U.S. Threatens to Block U.K. From Global Procurement Pact

(Bloomberg) -- The U.S. is threatening to block the U.K. from a 46-nation public procurement agreement, a move that would deny British companies from accessing a near $2 trillion marketplace after leaving the European Union, according to two officials with knowledge of the situation.

The U.K. will apply to rejoin the Government Procurement Agreement, a $1.7 trillion trade accord that governs global appropriation rules, since it will lose its membership after Brexit in March. U.S. negotiators have told their British counterparts that their application is outdated and needs to be revised, said the officials, who asked not to be identified because talks are ongoing.

If blocked from the pact, U.K. companies such as Rolls-Royce Holdings Plc and Serco Group Plc could lose access to members’ procurement processes, including the $837 billion U.S. market. The U.K. will ask GPA participants to provisionally approve its final offer to join the accord during an Oct. 17 meeting, where any member can block the accession bid. The British side would still have time to improve its offer to allay members’ concerns.

A majority of the accord’s members “support the U.K. continuing to be a part of it after we leave the European Union, which is in everyone’s interest,” according to an emailed statement from a spokesman for the U.K.’s Department of International Trade. “The U.K. is a huge part of this agreement and our continued membership will allow companies from other countries to maintain access to U.K. contracts worth 68 billion pounds a year.”

A spokeswoman at the office of the U.S. Trade Representative didn’t respond to emails seeking comment.

Special Case

The purpose of the GPA is to open up government procurement markets to foreign competition, and help make the process more transparent. British officials argue that the U.K. is a special case and should receive expedited approval because it’s already a member and can simply replicate its current commitments.

Though the U.K. currently participates in the GPA via the EU, Britain never independently ratified the agreement and must now rejoin as a member in its own right in order to ensure continuity following its departure from the European trading bloc.

At least two other members of the agreement are dissatisfied with the U.K.’s application and doubt that it will be accepted on Oct. 17, according to two other officials.

Despite the hurdles facing the British government, a resolution involving an improved U.K. offer will likely be struck, according to Stuart Harbinson, a former senior trade official at the World Trade Organization and a senior consultant on international trade for the Brussels-based Hume Brophy communications agency.

“It would be an act of senseless protectionism if the U.K. were shut out of the GPA,” Harbinson said. “There is a lot of senseless protectionism around at present. But in this case my bet would be that when the GPA members think they have squeezed the U.K. as much as they can they will agree to the U.K. joining as an independent member.”

Upper Hand

The U.S. move fits a pattern of trade strategy President Donald Trump’s administration has recently utilized to its benefit, exploiting points of leverage to exact an upper hand in negotiations, even when the party across the table is a close ally. The U.S. imposed tariffs on steel and aluminum imports before negotiating an updated free-trade agreement with Mexico and Canada; and Trump has threatened the EU with levies on its car exports as the two sides deliberate over a new trade pact.

“The U.S. and other major countries see this current period as the best time to try to get concessions from the U.K.,” said David Henig, a director at the European Centre for International Political Economy. “They know the U.K. is preparing for no-deal with the EU, and need to have everything at place in the WTO in that eventuality.”

Markus Gehring, an international trade professor at the University of Cambridge, went further, saying he wasn’t surprised that countries were opposing the U.K.’s offer. “If you can improve your relative negotiation weight why wouldn’t you reject the offer?”

The U.K. will need to iron out its accession difficulties with the other accord members soon, with Britain scheduled to leave the EU on March 29. GPA members would have to give their final approval by November so that a final text of the agreement could be submitted to the U.K. parliament in January.

“It would be in nobody’s interest to lose this significant amount of market access,” Julian Braithwaite, Britain’s ambassador to the WTO, will tell the government procurement committee in Geneva next week, according to a text of his remarks obtained by Bloomberg. The U.K.’s offer “guarantees that parties can continue to benefit from the current level of access to the U.K.’s market, and ensures no party will be worse off,” according to the paper.

To contact the reporter on this story: Bryce Baschuk in Geneva at bbaschuk2@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Richard Bravo, Jones Hayden

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