Brexit: what next for procurement?

Alan Heron, Head of Procurement


Brexit

The United Kingdom voted to leave the EU on the 23rd June this year. The result was largely unexpected and sent shockwaves across the political and economic landscapes.

 

The immediate aftermath

Only a few days after the vote, I chaired a session on the immediate reaction to the Brexit vote at the CIH Housing Conference in Manchester. The difference between the emotive, explosive, and reactionary headlines of the national media, and the comparatively calm, considered and thoughtful response of those attending the session was pronounced. There was a tangible sense of composure and reflection in the conversations I had with various attendees.

The effect may be more environmental than direct to procurement. Declining exchange rates, fluctuating share prices of supply chain companies, and political careers all saw seismic changes in the immediate aftermath of the referendum result. All of these are now showing more signs of stability, and even recovery, merely 40 days on. Perhaps that stoic calmness and reflection I saw in the session at CIH Housing was a sign of things to come?

 

What happens now?

But what do we actually know will happen with regards to Public Procurement as a result of the Brexit vote? Well, the consequences and timelines of this are actually quite clear.

The UK Government is likely to trigger Article 50 of the Treaty of the Functioning of the European Union in either quarter 3 or quarter 4 of this financial year. From that moment, there will be a maximum period of 2 years (unless all 27 members of the EU vote to grant an extension, which is highly unlikely) to negotiate the terms of the UK’s exit. After which the UK procurement legislation will be subject to whatever trade deals are agreed.

 

The 4 options available

What are the possible formats of trade deals outside of the EU? There are actually already 4 potential options which are already in existence which the UK could potentially adopt:

 

1. Become a member of the European Economic Area (EEA)  - (Norway use this method)

If the UK were to adopt the Norwegian model, and become a member of the European Economic Area (EEA), it would then also be able to come to its own trade agreements with non-EU countries. It would however still be subject to the EU Procurement legislation – OJEU would still be in force!

 

2. Establish Bi-lateral Agreements and become a member of the European Free Trade Association (EFTA)  - (Switzerland use this method)

If the UK decided to adopt the Swiss model however, it would have slightly different repercussions. Switzerland has negotiated over 120 independent bi-lateral treaties with the EU, and have effectively aligned with EU policy in several areas.

Dependent on the terms of the bi-lateral treaties the UK could agree, it might still be subject to free movement of people, and  the EU procurement regulations (Switzerland are subject to both).

 

3. Become a member of EFTA only

The European Free Trade Association (EFTA) option is considerably more limited. It only covers the tariffs associated to non-agricultural goods. It would guarantee UK goods tariff-free access to the EU in return for the UK not imposing tariffs on goods imported from the EU.

However, the EFTA only deals with removing tariffs and does not address non-tariff barriers in services or capital. Consequently, EFTA members still have to find alternative ways of integrating with the EU.

 

4. World Trade Organisation (WTO) as a fall-back position

The World Trade Organisation option would come into force if the UK had not arranged any trade agreement with the EU by the 2 year anniversary of triggering article 50. The UK would then immediately be subject to EU tariffs (e.g. 10% on car exports, and up to 30% on some agricultural products).

The UK would also have to negotiate new free trade agreements with non-EU nations. However under this option, the UK would not be subject to EU procurement legislation.

 

What does it all mean?

The next two years will certainly be interesting in terms of public procurement in the UK. What will that look like in 2 years? In my opinion, if we are not still subject to EU procurement legislation (which is very much still a likelihood as can be seen from the options above), then we will develop a new UK set of procurement legislation which will look broadly very similar indeed to that of the European Union.

This is because we will face less resistance from a trading and political perspective if our legislation is similar to the EU’s. The big difference, however, will be sovereignty of that legislation. The UK would, in theory, be in complete control of legislation’s content. Although due to political and economic pressure, that content will look and feel very familiar to those of us currently in the public procurement environment.

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