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
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
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.
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
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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