The UK’s accession to the Government Procurement Agreement of the WTO

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This is the first of two blogs from Dr Filippo Fontanelli from the University of Edinburgh’s Law School. Dr Fontanelli is working in SPICe on a two-year academic fellowship.  This first blog explains what the Government Procurement Agreement (GPA) is, and how it operates. The second blog (to be published tomorrow) describes the UK’s pre-Brexit government procurement system, how the UK is set to join the GPA in early 2019, and how it seeks to benefit from it.

As with all guest blogs, what follows are the views of the author, not those of SPICe or indeed the Scottish Parliament.

On 27 February 2019, World Trade Organisation (WTO) members approved the UK’s application for membership of the GPA.  The UK will join the GPA after it leaves the EU and is no longer bound by the EU’s membership of the GPA. UK membership also needs to be ratified and, as such, it forms part of the Trade Bill, which is currently being considered by the UK Parliament.

What is public procurement?

Governments and state-owned bodies purchase goods and services. Public purchasing is funded through taxpayers’ money and, therefore, public rules apply to ensure its efficiency and transparency. These rules set the requirements that suppliers of goods or services must satisfy to compete for public contracts. For businesses, access to public tenders is very valuable: the government is often the largest purchaser of goods and services in a country’s marketplace. Public procurement is a big share of the global economy, and typically accounts for 12-15% of a country’s GDP – around 14% in the UK. Understandably, suppliers are also attracted by procurement opportunities abroad. Therefore, whether foreigners can compete for governmental contracts, and at which conditions, are crucial questions affecting international trade in goods and services.

What is the GPA?

The Government Procurement Agreement (GPA) is a treaty of the World Trade Organisation (WTO). This treaty imposes on its signatories non-discrimination and transparency obligations in the field of public procurement. Unlike other multilateral trade agreements like the GATT (the General Agreement on Trade in Goods) and the GATS (the General Agreement on Trade in Services), the GPA does not bind all 164 members of the WTO. It is a so-called “plurilateral agreement”, with optional membership. It applies to 47 states, including all the member states of the EU, which is a member of the GPA in its own right. It came into effect in 1994, together with the WTO Agreement.

The GPA’s function is to curb the practice of favouring local goods and services in public procurement. In general, WTO rules prohibit discrimination based on the nationality of goods and services: a state cannot impose a higher tax on foreign products only because they are foreign. However, discrimination is explicitly allowed for public procurement. Specifically, the obligation to treat foreign suppliers on a par with domestic ones

shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes (Article III:8 of the GATT).

Thus, WTO members can bar foreign products and services from the market of public contracts.

For instance, a government could deliberately restrict the hiring process of a construction company to domestic bidders, or favour domestically manufactured cars for its diplomatic staff. In this field, States balance their interest in procuring the best goods and services (which could be foreign) with other policy goals, like the promotion of local producers, the protection of sensitive information and public security.

Some WTO members agreed, through the GPA, to untap the corresponding trade potential. They committed to treat suppliers from all participating countries as local suppliers, giving up part of their right to discriminate. In other words, membership of the GPA would prevent the UK Government from “buying British” in several sectors. In return for this concession, GPA countries secured for domestic manufacturers and services providers access to foreign procurement markets. In essence: “members of the agreement have to buy their way in by opening up their procurement markets sufficiently to persuade the rest of the club to reciprocate.”

GPA membership grants access to a US$1.7 trillion public procurement market (for reference, the value of the aggregate public procurement of goods and services in the EU was around €2 trillion in 2016, or 13.4% of the GDP). Access to the UK procurement market is important for foreign suppliers. In 2016, the six biggest suppliers to the UK government, ranked by award value, were foreign owned.

What is the purpose of the GPA?

Each GPA country has specified the extent to which they treat foreign goods and services equally to domestic ones. There is no common model: each country chooses whether to open the procurement market to foreign goods and services in each industry sector (for instance: healthcare, legal advice) and which public bodies are bound by the rules (in the EU, all “regional or local contracting authorities” must observe the non-discrimination obligation).

The choice is recorded in each country’s Schedules of Coverage. For instance, the EU included the procurement of “maintenance and repair services” and expressly excluded the “procurement of agricultural products made in furtherance of agricultural support programmes.” In its coverage schedules, the United States excluded all “services purchased in support of military forces located overseas.” Value thresholds also apply: transactions for lower amounts are not bound by the GPA and discrimination is permitted.

GPA Parties can also include exceptions. The United States schedules, for instance, exclude the application of the GPA to “set asides on behalf of small and minority businesses.” Therefore, the US reserved the right to channel public spending to promotion of small enterprises, even at the cost of discriminating against foreign competitors. The EU schedules contain no such exception.

Filippo Fontanelli, Academic Fellow in SPICe