The European Commission has proposed expanding the European Defence Fund, an initiative to fund defense technology developed in Europe. As a general matter, only European firms would have access to the fund for development, and participating European nations would need to commit themselves to purchasing the defense materiel developed under the fund. In effect, this could lock U.S. firms out of billions of euros worth of European defense procurement over the coming years—despite long-standing reciprocal agreements under which the U.S. and its European allies agreed to open their defense markets. The fund was announced quietly last year and now, in the shadow of a trade war launched by the Trump administration, has evolved into a substantial potential barrier in the transatlantic defense market, and potentially another brick in a rising wall of protectionism between the U.S. and Europe.
In response to the Trump administration’s demands that Europe spend more on its own defense, and as part of a broader hardening of trade positions between the United States and Europe as a result of the Trump administration’s trade policies, Europe is moving forward with the European Defence Fund, which will block non-European firms (including U.S. firms) from billions of dollars in European defense spending. (Ironically, the Trump administration’s own“Buy American” initiative in procurement apparently has been stalled over the past year, and the Trump administration has pushed recently to expand foreign military sales by U.S. defense firms.) The European initiative, which goes beyond the protections of the 2009 European defense directive, may be a violation of the many reciprocal defense procurement agreements between the United States and its European allies. European officials have defended these bars against non-European contractors as “reciprocity” for U.S. security constraints on foreign ownership and control in the U.S. defense industrial base, but the protectionism of the European initiative appears to go well beyond normal security concerns — inspired, perhaps, by the Trump administration’s expansive use of “national security” as a rationale for protectionism.
An interesting comment by Jean Grier on the ongoing EU-U.S. debate over procurement trade data, and the impact that debate is having on TTIP negotiations. Ms. Grier was previously the lead negotiator on procurement for the Office of the U.S. Trade Representative, and is an internationally recognized expert on procurement and trade.
A previous post suggested that the Transatlantic Trade and Investment Partnership (TTIP) might offer a way to fill some of the gaps left by Brexit, Britain’s prospective departure from the European Union. This post flips that proposition, and asks whether TTIP’s goals for opening procurement markets might, in effect, be swallowed up by Brexit, as some in the trade community have suggested despite public support from the White House and the EU for moving forward with TTIP. This means, in turn, that TTIP’s goals for procurement may need to be addressed in another forum, perhaps under the World Trade Organization’s Government Procurement Agreement (GPA).
The previous post used procurement as a case study. The post pointed out that if the European Union agrees to the TTIP agreement before the UK departs (“Brexits”), the TTIP agreement probably will list UK procurements open to competition under TTIP, and will include guarantees of free access to those procurements. After “Brexit,” Britain arguably could then “reenter” TTIP as an independent nation, and adopt those former obligations under the TTIP agreement, in return for reciprocal access to EU and U.S. markets.
This outcome — allowing Britain access to open markets in Europe under TTIP, without any concomitant obligation to allow free movement of persons — would be exactly what the British “Leave” campaigners want for the UK; a separate TTIP arrangement with an independent UK also enjoys support from senior U.S. Republicans. This outcome is, however, exactly what the leaders of the European Union have announced they will not allow. Hope for such a British “back door” to open markets is also, incidentally, what President Obama warned againstbefore the referendum vote, when he said that an independent Britain would be at the “back of the queue” in the United States’ negotiations of trade deals.
Leave Campaign – STOP TTIP
In a raucous speech on the floor of the European Parliament on June 29, 2016, Nigel Farage, the UKIP leader in the “Leave” campaign (and a Member of the European Parliament), paused in a harangue of his fellow MEPs to call for “a sensible tariff-free deal” between the European Union and the UK. (It should be noted that the “Leave” campaign formally opposes TTIP, largely because of the broader integrative measures that might be included in the agreement.)
In the future, we hope to have the UK as a close partner of the EU and we look forward to the UK stating its intentions in this respect. Any agreement, which will be concluded with the UK as a third country, will have to be based on a balance of rights and obligations. Access to the Single Market requires acceptance of all four freedoms.
(Emphasis added.) Even if Britain could side-step this European opposition by using the “TTIP back door,” a TTIP agreement would not solve all of the United Kingdom’s trade problems. Again using procurement as an example, trade agreements such as TTIP and the World Trade Organization’s Government Procurement Agreement (GPA) are really best understood as ambitious nondiscrimination arrangements. Those trade agreements simply do not drive the same rigorous cross-border economic integration, in procurement or otherwise, that the European Union’s governance mechanisms provide.
In sum, although TTIP would hardly be a panacea, because TTIP might give Britain a “back door” to a free trade arrangement with Europe, European leaders may prove reluctant to press forward to conclude the TTIP agreement.
If TTIP does falter, what will this mean for procurement? If TTIP stalls, it may mean that the goals held for TTIP will need to be addressed under other institutions, such as the WTO Government Procurement Agreement (GPA). The GPA’s implementation is administered by the WTO Committee on Government Procurement, and logically the TTIP goals — goals which would address persistent structural obstacles to trade in procurement — could be taken up by the Committee, perhaps under the pending work programs to enhance the GPA.
The EU and U.S. negotiating goals for TTIP (at least as of the ninth round of negotiations, in April 2015) were made clearer as a result of a leak of internal European negotiating documents by Greenpeace Netherlands. According to those leaked materials and the EU and U.S. published statements of position, those TTIP goals include, on the EU side, better access to (and information on) sub-central (state and local) procurements in the United States, and on the U.S. side, stronger commitments by all parties to fighting corruption in procurement. To the extent Brexit derails those goals in TTIP, it may fall to the WTO to take them up as part of a broader effort to strengthen international procurement markets under the Government Procurement Agreement.
In the long term, however, it is perhaps unlikely that a newly independent Britain would remain outside TTIP, which if concluded is likely to prove a critical tool to open markets, and reduce regulatory barriers, between European nations and the United States. Although the White House has warned that an independent UK would be joining TTIP from a “different starting point,” TTIP, if successful, could simply be too attractive for Britain to ignore — especially if the alternative, a bilateral deal with the United States, would offer reduced access for a weaker Britain.
This possibility that Britain would, after Brexit, seek to join TTIP opens a strategic question: could TTIP be used to close some of the gaps opened by Brexit?
In procurement, the most serious gap left by Brexit is uncertainty — will the UK agree to continue to follow the EU procurement directives, and can the UK continue to calm the protectionist voices emerging in the European Union? TTIP may address both problems.
To understand why, we can look to the structure of other free trade agreements, such as the WTO Government Procurement Agreement (GPA), to make an educated guess as to how TTIP would be structured. Under the GPA, each party lists the nations and agencies to be covered. Thus, under the revised GPA, the European Union has in Annex 1 agreed (with UK acquiescence) that certain United Kingdom agencies will be covered.
We can assume that the procurement provisions under TTIP would adopt the same structure, listing covered nations and agencies. That has been the case under the Transpacific Partnership (TPP), which lists in Annex 15-A the agencies regarding which the TPP parties have agreed to open their procurements.
We can also assume that the European Union would not object to agreeing under TTIP that its member states will comply with the European procurement directives; agreeing to bind its member states to its own rules should not be difficult for the EU. Finally, it seems safe to assume that the EU and the United States would be willing to stipulate that any nation that entered the TTIP structure would be allowed to enter only on terms at least as favorable as those that previously bound that state, under that agreement. Neither the European Union nor the United States would have an obvious reason to object to such a condition; neither, of course, favors Brexit.
Under such a provision, if post-Brexit Britain sought to enter TTIP separately as a nation outside the European Union, Britain would be bound to the coverage terms that previously applied, i.e., arguably the same UK government agencies would be covered, and they would be bound to follow the European procurement directives (or a set of procurement rules as least as rigorous as the EU rules).
None of this would be simple, of course. But by demanding that any new entrant — including the United Kingdom — join TTIP on terms as least as favorable as before, TTIP might help bring stability and predictability to procurement in the U.S. and European markets.
That leaves, then, the question of emerging protectionismregarding procurementin the European Union, driven by European concerns that some trading partners, including the United States, have unfair access. While the United Kingdom has often opposed new protectionism in Brussels, the UK’s influence will likely plummet under Brexit. Under a redrawn arrangement in TTIP, however, Britain would be able to engage anew, not as a voice within the EU, but rather as another negotiating partner in TTIP. The dynamics would be different, but the United States would regain an ally in opposing new European protectionism in procurement.
While an earlier post discussed how Britain’s procurement rules may evolve after Brexit, this post assesses how international procurement reform — specifically, the UK-based colleagues engaged in those reforms — may shift focus after the historic referendum.
First we must put Brexit into context, with regard to procurement law. In 2014, the European Union revamped its procurement directives. By U.S. standards, the EU directives are relatively short and straightforward. For example, Directive 2014/24/EU, which covers most larger public purchases of goods and services, is less than 180 pages long, while by contrast the Federal Acquisition Regulation runs to thousands of pages. Though the EU directives tend to place first emphasis on economic integration, not best value, the EU rules generally align closely with global best practices, and the EU rules conform with international trade agreements such as the WTO’s Government Procurement Agreement.
Although EU member states had two years to transpose the 2014 directives into their own laws, in less than a year the UK government enacted its new Public Contracts Regulations 2015. The new UK law, it was noted by some, was an almost direct transcription of the governing EU directives, although the UK, as a member state, had more discretion to innovate. Some suggested quietly that the UK government rushed the Public Contracts Regulations to avoid the coming storm over Brexit; subsequent events seemed to confirm that.
During the Brexit debate this year, those urging that Britain leave the European Union condemned the EU procurement directives as an example of intrusive regulation from Brussels. The “Leave” campaign argued that “EU public procurement law imposes extremely onerous requirements on public authorities.” Justice Secretary Michael Gove, a Conservative leader in the Leave campaign, joined the chorus; he argued: “If we Vote Leave we can scrap the EU’s foolish rules on how Whitehall runs procurement processes which add billions to the cost of Government every year.”
The Brexit vote thus left UK procurement law in a jumble. Britain’s procurement law is today based on an EU governance model that many British voters have rejected, and on EU rules that Britain’s chief legal officer has called “foolish” — though the EU rules reflect, in the main, international best practices. If Britain abandons sound procurement rules, it risks losing legitimacy in its procurement system; if Britain instead rewrites its procurement law, it may come full circle to a body of rules, shaped by international obligations and best practices, which looks much like what it already has.
While it is difficult to predict how future UK governments will untangle all this, it may be easier to discern what role the UK procurement community could play, post-Brexit. Many of the world’s best procurement lawyers and academics work in Britain, and they may well pivot: from voices inside the European Union, bound sometimes by norms of European economic integration, to strong voices in a more global procurement community, focused first on procurement as an instrument of best value for governments and their citizens. If this shift does occur — if the British leaders in procurement do pivot to step beyond European goals, to more global concerns — Brexit ironically may have built a bridge, not a chasm.
Britain’s historic vote to leave the European Union will have a profound impact on public procurement law, both in the European Union and around the world. The impact may not be catastrophic — like Norway, the United Kingdom may choose to remain in the European Economic Area which would keep the UK in the single market and bind it to existing European procurement directives — but the indirect impact, in a diminished role for the British in European procurement policy, could prove quite serious.
What if the UK leaves the EU, joins the European Free Trade Association and remained a member of the European Economic Area (EEA)? (the Norwegian option)
There would be no impact on current applicable public procurement law. Under the EEA Agreement, non-EU states that join the EEA still participate in the EU’s internal market by adopting all the relevant EU legislation, apart from that on fisheries and agriculture. This means that the EU’s public procurement law will continue to apply.
Should Britain not join the EEA, as senior London barrister Michael Bowsher QC has noted, in order to protect its own exports Britain might find itself forced to provide reciprocal access to its procurement markets, under the World Trade Organization’s Government Procurement Agreement (GPA) or otherwise. Under these scenarios, Britain still would follow international best practices for open markets, but UK procurement law likely would follow a separate path — a less European path — of development.
Finally, Britain is home to many of the world’s brightest lawyers and academics in procurement law. Their role in helping the European Union shape flexible, common-sense procurement rules focused on achieving best value will almost certainly be diminished, and that, one might argue, will be a loss for everyone.
In response to the Trump administration’s 
A 
In the wake of Brexit, much of the 
While an earlier 
Britain’s