar.87 However, the matter was eventually settled based on a decision of the US Supreme Court before any Panel Report could address the aspect of human rights conditionality or its controversial extraterritorial effects.
In the absence of any relevant WTO jurisprudence on the social use of public procurement, there are three main concerns that the use of public procurement to enforce social and labour concerns along the GSCs raises from a theoretical perspective. These concerns are the following: (1) the compatibility of the use of public procurement to enforce human rights and labour standards with the WTO GPA, (2) the legality of the extraterritorial effects that these regulations entail, and (3) the possibility of including private initiatives such as labels and certification inside governmental procurement measures to monitor GSCs.
5.1. The compatibility of the extraterritorial use of procurement to achieve social objectives under the WTO GPA
The core of the controversy on the legality of the use of public procurement to achieve social objectives under WTO law turns on the discriminatory effects caused by the inclusion of human rights and labour standards within the procurement process. The main regulatory objective of the GPA is to guarantee respect for the principle of non-discrimination in procurement practices covered by the threshold and by the Schedule of Commitments agreed between the GPA Signatory Parties.88 On the basis of the new text of the GPA as revised in 2011,89 procurement practices for purposes other than economic efficiency (in particular, to enforce social and environmental objectives) are in compliance with WTO regulation only under specific circumstances: (1) if these procurement practices are in compliance de jure or de facto with the principle of non-discrimination; (2) if discriminatory, that these practices are covered by the derogations to the GPA included in the parties’ schedule of commitments; and (3) if discriminatory, and included in the scope of application of the agreement, that these practices can be justified under the exceptions of Article III of the GPA Revised Text.90
Article IV:1 of the Revised GPA ensures the prohibition of discrimination, as each GPA party must provide ‘treatment no less favourable than the treatment the Party, including its procuring entities, accords to domestic goods, services and suppliers’.91 In the GPA, the standard by which the obligation of non-discrimination is measured includes both de jure and de facto forms of discriminatory procurement practices and the interpretation of ‘treatment no less favourable’ seems to acquire substantially broader connotations in the context of public procurement compared to other WTO agreements.92 The conditionality on human and labour rights imposed in the procurement process has the potential to result in de facto discriminations among the different competing suppliers based on their country of origin.93 More precisely, the conditionality regarding respect for specific human or labour rights may entail de facto discriminatory effects if the requirements for participation in the public tendering process are drafted in a way that is more accessible for national suppliers than it is for non-domestic suppliers.94
Two aspects of Article IV GPA seem to suggest a broader and less rigid interpretation of the national treatment provision in the context of public procurement, an interpretation that is more lenient to the acceptance of the social use of public procurement.95 First, the wording of Article IV of the GPA does not refer to the issue of likeness and, second, the GPA imposes detailed regulations and transparency requirements, which provide for the implementation of the principle of non-discrimination along the different stages of the procurement process. The GPA regulation of the procedural aspects of the procurement process does allow additional margins of flexibility in the enforcement of considerations other than the maximisation of efficiency.96 Even if there is no specific mention of social policies or labour rights, the new wording of the GPA allows the introduction of environmental aspects into technical specifications and award criteria.97 Moreover, the Revised GPA does not impose strict restrictions on the application and the methods of evaluation of the award criteria. For these reasons, apart from the respect of the specific transparency requirements, nothing in the GPA seems to suggest other major limitations on the inclusion of social and labour concerns in the award criteria and in their evaluation process.
Even if it results in discrimination, the social use of public procurement could still be compliant if it is justified under the general exceptions of Article III of the Revised GPA or if the procurement is excluded by the GPA coverage in the Parties’ schedules of commitments. Within the context of the GPA general exceptions, the justification for the inclusion of social and labour considerations in procurement practices may be problematic. Two subparagraphs of the general exceptions under Article III:2 GPA could possibly be invoked even without a clear reference to labour and human rights, namely subparagraphs (a) and (d).98 However, interpretative uncertainties – first, with regard to the legal definition of the grounds of exception and second with regard to the interpretation of the standard of necessity and appropriateness in this specific procurement context – make it difficult to justify discriminatory procurement practices that aim to achieve social and labour purposes. These difficulties led to the preference of the GPA Signatory Parties to exclude these practices from the GPA’s coverage rather than trying to justify them, a pattern also supported by the negotiating history of the 1994 GPA.99
Another possible objection within the WTO framework concerns the extraterritorial aspects of these social regulatory efforts. Though extraterritoriality in relation to the GPA has never been clarified in the WTO jurisprudence, some conclusions in relation to the General Agreement on Tariffs and Trade (GATT) may shed light on the issue. While in Turtle/Shrimp, the Appellate Body explicitly refrained from providing a clear answer on issues of extraterritoriality, it seemed to accept the consideration of extraterritorial circumstances in EC – Seal.100 It is true that the Appellate Body in the Seal case struck down some parts of the EC Regulation for non-compliance with the Chapeau of Article XX GATT.101 However, unlike in Turtle/Shrimp, it accepted the extraterritorial implications of the regulation without further mentioning it. Thus, extraterritoriality does not seem to be a concern within the WTO framework.102
5.2. The use of private mechanisms of GSC transparency under the WTO framework
The importance of private initiatives and CSR measures that attempt to regulate global supply chains, combined with the emerging dynamics of informal law-making, is rapidly becoming more important in the WTO multilateral trade architecture.103 For this reason, significant doubts about their accountability and legitimacy under WTO law are raised.104 What appears to be particularly problematic is to what extent the use of private initiatives, such as labels or certifications, is subject to WTO rules and the extent to which these forms of CSR regulation may lead to potential discrimination between the goods and services involved.105 As confirmed in the context of the GATT and Agreement on Technical Barriers to Trade (TBT),106 the use of social labelling schemes and certifications in public procurement cannot derogate from the application of the general principles of most favoured nation (MFN) and national treatment.107 The reference to these private verification mechanisms of due diligence along the supply chain may not translate into a different treatment based on the origin of the products and services in violation of Article III GPA.108
Together with the general principle of non-discrimination, it is worth noticing that the wording of Article X in the Revised GPA offers precise indications to the contracting authorities to avoid negative effects on competition. When regulating technical specifications and the possibility of including labels in them, according to Article X:3, ‘a procuring entity should indicate, where appropriate, that it will consider tenders of equivalent goods or services that demonstrably fulfil the requirements of the procurement by including words such as “or equivalent” in the tender documentation’.
Parallel to the conclusions of the CJEU in its judgment of 10 May 2012 in the Max Havelaar case,109 the reference to equivalent specification as provided for by labels and certifications guarantees the openness of the competition for the adjudication of the public contract by the contracting authorities. However, paragraph 3 of Article X GPA was not included in the previous regulation of technical specifications under the 1994 GPA and has never been interpreted by the WTO Dispute Settlement System. For this reason, the margin of application and interpretation of this specific aspect is still very uncertain in both the literature and practice.110 Some guidance in relation to the requirement of ‘equivalence’, which may also be relevant for the GPA, may be inferred from the Appellate Body’s interpretation of Article XX GATT. After striking down the initial US regulation in Turtle/Shrimp for a violation of the Chapeau, the Appellate Body accepted a subsequent change to the regulation, which only required foreign regulatory programmes to be ‘comparable in effectiveness’ and that also allowed the US to take into account the specific conditions prevailing in the importing country.111 It seems that this notion of granting flexibility by allowing programmes of ‘comparable in effectiveness’ was the critical aspect in the jurisprudence of the Appellate Body. It may also play a role in the GPA framework in relation to the use of private labels and certifications.
6. Preliminary conclusions and policy implications
International regulatory efforts to guarantee protection of human and labour rights are often weak in commitment and only provide limited enforcement. Moreover, private self-regulation alone monitoring the conduct of multinational enterprises cannot fully ensure the respect for human rights and labour standards. Using the synergy between the different layers of regulations in relation to the protection of human and labour rights and establishing more effective approaches thus becomes a priority in the context of the fragmentation of GSCs. Using public procurement regulation to manage and monitor GSCs is therefore high on the agenda for national legislation and is also gradually emerging in international instruments of procurement regulation.
This paper identified two specific characteristics of this new dimension of public procurement regulation: its extraterritorial effects on companies and firms across different jurisdictions and its reliance on private certifications and labels. While both aspects have played some role in public procurement for some time now, the growing complexity of GSCs has increased their prominence in contemporary regulation. As to extraterritoriality, this analysis has shown that such procurement regulations may be defined as territorial extensions, which, although they have a direct influence on the behaviour of firms across national jurisdictions, are generally compatible with principles of jurisdiction under international law. In relation to the use of labels and certifications, the paper concluded that they provide an effective mechanism of information sharing and reduce the burden of procuring agencies. Public procurement is thus becoming a hybrid, complex but efficient instrument to ensure socially responsible practices along the lengthening and increasingly fragmented production and supply chain.112
Both of these new aspects are evident within the new 2014 EU procurement framework, which includes a number of far-reaching regulatory features that facilitate the monitoring of the respect for human rights and labour standards of contractors and subcontractors across borders. Articles 71 and 18(2) of the Directive require all EU Member States to make all necessary efforts to ensure respect for the environmental, social and labour obligations, even along global GSCs. On the other hand, Article 43 allows for the broad use of private labels and certifications as means of proof of compliance, in line with the CJEU jurisprudence in Max Havelaar.
Finally, this paper argued the compatibility of these new forms of procurement measures with the text of the 2011 Revised GPA. The lenient interpretation of the concept of non-discrimination as applied to government procurement and the specific regulation of the different stages of the procurement process under the GPA offer additional flexibility that allows for the inclusion of social and labour considerations, as well as private labels and certifications.