EU Referendum: British Procurement Needs the European Union
In my last article, I looked at the ways in which the procurement industry will be impacted by the upcoming referendum in the UK on continued membership of the European Union (link).
I concluded that the referendum’s impacts will depend hugely on the result of the referendum – if the UK votes to stay, then the impact will be minimal. If the UK votes to leave, then the impacts very much depend on the ensuing negotiations and the future trading relationship between the UK and rest of the EU. In this article, I argue that the UK’s procurement industry benefits from EU membership and would be weakened by Brexit, whilst the rest of the EU would also be worse off as a result.
All of the major options for Brexit are negative for procurement compared to EU membership. At a high-level, any distance created between the economies of the UK and the rest of the EU is negative for both. Regardless of the model of trade relations adopted, close relations and integration of markets is in the interest of the procurement industry. More integrated procurement markets have a multitude of benefits achieved by moving towards free trade across national borders. There are three main benefits.
First of all, contracting authorities are given more choice over the goods and services they purchase; having more variety means that precise needs can be met and niche requirements are more likely to be found in a market encompassing 500m people than 65m.
Secondly, more competition is achieved by making a more competitive procurement market. Markets work best when there is a decent level of competition. In many industries and categories, there is lots of competition from plenty of domestic businesses. In others however, there is less competition, so opening up to the European market means that those less competitive markets can become more competitive. The result of this is that costs are maintained at a reasonable level and innovation and efficiency are encouraged through competitive market environments.
Thirdly, by having a closer trading relationship with the EU, the UK gains more clout when negotiating trade agreements with the rest of the world. A prominent topic of debate in the referendum build-up is whether linking up so closely with the EU restricts the ability of the UK to trade more with non-EU states. By reaching trade deals with other countries, procurement markets could be opened up further, enhancing competition and product choice. For sure, UK procurement teams would benefit from unrestricted access to IT from India, healthcare products from Canada and New Zealand and call centres in the Philippines. So it is certainly tempting to think that by separating from the EU, the UK could trade more with the rest of the world. The reality is not so simple. Trade deals take years, a case that was eloquently made by US President Barack Obama in April, who argued that it could take at least ten years for a deal to come to fruition (even that is probably a conservative guess). The UK would also be a less desirable partner in trade deals and would struggle without the collective weight of the EU to form deals with countries such as the USA, China and India (in the words of Obama, the UK would be “at the back of the queue”). Regardless, by being part of EFTA would still not give the UK full independence in reaching trade deals, as they are jointly negotiated with other EFTA members.
The main realistic post-Brexit option would be to be part of the European Free Trade Association (EFTA) and European Economic Area (EEA). EFTA members have broad access to the single market and jointly negotiate free trade agreements, whereas EEA members have further privileges and responsibilities as they are themselves part of the single market and everything that entails. EFTA comprises Norway, Iceland, Liechtenstein and Switzerland. Slightly confusingly, EEA includes the aforementioned, minus Switzerland. Joining both EFTA and EEA would be negative for procurement in the UK compared to EU membership for two reasons.