RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/W/29
31 March 1999
(99-1349)
Working Party on GATS Rules
INTERPRETATION OF PROCUREMENT-RELATED PROVISIONS IN GATT
POSSIBLE APPLICATION TO ARTICLE XIII OF GATS
Background Note by the Secretariat
1. This Note has been prepared in response to a request by the Working Party on GATS Rules at
its meeting of 19 February 1999.  It provides background information on the interpretation of GATT
provisions on government procurement, which are similar to those contained in Article XIII:1 of
GATS.  The purpose is to assist the Working Party in its discussion regarding the transactions that
might be considered to constitute procurement of services.  In preparing this Note, the Secretariat has
drawn on GATT/WTO documents and publications, which delegations might want to read in parallel,
particularly the Guide to GATT Law and Practice.  However, this Note should not be regarded as an
exhaustive or authoritative interpretation of GATT or GATS provisions.
I. RELEVANT PROVISIONS
2. In excluding government procurement of services from the application of Articles II, XVI and
XVII of the GATS, Article XIII:1 refers to "…  procurement by governmental agencies of services
purchased for governmental purposes and not with a view to commercial resale  or with a view to use
in the supply of services  for commercial sale …" (emphasis added).  The Agreement contains no
further definition of these terms, nor has any interpretation been provided by competent WTO bodies.
However, the interpretation given to similar provisions under GATT might provide some useful
guidance.
3. Under Article III:8(a) of GATT, government procurement is exempt from the principle
obligation to national treatment with regard to inte rnal taxation and regulation.  The Article refers to
"…procurement by governmental agencies of prod ucts purchased for governmental purposes and not
with a view to commercial resale or with a view  to use in the production of goods  for commercial
sale…" (emphasis added).
4. The two provisions not only fulfil a similar function, namely to exclude government
procurement from the application of certain disciplines of the Agreements concerned, but are alsoformulated in almost identical terms.  Given this concordance, one could reasonably assume that
Article III of GATT served as a model for the drafting of Article XIII of GATS.
5. An additional reference to government procurement is contained in Article XVII:2 of GATT.
1
It exempts government procurement from the disciplines imposed by Article XVII:1 in respect of
State Trading Enterprises, stating that these discip lines "…shall not apply to imports of products for
immediate or ultimate consumption in governmental  use and not otherwise for resale or use in the
                                                     
1 GATT Article XVII:2  "The provisions of paragraph 1 of this Article shall not apply to imports of
products for immediate or ultimate consumption in governmental use and not otherwise for resale or use in the
production of goods* for sale. With respect to such im ports, each contracting party shall accord to the trade of
the other contracting parties fair and equitable treatment…."S/WPGR/W/29
Page 2
production of goods* for sale…" (emphasis added).  Although the purpose of these provisions is
similar to those contained in Articles XIII:1 (GATS) and III:8 (GATT), it uses different language to
define the excluded procurement transactions.  Thus, rather than "governmental purposes", reference
is made to "immediate or ultimate consumption in  governmental use".  The second defining element
used in GATT Article III (commercial resale/use) is retained in principle in Article XVII:2, except for
the word "commercial".
II. INTERPRETATIONS
A. "GOVERNMENTAL PURPOSES" VERSUS "GOVERNMENTAL USE"
Drafting history
6. Since the exceptions of Article III:8(a) and XVII:2 are part of the same legal framework, the
question arises as to the reasons for such differences.  Are they intended to establish different criteria
for procurement transactions in the two areas or have the relevant terms ("governmental purposes"
and "governmental use") been considered equivalent at the time of drafting?
7. As to the drafting history of Article XVII, it has been noted that "at Havana, paragraph 2 of
the Geneva Draft Article 30 [it corresponds to paragraph 2 of GATT Article XVII] was amended,   (1)
to conform the language to the wording of Article 18:8(a) [corresponds to Article III:8(a) of GATT]
to avoid difficulties of interpretation and (2) to extend the "fair and equitable treatment" rule to alsocover "the laws and regulations and requirements referred to in paragraph 8(a) of Article 18". 
2  This
seems to suggest that, originally, the two provisions were meant to refer to the same type of
government procurement.  In the same vein, John Jackson concludes that "the government
procurement exception [for state trading enterprises]  was intended to be virtually the same as that
expressed in Article III, paragraph 8(a), but the wording diverged when the Havana changes werepicked up in GATT Article III but not in Article XVI I, although the Havana changes were stated to be
non-substantive."
3
8. The drafting history of Article III:8(a) recounts that it had been agreed at Havana that
"paragraph 5 [III:8] was an exception to the whole of Article 18 [III]".  It has been noted that "the
Sub-Committee had considered that the language of paragraph 8 would except … laws, regulationsand requirements governing purchases effected for governmental use where resale was only
incidental".  Subsequently, during discussions at Havana "it was stated that paragraph 8 had been
redrafted… specifically to cover purchases made originally for governmental purposes and not with a
view to commercial resale, which might nevertheless later be resold…" (emphasis added).
4
Accession Working Parties
9. The report of the Working Party on Accession of Venezuela notes that, in relation to
purchases by State  enterprises, some members had questioned whether buy-national provisions wereconsistent with Articles XVII and III of the General Agreement.  "A member added that in order to
conform with Article III obligations the preferen ce…should only be applied to imports by the State
for its own consumption and not to imports by en terprises engaged in normal commerce…" (emphasis
added).  It is worth noting that in this context "consumption" is used instead of "purposes".  The
representative of Venezuela stated that "… Decree 1182 [buy national provision] will be brought intoconformity with Article III of the General Agreemen t… its application to purchases other than those
for ultimate consumption in governmental use would not deny the benefits of Article III to imports of
                                                     
2 GATT, Analytical Index: Guide to Gatt Law and Practice, p. 485.
3 Jackson, John; W orld Trade and the Law of Gatt , Boos-Merrill Company, 1969; pp. 291 and 359.
4 GATT, Analytical Index: Guide to Gatt Law and Practice, p. 190.S/WPGR/W/29
Page 3
other contracting parties…" (emphasis added).  It seems that in this context the definitions of
government procurement contained in the two GATT Articles were used interchangeably to cover
acquisitions by the government "for its own consumption and not for normal commerce".5
Panel reports
10. The non-adopted 1992 Panel Report on "United States - Procurement of a sonar mapping
system", in addressing relevant provisions of the Agreement on Government Procurement (AGP), also
referred to terms contained in Articles III:8 and XVII:2 of GATT.6  The issue at hand was whether an
acquisition by a private company, in connection with a contract between this company and a
governmental entity, constituted government pr ocurement under the AGP or private procurement
subject to GATT disciplines.  While the AGP did not define "government procurement", the Panel
noted that its Article I referred to "such methods as purchase or as lease, rental or hire-purchase, with
or without an option to buy".  Since all these methods were means of obtaining the use or benefit of aproduct, the Panel considered that the word "procurement" could be understood accordingly. 
7
11. Attempting to clarify scope and coverage of "government procurement" in the AGP, the Panel
looked at references contained in the GATT.  Thus , its attention was drawn to the terms "procurement
by governmental agencies of products purchased for governmental purposes" [Article III:8(a)] and
"products for immediate or ultimate consumption in governmental use" [Article XVII:2].
12. In this respect, the Panel observed that "the emphasis [of GATT provisions] on the concepts
of 'governmental use', 'governmental purposes', and 'procurement by government agencies' supported
its [i.e. the Panel's] own understanding of the c oncept of government procurement."  The Panel thus
felt that in considering any particular case, the fo llowing characteristics, none of which alone could be
decisive, provided guidance as to whether transactions should be regarded as governmentprocurement within the meaning of  Article I:1(a)  of GPA:  payment by government, governmental
use of or benefit from the product, government possession and government control over the obtaining
of the product.
13. Although the Panel did not elaborate further on the definition of "governmental use" and
"governmental purposes", it found a consistent, mutually supportive, relationship between them andits own characterization of government procurement.   In considering the specifics of the case, the
Panel noted that the US governmental entity "… would also enjoy the benefits of the system's
purchase - Antarctic research and the preparation of seabed maps - which were clearly for government
purposes, and the Government can thus be regarded as the ultimate beneficiary of the system…".
B. "COMMERCIAL RESALE" AND "USE IN THE PRODUCTION OF GOODS FOR
COMMERCIAL SALE"
14. According to the drafting history of Article III, while paragraph 8(a) of Charter Article 18 on
national treatment was revised at Havana by adding the word "commercial" before "resale" and "sale",
and this change was brought into Article III of the General Agreement in 1948, parallel changes
which had been made to paragraph 2 of Article 29 (on government procurement) were not brought
over into the paragraph 2 of Article XVII.
8
                                                     
5 Accession of Venezuela, Report of the Working Party, L/6696, adopted on 11 July 1990,
paras. 68-71.
6 GPR.DS1/R, dated 23 April 1992 (not adopted).
7 GATT, Analytical Index: Guide to Gatt Law and Practice , p. 192.
8 Ibidem , p. 193.S/WPGR/W/29
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15. Reportedly, the change was made to cover cases in which governments had received tied
loans to purchase equipment from the country granting the loan, and which might resell such
equipment later to private entities.  The new wording was intended "…to cover purchases made
originally for governmental purposes and not with a view to commercial resale, which might
nevertheless later be sold."9  Thus, it seems that the word "commercial" was introduced to ensure the
continued application of the national treatment exemption to procurement of goods which are sold
after use.
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9 Ibidem,  p. 190.