All eyes on Geneva for the next Brexit trade wrangle

WTO

There are just six months to go until the UK leaves the European Union, and while negotiators are in Brussels are trying to hammer out the finer details of the Brexit settlement, other developments are also unfolding that will have huge implications for the UK’s post-Brexit trade policy.

Last week, we saw reports that the United States might block the UK’s membership of the World Trade Organisation Agreement on Government Procurement (GPA). The aim of this global pact is to open up the public sector to more competition and make it easier for companies to do business with governments. 

Not all WTO members are members of the GPA. Membership is selective. There are currently 19 parties to the agreement covering 47 WTO members - the 28 member states of the EU sit together. For the UK to retain access to it, all members of the GPA have to agree. 

The GPA is designed to ensure open, fair and transparent government procurement amongst its members, yet these issues are often politically sensitive. The row over a Franco-Dutch firm winning the new contract to produce British passports is a case in point. 

Being part of the GPA is important because winning government contracts is highly lucrative. In the UK, last year government departments spent nearly £260 billion on goods or services from private companies. That is nearly a third of public spending, with government departments buying everything from IT services for the police to aircraft carriers for the Royal Navy. In 2016, the top six suppliers to the UK public sector by award value were all foreign-owned, according to a study by the Tussell consultancy. 

defence

The GPA is therefore vitally important for the United States, New Zealand and other countries as it provides them with a means to access the UK public procurement market. UK companies can also bid for contracts in those countries who have signed up to the agreement providing access to a €1.7 trillion global market. GPA members are also exempt from the U.S.’s ‘Buy America’ act, which allows them access to the £800 billion U.S. public procurement market.

Currently, the UK is a party to the GPA through its EU membership. However, while the UK is a WTO member in its own right, it had to reapply to join the GPA as it is a separate agreement. The British government sent its application in June of this year.

So why do the United States, one of our strongest allies and closest trading partners, want to block our application and risk denying their own companies access to our lucrative market? 

It so happens that the GPA negotiations are taking place at the same time as the UK and the EU are negotiating with the WTO to split up their schedules which dictate what access the rest of the world will have to the UK & EU post Brexit. Last year, seven countries rejected a joint UK/EU proposal to split the quotas. The calculations are based on the current imports to the two markets.

The group of countries, led by the United States, said that the UK-EU plan would leave them worse off.  For example, New Zealand lamb exporters can sell 228,254 tonnes of tariff-free meat into the EU at present before higher duties kick in. The published proposal after Brexit would see that number drop to 114,116 tonnes. The UK and the EU argue this is a fair reflection of how much lamb British consumers buy. However, New Zealand argue this will reduce their access to the EU market. Lamb exports to the UK come under the EU quota while the country remains inside the bloc.

Lamb

The key point is that it is in the UK’s interest to offer as little access as possible to countries through the WTO mechanisms. It will give the UK far more leverage to exert concessions for UK exports when the negotiations for a free trade deal start with these countries. If the U.K. has already given away too much access to its market, it will have no leverage in those negotiations. Similarity it is important for the US and others to extract as many concessions as possible from the U.K. now, to avoid having to give too much up later. 

That is why they are mulling blocking UK access to the GPA for now. An agreement will be reached in the end, the UK market is too attractive and too integrated with the other markets to block the UK from it for long, but how much the UK has to give up now to keep access to something it already has will be the key issue. 

While headlines trumpeting the failure of the government’s ‘Global Britain’ strategy completely misunderstand the nature of international trade negotiations, the news out of Geneva underlines the challenges the UK will face as it forges its own independent trade policy after Brexit. No country truly believes in free trade, not even the UK. All want as much access as possible to other markets, while giving up as little access as possible to their own. That is, in essence, why such discussions take so long.