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One year on: How will UK public procurement work after Brexit?

public procurement after brexit

This Friday, 23 June, will mark the one year anniversary of Britain voting to leave the EU, and there is still relatively little clarity about trade deals which will have an impact on public procurement.

However, four potential models for a procurement relationship for British companies to participate in the EU market after Brexit have been outlined in a paper published by the European Parliament, titled Consequences of Brexit in the Area of Public Procurement.

The report said the four models relevant to any discussion of EU/UK public procurement post Brexit were:

1. The European Economic Area (EEA) Agreement model, which represents current EU procurement law.

2. The WTO Agreement on Government Procurement (GPA), whose rules are much looser than EU law.

3. EEA-minus, which uses the EEA Agreement but without all its elements.

4. GPA-plus, which adds to GPA provisions. GPA-plus is the approach currently being pursued in negotiations with the US in the Transatlantic Trade and Investment Partnership (TTIP).

But how likely is each of these to be used, and how would the various models work? Let’s take a closer look at each of them.

EEA

This model is based on the European Economic Area (EEA) agreement, which is currently used by European Free Trade Association (EFTA) states such as Norway and Switzerland.

This agreement would involve Britain being a member of the EEA, without actually being part of the EU. In principle, this model would give Britain access to the single market – in exchange for a financial contribution – without the additional burden of being a full EU member. It’s worth noting that if Britain were to opt for this model after Brexit, they would first have to join the EFTA.

Under the EEA agreement model, the rules would follow those used within the EU, including a requirement to use the EU’s common advertising system for notices – Tenders Electronic Daily (TED) –and to submit notices in one of the EU’s official languages.

However, the EEA model requires accepting the core principles of the EU’s internal market, including free movement of people, which could be a sticking point. Politically, it may be hard to convince pro-Brexit ministers, MPs and voters that continuing to make payments to the EU (albeit not into the main budget), accepting free movement of people and becoming a law taker rather than a law maker is compatible with last year’s vote to leave the EU.

GPA

This model would see the EU-UK relationship on public procurement being governed solely by the rules of the World Trade Organisation Agreement on Government Procurement (GPA).

The GPA model has been used in the EU itself in public procurement agreements with its trading partners who are not parties to the GPA, and it could be a viable option for an EU-UK agreement on procurement.

The UK is currently party to the GPA through its EU membership, but there is no precedent for the current situation. With this in mind, there is some uncertainty as to whether the UK would have to rejoin the GPA after Brexit and this would be the first question that would have to be answered if the UK opted for this model.

One view is that the UK will in fact have to rejoin by following the same process as any new party to the agreement. The other perspective is that the UK can maintain its current rights and obligations under the GPA without having to make a new application to join.

The GPA model could, at the very least, serve as a short-term solution pending a final agreement. However, much will depend on the views of the current GPA Parties and the degree of consensus between them.

EEA-minus

Another possible approach outlined by the report is an ‘EEA-minus’ approach, which would use EU law as the basis for procurement-specific rules and would maintain EU access to above-threshold UK markets on the same basis as at present.

This model is similar to that used in the Deep and Comprehensive Free Trade Area agreements (DCFTAs) between the EU and some neighbouring countries like Georgia, Ukraine and Moldova.

This would work as an EU-UK agreement in procurement even if the UK does not remain fully part of the Single Market, and would mean that the UK would be permitted to continue using the common EU advertising system, TED. However, this model would offer the UK no more flexibility than it currently has and with no say over how rules develop in the future.

GPA-plus

Another option the paper identified is a ‘GPA-plus model’ that would use the WTO Agreement on Government Procurement as a basis, supplemented with additional rules and commitments which could be used to address issues that are not covered by the GPA, including rules based on EU law.

This type of agreement is in place with Chile, Colombia, Peru and Ecuador, and has been pursued in the EU-US trade negotiations. It would give the UK the freedom to pursue its own procurement policy within the limits of the GPA rules.

These are four options which are viable for UK public procurement after Brexit. Regardless of which approach is taken, whether it is one of these four or something completely different, the devil will be in the detail.

With the European Commission estimating that public expenditure on goods, works and services makes up 13.1% of EU GDP and 13.6% of UK GDP, it’s clear that both the UK and EU will be keen to make sure that markets stay open and accessible to each other after the UK’s withdrawal from the EU.

Keep following the BiP Solutions blog for news, analysis and commentary on public procurement and Brexit.

Referendum Reflection for British Business: Professor Bovis

Bovis

With Britain facing a European referendum on 23 June many questions remain about the implications of Brexit for the UK supply chain. Here BiP Solutions reporter Julie Shennan hears from European Procurement law expert Professor Christopher Bovis on the way the decision could shape British business.

Christopher Bovis JD, MPhil, LLM, FRSA is Professor of Business Law at the Business School of the University of Hull. He is an internationally renowned specialist in European public procurement who, in 2011, was leader of an EU/United Nations procurement training scheme.

Having written extensively on European business in publications including the European Public Private Partnerships Law Review and Encyclopaedia of Competition Law, the professor has given considerable thought to the implications of the EU referendum for business in the UK.

He encouraged others to share his interest, stressing that the referendum would impact the whole supply chain.

Prof Bovis said:

Businesses of all sizes must prepare themselves for the referendum by educating themselves. Big businesses have done this quite well; however, SMEs are still ill-prepared.

“The Stay Camp [Britain Stronger in Europe] must address the SME business community and make them aware of the implications of a Brexit.”

Brexit [Vote Leave] rhetoric argues that SMEs export less so – to them – the advantages of membership of the EU’s common market are outweighed by its tax and legislative burden.

Professor Bovis explained that he believed this rhetoric to be inaccurate: “In theory, UK businesses could have more autonomy if there were a Brexit. They could release themselves from the bureaucracy of Brussels, plan ahead and decide the countries with which to do business. But in reality it would be completely the opposite.

“Autonomy is only wishful thinking; most of the European rules (on things like business takeovers and acquisitions) are heavily influenced by the UK procurement codes of practice. It is impossible to claim that a Brexit would cut red tape, as the UK helped to create this red tape.”

Procurement bureaucracy, Prof Bovis said, would be further complicated by a Brexit.

He explained: “If there were a Brexit, the biggest challenges UK business would face would be trying to implement an alternative corporate rules system. If you were going to enter the common market, which promotes freedom of goods and freedom of movement, then you would have to implement a system that has similar freedoms of capital and labour, but also in revenue or customs.

“Trade systems need to create a depth of integration between different countries and sectors in order to benefit from economies of scale.”

Any change in legislation and trade agreements would, Prof Bovis said, create economic uncertainty that would shake inward investment.

He added: “There would be a disincentive for countries to inwardly invest in the UK, as the fundamental freedoms of investment and capital would be removed, so companies wouldn’t be sure of the UK tax systems. The service and investment community would be handicapped for many years to come.”

This, Prof Bovis said, would have a knock-on effect on the UK’s critical national infrastructure: “The UK doesn’t publicise it, but it is one of the global leaders in attracting foreign investment to its service markets, such as the utility sector.

“To lose this framework of freedom in provision of services in the UK would create a market segmentation which would be detrimental.”

While internal investment would be complicated, Prof Bovis said the greatest impact of a Brexit would be seen in the exports market.

He explained: “UK companies would lose the opportunity to compete unlimitedly in the areas of the European market and its engagement with World Trade Organisation markets would be complicated by its change in government procurement structure.”

“A Brexit would take a huge chunk out of UK exports in the first year and this downward trend would continue year upon year, because worldwide competition is dynamic and without the benefits of the European common market the UK would be lost.”
One of these benefits, Prof Bovis explained, is EU market subsidies.

He said: “In the case of a Brexit, the agricultural industry would be decimated because it would take the subsidies away from the production and distribution of agricultural products, leaving a huge gap in the funding that brings the products to market.

“If the CAP and the fisheries funding was removed from UK, these industries would be detrimentally affected.”

However, Prof Bovis acknowledged that other industries may – temporarily – benefit from a Brexit.

He said: “I suspect that the service industries would benefit in the short term from a Brexit. This would be because it is an inward looking industry, so it could avoid competition from outside the UK. However, the industry would only benefit temporarily, as exclusion from the EU would hinder its productivity and chances of expansion.”

The limitations of a Brexit are recognised by the ‘Stay Camp’, which has the backing of the President of the European Council, Donald Tusk.

Mr Tusk drafted the report which formed the basis of the negotiation of an alternative EU membership deal for the UK.

Talking of the Tusk Deal, Prof Bovis said it was a good starting point.

He added:

The Tusk deal would provide some discretion in applying the EU levels of control in procurement. It would also provide a blueprint for a safeguard against monetary union. Monetary union didn’t work 100% for the Eurozone, so this Tusk deal would rule against the UK adopting the Euro or shouldering the burden of European welfare state.”

But he said the deal needed development, explaining: “The Tusk deal fails to answer many of the issues the Brexit camp has around the welfare state and immigration.”

Concluding, Prof Bovis reiterated his call for business leaders to educate themselves before the referendum.

He said:

“It is vital that people vote with their minds and not their hearts; we need to make serious business decisions not emotional decisions. The European Union is an economic integration project; it is for prosperity, not emotions.”

For more information on the EU Referendum, keep following the  BiP Solutions Website.