28 April 1992

3.35 The United States did not believe that it was necessary or appropriate for the Panel to prescribe exactly what Norway must do in order to negotiate a mutually satisfactory solution that took account of the lost opportunities of United States companies, including Amtech, in this procurement; such solutions could take a number of forms, such as annulment of the contract, the provision of additional opportunities to bid for future contracts, assurances about future conduct etc. Rather, it should be sufficient for the Panel to recommend that Norway negotiate a satisfactory solution to the dispute with the United States, leaving it for the parties to the dispute to work out the problem. The Panel might also recommend that, in the event that the proposed negotiation did not yield a satisfactory result, the Committee be prepared to consider authorising the United States to withdraw benefits under the Agreement from Norway with respect to opportunities to bid of equal value to the Trondheim contract.

3.36 Norway argued that this United States request to the Panel should be rejected on the following counts. First, Norway had not violated its obligations under the Agreement and Amtech had not lost any opportunities that Norway was obliged to afford it under the Agreement. Second, the scope of the complaint of the United States referred to the Panel, which was defined by reference to document GPR/W/110 submitted by the United States, did not include this request; therefore the request was outside the Panel's terms of reference and inadmissible.

3.37 Third, the Panel's terms of reference and the Agreement did not extend the mandate of the Panel to recommendations concerning compensation, if that was what the United States was seeking. In Norway's view, panel recommendations should be in line with the provisions in the Agreement limiting Committee recommendations to the resolution of disputes on the basis of the operative provisions of the Agreement and of its objectives set out in the Preamble. No previous panel under the Agreement on Government Procurement had recommended compensation. Moreover, the practice of panels under other parts of the GATT system did not provide any precedent for the US claim. Recommendations that wrongfully collected anti-dumping duties be repaid were quite different; there the question was not one of compensation but of reimbursement of monies to the persons to whom they rightfully belonged. Other differences were that in such cases the amount to be repaid was easily ascertained and generally it was repaid to persons within the contracting party found in breach of its obligations, i.e. the importers. In the Trondheim case, Amtech had not had any expenses; therefore, no refund of excess charges or expenses incurred could be relevant. If any losses were thought be have been suffered by Amtech, they could only be losses of earnings which might or might not otherwise have accrued. Besides never having been taken into account in GATT dispute settlement, losses of this type would be very difficult or, more probably, impossible to calculate. No GATT practice instituted "retroactive compensation", either in the case of GATT codes dealing primarily with trade flows or with respect to codes dealing primarily with events.

3.38 Norway argued that the United States suggestion concerning a panel recommendation on withdrawal of benefits was totally unfounded and out of proportion, even if it was considered to be properly before the Panel. According to the Article VII:14, the Committee could authorise withdrawal of benefits under the Agreement only "if the Committee considers that the circumstances are serious enough to justify such action", and only if "the Committee's recommendations are not accepted by the Party, or Parties, to the dispute". The Committee would then not only have to find that Norway had violated the Agreement; it would also have to find that the violation was serious, and of such character as to justify partial suspension of Norway's rights under the Agreement. In the Norwegian view, there was clearly no basis for the Committee to reach such a conclusion in the present case.

4.1 The basic facts of the case before the Panel are that in March 1991 the Norwegian Public Roads Administration awarded a contract relating to electronic toll collection equipment for a toll system around the city of Trondheim to a Norwegian company, Micro Design, after single tendering the procurement with that company. The central point of difference between the two parties to the dispute was whether, in single tendering the procurement, Norway had met the requirements of Article V:16(e) of the Agreement. Norway maintained that the single tendering of the contract was justifiable under these provisions, since the contract was for research and development and the part of the contract which it considered was covered by the Agreement was for the procurement of prototypes which had been developed in the course of and for that research and development contract. Furthermore, Norway contended that it had complied with the requirements in the headnote to Article V:16. The United States maintained that Article V:16(e) was not applicable since, in its view, the objective of the contract was not research and development but the procurement of toll collection equipment. Moreover, the United States disputed that research and/or development had been required to produce these products, that the products could justifiably be characterised as prototypes and that Norway had met the requirements in the headnote to Article V:16.

4.2 The United States also contended that, in conducting the procurement, Norway had failed to respect its obligations under Article II:1 to accord to the products and suppliers of other Parties treatment no less favourable than that accorded to domestic products and suppliers. The United States further maintained that Norway had acted inconsistently with (a) the provisions of Article IV:4 of the Agreement by accepting advice from Micro Design on the specifications for the procurement and (b) the provisions of Article IV:2 by specifying the proprietary equipment of Micro Design for the project. Norway disputed all these allegations.

4.3 The Panel first considered the question of the coverage of the procurement by the Agreement. It noted that the Norwegian Public Roads Administration was an entity subject to the Agreement, and that this was accepted by the parties to the dispute. There was, however, a difference of view between the parties about the extent to which the procurement was subject to the Agreement. In the Norwegian view, only that part concerning the procurement of what Norway considered to be prototypes was covered, the rest not being for products but for research and development. As indicated above, the United States believed that the totality of the contract was for the procurement of products and therefore subject to the Agreement. While the Panel noted this difference of view, it also noted that both parties accepted that the contract was, at least in part, covered by the Agreement in an amount clearly in excess of the threshold provided for in Article I:1(b), and proceeded to examine the case on this basis.

4.4 The Panel noted that it was not in dispute that the procurement had been single tendered and that therefore it would have to meet the requirements of Article V:16 if it were to be in conformity with the Agreement. Only sub-paragraph (e) had been invoked by Norway in this regard. Article V:16(e) reads as follows:

There is a footnote to sub-paragraph (e) which reads as follows:

4.5 The Panel agreed with the view that Article V:16 must be regarded as an exceptions provision containing, as made clear in the last sentence of Article V:1, a finite list of the circumstances under which Parties could deviate from the basic rules requiring open or selective tendering. Since Article V:16(e) was an exceptions provision, its scope had to be interpreted narrowly and it would be up to Norway, as the Party invoking the provision, to demonstrate the conformity of its actions with the provision.

4.6 The Panel first examined the conformity of the procurement with the conditions contained in the text of sub-paragraph (e) of Article V:16. The Panel noted that there was a basic difference of interpretation of this sub-paragraph between the parties to the dispute. The United States understood the words "contract for research ... or original development" to mean that the objective of the contract must be the procurement of the results of research and/or development. In this view, the mere fact that a good deal of research and/or development was necessary in order to produce a product would not be sufficient to meet this standard, if it was the product rather than the results of the research and/or development that was the object of the procurement. For Norway, this phrase meant that the basic task required under the contract must be the conduct of research and/or development. In this interpretation, there was no requirement that the principal purpose of the procurement must be the acquisition of research and/or development results as such, as opposed to the products developed through such research and/or development (provided that the products were prototypes or a first product).

4.7 In examining this issue, the Panel first noted that, while the provision referred to "research, experiment, study or original development", the parties to the dispute had referred only to research and development. Furthermore, although the provision relates to "prototypes or a first product", only prototypes had been referred to. The Panel therefore limited its examination to these aspects. The question therefore before the Panel was whether, under the contract, the Norwegian Public Roads Administration had procured prototypes which had been developed at its request in the course of, and for, a particular contract for research or original development. The Panel then proceeded to examine the different interpretations of Norway and the United States of the phrase "contract for research ... or original development", bearing in mind the general rule for the interpretation of treaties that a treaty be interpreted in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

4.8 Given the above, it was clear to the Panel that the words "contract for research ... or original development" in Article V:16(e) had to be interpreted from the perspective of the procuring entity. What was relevant at this point in the Agreement, as at others, was what the procuring entity was procuring, not the nature of the work that would have to be undertaken by the supplier to supply the goods and/or services being procured. It was the output of suppliers that the Agreement dealt with and that procuring entities were interested in purchasing, not the input of factors of production necessary to produce such output. For example, if most of the cost of producing a product that was being procured were to consist of payments for labour required to produce it, this would clearly not constitute a ground for claiming that that procurement was excluded from the coverage of the Agreement. The same reasoning must also apply if research and/or development were to constitute an input into the production of products being procured and were not itself the object of the procurement. For these reasons the Panel concluded that the phrase "contract for research ... or original development" had to be understood as referring to a contract for the purpose of the procurement by the procuring entity of the results of research and/or original development, i.e. knowledge. ¹

4.9 The Panel did not mean to suggest by this that the results of the research and/or original development would necessarily have to be procured solely in abstract form, for example as scientific papers. The results could be procured, at least in part, in the form of prototypes or a first product, which would enable the procuring entity to learn of, and to test the validity of, the results of the research and/or development in a more practical way. The Panel noted that this possibility was foreseen in the footnote to Article V:16(e), where it said that "Original development of a first product may include limited production in order to ... demonstrate that the product is suitable for production in quantity to acceptable quality standards ...". However, it remained the case that, to meet the requirements of sub-paragraph (e), prototypes or a first product had to be developed "in the course of, and for, a particular contract for research ... or original development". In the Panel's view, this meant that, for products to be considered prototypes, they must have as their principal purpose the testing and furthering of the knowledge that the procuring entity was procuring under the contract for research and/or development. ²

4.10 In the light of the above, the Panel considered that, in order to be covered by sub-paragraph (e) of Article V:16, Norway would have had to have demonstrated, among other things, that (i) the Norwegian Public Roads Administration had had as its principal purpose in concluding the contract the procurement of the results of research and/or original development from Micro Design, and (ii) that the principal purpose of the equipment procured from Micro Design under the contract had been to test and provide a means of further developing the knowledge generated through that research and/or original development. In the view of the Panel, Norway had demonstrated neither of these points.

4.11 All the information provided by Norway to the Panel indicated that the principal purpose of the contract of the Norwegian Public Roads Administration with Micro Design had been the procurement of operational toll collection equipment for a functioning toll ring system. Norway had emphasised to the Panel the importance that the procuring entity attached to a speedy establishment of the toll ring as a fully operational system, for financial reasons in particular. The Panel further noted that Norway had said:

The Panel noted the reference by Norway to the establishment of a national and European test area as having been an objective of the contract, but did not consider that Norway had demonstrated that this had been the principal purpose of the Public Roads Administration. The Panel also noted that Norway had not claimed that the Public Roads Administration had plans to procure further toll ring systems on the basis of the model developed at Trondheim. The Panel, therefore, found that Norway had not demonstrated that the principal purpose of the Norwegian Public Roads Administration had been the procurement of the results of research and/or development, rather than operational toll collection equipment as part of a functioning toll ring system.

4.12 Given that the Panel had found that Norway had not met the conditions of Article V:16(e), the Panel did not consider it necessary to examine whether in fact Micro Design had had to perform research and/or development in order to fulfil the terms of the contract. The Panel did not wish to contest that original development and possibly applied research may have been required. The Panel also wished to make it clear that the mere fact that prototypes might be put to operational use did not in itself mean that Article V:16(e) could not be invoked, provided nonetheless that the principal purpose governing their procurement was research and/or development.

4.13 The Panel considered that the fact that the basic ownership of the proprietary rights in the knowledge generated had been vested under the contract in Micro Design was consistent with its finding that the procurement of the results of research and/or original development had not been the principal purpose of the Norwegian Public Roads Administration. The Panel however did not wish to make a finding that such a disposition of the ownership of proprietary rights should be considered decisive, given that in the Trondheim procurement the procuring entity had reserved the right to use for its own purposes, free of charge, the knowledge developed under the contract. What was important for Article V:16(e) was whether the procuring entity was purchasing the results of research and/or original development, not whether it retained exclusive rights over such results.

4.14 For the above reasons, the Panel found that the single tendering of the contract by the Norwegian Public Roads Administration did not meet the requirements of Article V:16(e) of the Agreement. The Panel did not consider it necessary to examine the conformity of the procurement with the headnote to Article V:16(e), as requested by the United States, since it had already found that the procurement could not be justified under that provision. Given that the Panel had found that the single tendering of the procurement could not be justified under Article V:16(e) and that it had not been justified under any other provision of the Agreement, the Panel concluded that Norway had not complied with its obligations under the Agreement in the conduct of the procurement.

4.15 The Panel then considered the other provisions invoked by the United States. Given that the Panel had found that Norway had unjustifiably single tendered the procurement with a Norwegian company, the Panel found that Norway had failed to comply with the obligation in Article II:1 to provide the suppliers of other Parties treatment no less favourable than that accorded to domestic suppliers.

4.16 The Panel then turned to Article IV of the Agreement. It understood the basic argument of the United States to be that advice from Micro Design had been used in the preparation of the specifications for the procurement in a manner which had helped Norway consider that the use of a research and development contract that could be single tendered was justified; i.e. the advice had been accepted "in a manner which would have the effect of precluding competition" and thus inconsistently with Article IV:4. Since the act of single tendering had precluded competition and since the Panel had already found that the contract should not have been single tendered, the Panel did not make a finding on Article IV.

4.17 The Panel then turned its attention to the recommendations that the United States had requested it to make. In regard to the United States' request that the Panel recommend that Norway take the necessary measures to bring its practices into compliance with the Agreement with regard to the Trondheim procurement, the Panel noted that all the acts of non-compliance alleged by the United States were acts that had taken place in the past. The only way mentioned during the Panel's proceedings that Norway could bring the Trondheim procurement into line with its obligations under the Agreement would be by annulling the contract and recommencing the procurement process. The Panel did not consider it appropriate to make such a recommendation. Recommendations of this nature had not been within customary practice in dispute settlement under the GATT system and the drafters of the Agreement on Government Procurement had not made specific provision that such recommendations be within the task assigned to panels under standard terms of reference. Moreover, the Panel considered that in the case under examination such a recommendation might be disproportionate, involving waste of resources and possible damage to the interests of third parties.

4.18 The United States had further requested the Panel to recommend that Norway negotiate a mutually satisfactory solution with the United States that took into account the lost opportunities in the procurement of United States' companies, including Amtech. Finally, the United States had requested the Panel to recommend that, in the event that the proposed negotiation did not yield a mutually satisfactory result, the Committee be prepared to authorise the United States to withdraw benefits under the Agreement from Norway with respect to opportunities to bid of equal value to the Trondheim contract. Norway had argued that, even if the Panel were to find that the procurement had been conducted inconsistently with the Agreement, such requests should be rejected because they were outside the scope of the complaint referred to the Panel and outside the tasks assigned to dispute settlement panels under the Agreement.

4.19 In examining these requests, the Panel first noted that, as instructed in its terms of reference, it had given Norway and the United States full opportunity to develop a mutually satisfactory solution. The Panel also noted that nothing prevented the two governments from negotiating at any time a mutually satisfactory solution that took into account the lost opportunities of United States' suppliers, provided such solution was consistent with their obligations under this and other GATT agreements. The issue was whether the Panel should recommend this and further recommend that the Committee be prepared to authorise the withdrawal of benefits under the Agreement from Norway if such a solution were not negotiated.

4.20 The Panel noted that the United States had indicated that it was not asking the Panel to recommend the negotiation of compensation for past losses. However, if this was not the case, it was not evident to the Panel what it was being asked to recommend that Norway negotiate with the United States. Clearly the "lost opportunities" referred to were past opportunities and the remedial action that might be negotiated taking into account these lost opportunities would have to be in the future and therefore in all probability compensatory. The request concerning withdrawal of benefits also confirmed to the Panel that the practical effect of the recommendations sought by the United States would be to invite Norway to offer compensation, in one form or another, to the United States for past losses. Given that the United States had indicated that this was not what it was seeking, the Panel had some difficulty in responding to this request, despite having made efforts to explore its implications with the parties.

4.21 Moreover, the Panel observed that, under the GATT, it was customary for panels to make findings regarding conformity with the General Agreement and to recommend that any measures found inconsistent with the General Agreement be terminated or brought into conformity from the time that the recommendation was adopted. The provision of compensation had been resorted to only if the immediate withdrawal of the measure was impracticable and as a temporary measure pending the withdrawal of the measures which were inconsistent with the General Agreement (BISD, 26S/216). Questions relating to compensation or withdrawal of benefits had been dealt with in a stage of the dispute settlement procedure subsequent to the adoption of panel reports.

4.22 The Panel then considered whether there were reasons that would justify dispute settlement panels under the Agreement on Government Procurement differing from the above practice under the General Agreement. In this respect, the Panel noted the argument of the United States that, because benefits accruing under the Agreement were primarily in respect of events (the opportunity to bid), rather than in respect of trade flows, and because government procurement by its very nature left considerable latitude for entities to act inconsistently with obligations under the Agreement in respect of those events even without rules or procedures inconsistent with those required by the Agreement, standard panel recommendations requiring an offending Party to bring its rules and practices into conformity would, in many cases, not by themselves constitute a sufficient remedy and would not provide a sufficient deterrent effect.

4.23 In considering this argument, the Panel was of the view that situations of the type described by the United States were not unique to government procurement. Considerable trade damage could be caused in other areas by an administrative decision without there necessarily being any GATT inconsistent legislation, for example in the areas of discretionary licensing, technical regulations, sanitary and phytosanitary measures and subsidies. Moreover, there had been cases where a temporary measure contested before the GATT had been lifted before a Panel had been able to report. ³

4.24 The Panel also believed that, in cases concerning a particular past action, a panel finding of non-compliance would be of significance for the successful party: where the interpretation of the Agreement was in dispute, panel findings, once adopted by the Committee, would constitute guidance for future implementation of the Agreement by Parties.

4.25 Moreover, the Panel was not aware of any basis in the Agreement on Government Procurement for panels to adopt with regard to the issues under consideration a practice different from that customary under the General Agreement, at least in the absence of special terms of reference from the Committee.

4.26 In the light of the above, the Panel did not consider that it would be appropriate for it to recommend that Norway negotiate a mutually satisfactory solution with the United States that took into account the lost opportunities of United States companies in the procurement or that, in the event that such a negotiation did not yield a mutually satisfactory result, the Committee be prepared to authorise the United States to withdraw benefits under the Agreement from Norway with respect to opportunities to bid of equal value to the Trondheim contract. The Panel had recognised, however, that nothing prevented the United States from pursuing these matters further in the Committee or from seeking to negotiate with Norway a mutually satisfactory solution provided that it was consistent with the provisions of this and other GATT agreements.

4.27 The Panel also recognised that it would be possible for the United States to raise in the Committee its concerns of a more general nature referred to in paragraph 4.22 above. The Panel noted that certain proposals for challenge procedures open to suppliers that were under consideration in the context of the negotiations on a revision of the Agreement on Government Procurement were intended to address the difficulty felt to exist in obtaining effective redress in respect of complaints about specific procurements.

5.1 On the basis of the findings set out above, the Panel concluded that Norway had not complied with its obligations under the Agreement on Government Procurement in its conduct of the procurement of toll collection equipment for the city of Trondheim in that the single tendering of this procurement could not be justified under Article V:16(e) or under other provisions of the Agreement.

5.2 The Panel recommends that the Committee request Norway to take the measures necessary to ensure that the entities listed in the Norwegian Annex to the Agreement conduct government procurement in accordance with the above findings.

The Content of the Contract with Micro Design

The following information is an unofficial translation provided by Norway of the relevant paragraphs of the contract.

The R&D contract contains the following basic elements:

Information concerning the R&D task: the task involves the use of an ISDN pilot program for the toll ring around Trondheim. The development project will be implemented in collaboration with and co-ordinated with Trondheim Telecom, the Norwegian Institute of Technology, the Centre for Technical and Industrial Research (SINTEF), and other companies and institutions.

The task comprises developing and supplying full-scale prototype payment equipment for ten unmanned toll stations. The stations will form a toll ring around and through the city of Trondheim.

The project also involves fully automated, unattended payment system in two parking garages and automatic selective detection and information system for buses. The project will also involve integration of this system with the system at the toll stations.

Communication between the various system units (data concerning transactions, images, speech, statistics, alarms etc.) will be carried out in co-operation with Trondheim Telecom through development of the latter's pilot ISDN network.

Development of prototypes: 10 prototype toll stations for unmanned operation, 2 prototype control units for car parks, and 1 prototype bus priority unit are to be developed under the R&D contract.

Project management and personnel: Micro Design is responsible for the technical implementation of the task as described.

A personnel plan is set out with names and titles of 23 persons participating in the project, designating one person as responsible for the project and key personnel.

Project implementation: The procuring entity is the Public Roads Administration, which has delegated the day-to-day responsibility to the Chief County Roads Officer at the Sø/r-Trø/ndelag County Roads Office.

The general, functional requirements on which the R&D contract is based, shall be converted into detailed, functional requirements and technical solutions and specifications. This work shall be performed in close co-operation with the procuring entity, which sets the functional requirements and approves the technical solutions. This is to be done in the form of project meetings and reports to the Public Roads Administration, in accordance with specific guidelines.

Sub-tasks have been identified under the project regarding research, development and testing to be performed by other entities than Micro Design, mainly by the Norwegian Institute of Technology.

According to the time schedule, the system is to be ready for preliminary toll collection operations on 14 October 1991. The time schedule contains specific dates for the implementation of the remainder of project, and a test period. The project shall be finalised on 14 April 1994.

Budget and payment plan: A budget and payment plan has been drawn up in accordance with the progress of the implementation of the project. The total budget for the project is NOK 28.5 million. Of the total amount, NOK 14.3 million is for R&D services, NOK 8.7 million for equipment, development and testing of prototypes, and NOK 5.5 million for electronic tags.

The system to be developed shall meet the following requirements:

The functional requirements shall be developed in the following areas:

A. Integration in separate electronics cabinets for unmanned operation.

Existing equipment must be miniaturised in order to meet the requirement for unmanned toll stations and minimise land use. The units shall fit mechanically into a cabinet which protects the electronic equipment adequately from stress/strain, such as traffic vibration and asphalt dust, and fluctuations of temperature.

Since the toll stations are to be unmanned, adequate routines must be developed for communicating alarms and reports regarding the status of the equipment.

B. Integrated video system

As the video recording unit is to be integrated into the computer at the toll station, new software must be developed for operating cameras and temporary local storage of images.

The images must be transferable from the control station to the central control unit on the telecommunications network.

C. Giving priority to public transport

The purpose of the project is to design, implement and test a prototype that satisfies the following requirements:

D. Parking garage

In phase 1, the system shall comprise the following components:

In its final form (phase 2), the system shall comprise the following components:

E. Communications facilities

An unmanned system distributed over a wide area involves more stringent requirements as regards data communication.

The communications facilities are part of the pilot program of Trondheim Telecom, which is also in charge of developing and testing the facilities, and provides the equipment.

The supplier shall develop equipment that satisfies Norwegian Telecom's requirements as regards ISDN communications equipment.

F. Systems integration - alarms and self-testing routines

As the requirements for operational reliability are very stringent, new routines shall be developed for self-testing and alarms at all levels of the system. All alarms, functions and messages for the unmanned stations must be monitored from the manned toll stations. The personnel must also be able to assist motorists at the unmanned stations, and this requires video surveillance and voice communication.

G. Video follow up system

Pictures of motorists who pass a toll station illegally shall be transferred automatically from the toll stations to the toll company via the telecommunications network. The existing video system shall be further developed to deal with a minimum of 2,000 pictures in a twenty-four hour period. New compression algorithms from the Norwegian Institute of Technology shall be integrated into this system. The system shall be based on 386/486 computers in a network linked to the central system for finding.

H. Subscribers management system - requirements

It is presupposed that the central system will be based on the software system currently in use.

The contract contains the following provisions on the ownership of proprietary rights in the intellectual property developed under the contract:

¹ In this regard, the Panel noted the definition of research and experimental development contained in the "Frascati Manual", 1980, of the OECD on "The Measurement of Scientific and Technical Activities". This reads as follows: "Research and experimental development (R&D) comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge to devise new applications."

² In this regard, the Panel noted that the Frascati Manual of the OECD (referred to in the previous footnote) indicates that prototypes should only be included in R&D so long as the primary objective is to make further technical improvements to the product concerned (paragraphs 69 and 72 and Table II.2).

³ See, for example, Report of the Panel on European Economic Community Restrictions on Imports of Dessert Apples: Complaint by Chile, adopted on 22 June 1989 (BISD 36S/93).

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