Looking East – Export Opportunities in the wake of Brexit

On Wednesday 29th March 2017 Theresa May officially triggered the UK’s withdrawal from the EU. And so we brace ourselves for what lies ahead and contend with the uncertainty of what a post Brexit Northern Ireland will mean.

Such uncertainty makes it prudent for local businesses to seek out potential opportunities. China, in particular, presents many potential opportunities, including those as a result of government procurement.

The government procurement market in China is currently all but closed to NI companies. This is the result of discriminatory barriers, protectionism, lack of transparency and lack of an independent, effective process for challenging procurement decisions. However, this will change if China completes its accession to the Government Procurement Agreement (“GPA”).

What is the GPA and how does a country accede?

The GPA is a World Trade Organisation (“WTO”) plurilateral agreement aimed at removing barriers in procurement markets through non-discrimination, transparency and fairness. Member countries of the GPA benefit from receiving the same procurement terms in foreign member countries as domestic suppliers, and from an independent procedure for review of procurement decisions

All WTO members are eligible to accede to the GPA. Accession requires application to the committee of current members who review the application proposal in respect of the scope of activities to be covered (all procurement activities are not automatically covered, instead the coverage proposed by the applicant is negotiated and agreed by current members) and analyse the applicant’s procurement legislation to ensure it is consistent with their requirements. If an application does not satisfy the GPA committee it will be rejected.

Where is China in relation to the GPA?

China is not a GPA member party, despite joining the WTO in December 2001 and, at that time, declaring its intention to become a GPA member. It commenced the accession process at the end of 2007 but its initial proposal was heavily criticised and ultimately rejected by the GPA committee due to the limited scope of procurement activities it covered. Nevertheless China has continued to revise its offers and submitted its latest (and fifth revised application) in December 2014.

Each revised application submitted by China has seen a considerable improvement in coverage and conditions. The latest offer is of particular encouragement, given the significant improvement in terms offered and it is now almost commensurate to the terms offered by current GPA members. However, improvements are still needed before China will gain full approval and complete its accession.

Whilst the latest application was not quite sufficient, the improvements made seem to highlight China’s willingness to secure approval and with the terms almost commensurate to that of current members there is hope that its accession is not too far away. Current GPA parties are also eager that an agreement for China’s accession is reached and recently publicly voiced their willingness to assist China in completing its accession.

What would China’s accession to the GPA mean for NI companies?

It has been estimated that China’s accession will open government contract opportunities worth between US$113 billion and US$289 billion per year to suppliers of GPA member countries. To put that in perspective, on 15 February 2017 the Department for the Economy published the Northern Ireland Broad Economy Sales and Exports Statistics for 2015. This report estimated total sales in 2015 by companies in NI to be worth £66.7 billion.  It estimated exports in 2015 by NI companies to markets outside the UK to be worth £9.1 billion. Based on these estimates, the total yearly value of government contract opportunities in China is approximately over twenty times more valuable than NI’s current total yearly export.

Securing government contracts in China may also increase the opportunities in the Chinese private sector through increased local exposure, enhanced brand image and recognition, and development of key business relationships.

Capitalising on Chinese opportunities

China’s accession to the GPA is not guaranteed but improvements in its proposal and continued encouragement from current members has given hope that an agreement is within striking distance. China’s accession to the GPA will offer lucrative opportunities for NI companies enabling them to gain equal access to compete for contracts in a market worth potentially US$289 billion per year.

China doesn’t just offer the potential of government contracts.  For instance, the growing spending power of the rising Chinese middle class, hungry for luxury items has meant that China is forecast to be the world’s largest luxury goods market by 2020.   Northern Ireland’s innovative and agri-food sectors could be in prime position to capitalise.

Tughans will continue to follow China’s accession progress to the GPA and will be here to assist local companies in capitalising on export opportunities.

Whilst great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.

 

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While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.