The Latest EU Procurement Policy May Green Supply Chains

In 2020, the public procurement market accounted for 14.94% of GDP among OECD EU member countries. A sustainable public procurement policy is therefore definitely a big deal for sustainable development. The WTO’s Agreement on Government Procurement (GPA) promotes sustainability by allowing procuring entities to evaluate sustainability standards in procurement, which has been a template for sustainable public procurement rules. Despite this, the GPA is limited in contributing to sustainability. It prohibits procuring entities from requiring suppliers to fulfil national/or equivalent international environmental and climate standards outside contracts. This means that procuring entities in GPA countries cannot force bidders to green their operating models radically outside the contract, which may disappoint many who have high hopes for sustainable public procurement’s role in promoting sustainable supply chains. The recent evolution of European Union (EU) procurement policy may innovate a new way to green supply chains.

In a recent paper, I discuss the limited contribution of GPA rules to sustainability and the potential implications of the EU’s Regulation on International Procurement Instrument (IPI) for a global green recovery. Interestingly, the finding shows both optimistic and pessimistic prospects of the EU IPI. It all depends on how you view this initiative’s ambition. This new EU initiative somehow extends GPA rules to non-GPA countries by leveraging the EU’s trade power. According to the regulation, discriminating against an EU supplier in a non-GPA country would trigger a proportionate discriminatory treatment against those from this country in the EU procurement market. This rule breaks the traditional reach of national procurement policy, exerting an extraterritorial effect on foreign procuring entities.

In principle, the IPI may contribute to sustainable public procurement and thus promote a green global recovery by greening public procurement and supply chains. This is because ignoring environmental sustainability in procurement in non-GPA countries may be regarded as unequal treatment against EU suppliers by the EU. The latter has systematically greened trade policies, increasing the cost of EU corporations to produce environmentally friendly products. In their research, Teevan et al. and Stoian et al. have proved that the EU’s competitiveness will be affected by the high costs of the new environmental policy. It is therefore in the interest of the EU to argue that sustainable procurement is needed to meet the reciprocal treatment requirement. In practice, the EU has the discretion to interpret the meaning of unequal treatment. Therefore, the IPI is definitely an available tool to help the EU pressure procurement policy reform in non-GPA countries. If the EU could strategically use IPI to incentivise non-GPA countries to bring sustainability standards into procurement evaluation, it would significantly promote environmental sustainability in developing countries.

However, it is worth noting that the IPI may not change game rules in a few huge developing economies, such as China and India. These countries have large domestic markets and extensive international trade networks, meaning they are relatively independent of the EU’s economic impact compared to other non-GPA countries. Suppliers from such countries may find an alternative market, such as the U.S., to avoid the IPI punishment. The IPI’s effectiveness therefore hinges on the collaboration between huge markets in some specific scenarios. This weakness reminds us of the inherent drawback of unilateral measures. Despite this, IPI-like measures could be desirable for GPA countries to disseminate sustainable public procurement rules worldwide. While enhancing cooperation remains difficult due to various national values, it is much less challenging than extending the reach of sustainability criteria within the WTO public procurement framework.