Will a focus on ‘economic benefit' in new government rules affect the WTO Agreement on Government Procurement (GPA)? - Government Contracts, Procurement & PPP

The Australian Government has tabled the new Commonwealth Procurement Rules, which will take effect from 1 March 2017. The new Rules now dictate that for procurements over $4 million, a Commonwealth entity must consider the 'economic benefit of the procurement on the Australian economy' when considering a bid. But what does this really mean? And will it stand in the way of our accession to the WTO Agreement on Government Procurement (GPA)?

THE AMENDED RULES

The new Commonwealth Procurement Rules (Rules), announced on 29th November, come as the Government attempts to pass legislation to re-enact the Australian Building and Construction Commission. It's widely reported that the rules are a capitulation to Nick Xenophon and his political party, which supports procurement from local sources.

The Rules were introduced by a disallowable instrument, meaning that they weren't subject to Parliamentary approval. The Explanatory Statement to the amended Rules states that the only consultation was with the Minister for Finance.

Since September 2015, Australia has been negotiating accession to the GPA – an international agreement aimed at breaking down discriminatory barriers, so a government procurement market is accessible to suppliers from other member States.

It remains to be seen whether the new Rules make our revised accession offer harder for the WTO Committee to accept.

UNDERSTANDING 'ECONOMIC BENEFIT' TO THE 'AUSTRALIAN ECONOMY'

Although no formal guidance has been released as to what 'economic benefit' to the 'Australian economy' really means, numerous commentators have presumed that it means a focus on procuring locally: local jobs, local material, paying local taxes.

However, for those Australian companies seeking an advantage on the basis of the economic benefit test, it will not necessarily be an easy win. DFAT publicly states that foreign investment can benefit the Australian economy by increasing export opportunities, encouraging competition and increasing innovation. Australian companies should also note that the criteria is also limited to 'economic benefits' and will not take into account wider social benefits such as workplace or community giving.

The Government has promised to release guidance on the Rules. It will be interesting to see how it defines this new criteria.

WTO COMPLIANCE

Whilst statements have been made that the Rules are "WTO compliant" and will "be effective", the implications for the WTO negotiations have not yet materialised.

Firstly, it is possible that the GPA Committee (comprised of member countries already party to the GPA) might reject our accession bid because the Rules conflict with the spirit of the Agreement (even if it is not technically incompatible with the GPA). Australia's protectionist practices are already the subject of regular international trade dialogue.

Secondly, it is not clear whether the Rules are in fact compliant with the GPA (especially because it is unclear how they will be interpreted). To the extent that they are locally-focussed, they may be discriminatory or may need to be specifically carved-out in the terms under which we accede to the GPA (like the 'Buy America' laws).

Australia was hoping to accede to the GPA by the end of 2016, but with the Christmas period fast approaching, this is now looking unlikely. It last submitted its revised bid in September 2016 – before the amended Rules were made. It is possible that Australia might have to enter into further negotiations to address concerns of the potential conflict between the spirit of the GPA and the amendments to the Rules.

Until then, pending formal guidance form the Commonwealth on the meaning of the "economic benefits" test, the actual impact of the new Rules on entities that deal with the Commonwealth remains uncertain.

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