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Brexit and public procurement – WTO provides the solution, right?

Brexit and public procurement – WTO provides the solution, right?

Brexit and public procurement – WTO provides the solution, right?

20.03.2019 BE law

The UK is set to leave the EU. Yet, Brexit will only have a small impact on public procurement, since even a ‘hard Brexit’ would entail no substantial differences with the current regime.

The UK is set to leave the EU. Yet, Brexit will only have a small impact on public procurement, since even a ‘hard Brexit’ would entail no substantial differences with the current regime.

Cooperation at the level of the World Trade Organisation (WTO) offers a robust default regime for EU-UK procurement. This default regime would be triggered if both parties do not agree on a transition period as part of a divorce settlement to smoothen the exit after the UK’s extended EU membership. It would also apply following such transition period if no new EU-UK trade relationship is yet in force.

Brexit: what’s to come?

The UK Parliament voted to extend its EU membership on 14 March 2019. If all EU member states agree with this extension, the UK will remain an EU member state for a while. EU public procurement law will therefore continue to apply. Nevertheless, after the extension, a hard Brexit is still possible.

  • Hard Brexit immediately after extension. First, it is unclear if an extension can facilitate a divorce agreement to smoothen the exit, the so-called ‘deal’. EU and UK negotiators concluded a divorce settlement on 14 November 2018, the Withdrawal Agreement. This agreement would essentially extend the application of EU law in the UK until the end of 2020. However, UK Parliament rejected it heavily and the EU stressed it will not modify this deal, or only marginally.
     
  • Hard Brexit after transition period. Second, a divorce settlement during the extension only creates a temporary solution. It would create a transition period to allow the EU and UK to negotiate a more permanent future trade relationship. In absence of such future trade relationship at the end of the transition period, a hard Brexit will still kick in.

WTO: default regime for public procurement cooperation outside the EU

Outside the EU, countries already cooperate on public procurement at the level of the World Trade Organisation (WTO) through the Revised Agreement on Government Procurement (GPA). The GPA provides for a fairly advanced public procurement regime. It’s optional for WTO members and includes 47 members, mainly situated in Europe and North America. Bilateral negotiations between members largely determine the scope of members’ access to each other’s public procurement markets.

On 28 February 2019, the UK acceded to the GPA. Through this accession, the GPA provides an effective default regime for EU-UK public procurement in case no more beneficial regime applies.

WTO: similar to EU public procurement

Overall, public procurement under the GPA and under EU law would be fairly similar. Both regimes differ, but the practical impact will likely be limited for EU-UK public procurement1.

Some differences between EU and GPA cooperation will nevertheless remain relevant.

  1. Most importantly, the GPA is governed differently. There is no central enforcement and the available remedies are less effective. Firstly, there is no central authority enforcing on its own initiative, such as the European Commission. So central enforcement relies on (rare) proceedings by GPA members. However, European Commission proceedings triggered much of the case law essential for the further development and interpretation of the substantive rules. Secondly, the GPA remedies are less advanced than those under the EU directives. There is no mandatory standstill and no automatic suspension of challenged awards, however national law prevails and in this context Belgian law does not provide for a different approach for public contracts that are not governed by EU directives.
     
  2. Generally, the EU opens up all public procurement covered by EU directives to GPA members. The UK is set to replicate this scope, thus allowing reciprocal access. However, some sectors are excluded. The EU Utilities Directive also covers gas, heat and postal services, while the EU does not allow access for these sectors under the GPA. For defence procurement, the EU Defence and Security Contracts Directive also offers broader coverage than the EU does under the GPA.

    However, in practice, the impact will remain limited in EU-UK procurement. For utilities for example, the UK is to a large extent already exempted from the material scope of the Utilities Directive. Also, many providers are not covered because they are not public entities or do not hold special or exclusive rights. Some defence contracts are already awarded outside of the EU directives, based on the leeway the EU treaties offer regarding essential security interests.
     
  3. The GPA does not cover procurement below the thresholds of the EU directives, (5.548.000 euro for works, 221.000 euro for supply and service contracts). Under EU public procurement, general principles of free movement apply in such case. These general principles result in less concrete but yet enforceable obligations than under the EU directives, for instance on non-discrimination and transparency.

    Nevertheless, in the short term, UK courts are likely to apply these general principles in line with the EU’s approach. The UK enacted the European Union (Withdrawal) Act, which maintains EU-derived domestic legislation and incorporates directly applicable EU law into the UK legal system. Through this Act, EU case law and general principles maintain to provide relevant guidance for interpretation even after Brexit.
     
  4. The GPA covers services more limitedly than the EU directives.

Conclusion

Cooperation under WTO terms would not come as a shock, although some procurement would be excluded and it would not be as comprehensively governed as under EU law.

Yet, it is important to keep in mind that public procurement does not stand alone. The extent of cooperation on public procurement between the EU and the UK after Brexit depends also on the more general cooperation between both. The current lack of border controls and tariffs between the EU and the UK, as well as single market provisions ensuring mutual recognition and harmonised standards largely impact companies’ access to public procurement markets. The extent to which future cooperation between the EU and the UK will replicate these elements will therefore also impact public procurement.

But yes, the WTO appears to provide the solution for public procurement after Brexit.

 

Footnotes:

1 For a more extensive elaboration of the consequences of Brexit for public procurement, see the seminal study of Prof. Dr. S. Arrowsmith for the European Parliament in 2017, ‘Consequences of Brexit in the area of public procurement’.

Team

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