Government Procurement Derogation Under Article III(8)(a) of the GATT: An Analysis of the Jurisprudence and Recommendations for Designing WTO-Consistent Industrial Policies

Article III:8(a) of the General Agreement on Tariffs and Trade 1994 (GATT) provides for a derogation from the national treatment principle with respect to government procurement. The language of GATT Article III:8(a) is vague and imprecise despite attempts by certain panels and the Appellate Body to interpret this provision. In the Turkey – Pharmaceutical Products dispute, GATT Article III:(8)(a) was interpreted in the context of Turkey’s drug insurance reimbursement scheme, where the arbitral panel’s observations shed some light on the government procurement derogation. This article critically examines the interpretation of GATT Article III:8(a) with a view to provide insights to policy makers. In this context, the article discusses the interpretation put forth by panels and the Appellate Body with respect to GATT Article III:8(a). Specifically, it critically examines the Panel Report and the arbitral award in the Turkey – Pharmaceutical Products. In this regard, the paper highlights the interpretation put forth by the arbitral panel that expands the scope of GATT Article III:8(a) to the extent that it identifies: (i) procurement may include non-governmental entities and (ii) “purchase” is only a subset of the types of transactions that may put into effect such government procurement. However, the arbitral panel fails to clarify the degree of governmental “control” required for a non-governmental entity to procure for governmental purposes. The authors argue that the arbitral panel set an unclear legal standard for identifying control, while relying on a narrow textual interpretation of the provision. The authors apply the interpretation put forth by the arbitral panel to a historical and a contemporary case study and, thereafter, offer some recommendations to policy makers to structure procurement policies that may benefit from the government procurement derogation under GATT Article III:8(a).