The UK’s accession to the Government Procurement Agreement of the WTO – part 2

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This is the second 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 The first blog explained what the Government Procurement Agreement (GPA) is, and how it operates. This second blog describes the UK 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.

After Brexit, the UK system of public procurement, until now aligned with EU law, will fall back on WTO rules, namely the GPA. The UK’s accession to the GPA relies on a simple notion: the UK would retain the same obligations it now has by virtue of EU membership.

Government procurement inside the EU

In the single market, goods, services and workers move freely across the EU. EU law prohibits public procurement practices that restrict this freedom and discriminate against foreign suppliers. The UK implements the EU laws that regulate public procurement. Since government procurement is a devolved competence, Scotland implemented them through dedicated legislation.

After Brexit, the EU 2014 Directives on public procurement, currently governing UK public procurement, will no longer apply to the UK. The EU and the UK will participate in the GPA, and have comparable commitments to each other and other GPA countries. These commitments, however, cannot match the coverage of the EU internal procurement regime, required by the single market rules. As it was noted, UK businesses will face unprecedented hurdles in EU members’ markets, in sectors not covered by the GPA commitments:

The GPA will not provide the same level of access the UK currently enjoys as a member of the EU, restricting access to a number of public contracts, for example, some legal services.

Conversely, EU providers will no longer benefit from the facilitated access to UK procurement contracts that EU law granted. As the memorandum attached to the amendments of the relevant UK legislation noted: “After exit, and save in respect of procurements which are on-going as of exit day, [all duties under the public procurement scheme are] owed only to economic operators from the UK.”

Moreover, UK businesses might no longer benefit from the advantages of trade agreements between the EU and third countries. For instance, the EU and Japan agreed in their trade agreement to grant to each other’s providers access to additional services not covered by their GPA commitments, such as insurance, telecommunications and credit reporting services. Only EU providers will enjoy such access. Conversely, the UK planned to afford equal treatment to economic operators from countries that have a trade agreement with the EU for 18 months after Brexit, in a bid to convince those countries to replicate these agreements for the benefit of the UK.

The UK Government has started a process of amendment of the statutory instruments (SIs) required to exit the EU-wide procurement system under the European Union (Withdrawal) Act 2018. When amendment of SIs required UK-wide consistency, the Scottish Government endorsed the UK SIs after consulting the Scottish Parliament. The Scottish Parliament will be required to pass the necessary Scottish statutory instruments, like the amendment to the Scottish regulations on procurement. Sis and SSIs will enter into force after exit.

Government procurement abroad: the GPA

After leaving the EU, the UK will seek to retain the advantages of GPA membership.

Due to EU membership, the UK has never had to adopt specific coverage schedules, relying instead on the EU-wide document. In acceding to the GPA, the UK had to formulate its own commitments and seek the other members’ approval.

Since market access commitments are reciprocal, each new application triggers negotiation with the existing GPA parties, which gauge the magnitude of the applicant’s concessions. Australia, for instance, has just completed its accession process, adding to the GPA-covered global market a USD 78 billion-worth share. In the sectors liberalised, goods and services from, say, France or the US can compete for Australian public contracts. Conversely, Australian goods and services can now compete for public purchasing in the liberalised sectors of the French and US procurement markets.

With the UK’s departure, the EU’s procurement market will shrink by approximately a quarter. The other GPA members might demand some form of compensation. Conversely, if the UK wrote its schedules from scratch, it would invite all GPA members to negotiate the exchange of concessions – the outcome and length of these negotiations would be uncertain.

Instead, the UK has committed to replicate the existing coverage schedules of the EU. In so doing, it has reassured all GPA partners that they will retain the current access to the UK procurement market. This reassurance largely dispels the risk that GPA partners object to the accession, or demand higher concessions. At the same time, the EU would not worry about compensating the other GPA countries for the diminution in value of its concessions. Understandably, when in June 2018 the UK applied to join the GPA in its own right, it emphasised the plan, agreed with the EU, to roll-over its current commitments to the post-Brexit scenario.

The United Kingdom and the European Union agreed to work together towards the United Kingdom’s objective of remaining, in its own right, subject to the rights and obligations it currently has under the Government Procurement Agreement as an European Union Member State on the basis of the commitments which are currently contained in the European Union’s schedule.

The EU representative at the WTO described the UK’s proposal as

commercially credible and viable, replicating the UK’s current coverage under the EU schedule with minor technical adjustments.

Rolling-over the EU schedules, of course, entails forfeiting any ambition to change the existing regime, for instance to promote small and medium local enterprises. The EU did not negotiate protections for SMEs in their schedules, unlike other GPA members. For instance, during scrutiny of Brexit-related public procurement regulations, Derek Mackay MSP, Cabinet Secretary for Finance, Economy and Fair Work pointed out that it will not be possible, for Scotland, to allow local authorities to favour local operators in their contracts:

To allow contracting authorities to actively discriminate in favour of certain economic operators would go significantly beyond the deficiency-correcting power in that Act.

The formal procedure of GPA accession and the implementation measures

During the negotiation of the UK’s accession in autumn 2018, some GPA members threatened to seize the opportunity of the UK’s application to renegotiate the current deal, extracting higher commitments from the UK, either in the GPA schedules or in other fields such as agriculture. Ultimately, however, the GPA parties unanimously “re-emphasized their clear desire for the UK to continue participating in the Agreement in a seamless manner post-Brexit.” At a meeting of the WTO’s Committee on Government Procurement of 27 February 2019, the GPA parties approved the UK’s application.

The UK draft Trade Bill, currently under discussion, empowers the Ministers to pass regulations to implement the GPA.

Filippo Fontanelli, Academic Fellow in SPICe