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The role of international trade agreements in the UK defense industry and their impact on procurement practices

The procurement of goods, services and materials from both local and international suppliers plays a critical role in the advancement of the United Kingdom’s defence sector. Every year, nearly £300 billion, or one in every three pounds of public money, is spent on public procurement. Access to adequate goods and services ensures that the defence sector can fulfil its duties while promoting innovation across the entire defence network. 

Defence procurement practices within the local market, and international trade agreements with foreign suppliers, allow the defence sector to access advanced equipment and materials, ensuring better value for money, while continuously improving and strengthening the domestic defence network. 

What is an international trade agreement? 

An international free trade agreement typically involve two or more countries, which allows for the establishment of an international treaty for trade conditions of products and services between the signatory countries. 

Through international free trade agreements, the UK government can freely access sophisticated foreign markets, which in return helps to stimulate the UK economy, creates new job opportunities for thousands of British constituents, and allows UK businesses to tap into new markets. 

These agreements are defined, ruled and regulated between the signatories, and outline the described preferential trade terms. This oversight ensures that the government purchases goods and services that are in the best interest of the country and citizens, but further creates economic opportunities for domestic businesses. 

International trade agreements in the UK 

Following the UK-European Union transition period, the government ensured that the UK would take part in the World Trade Organisation Government Procurement Agreement in its own right. This transition allowed the UK to continue building trade agreement relationships with foreign market suppliers outside of the EU, and further strengthen ties with existing trade states. 

Changes to policies, and further domestic oversight, give the government, and more importantly, the Ministry of Defence (MOD) access to more advanced market suppliers. With adequate trade agreements, the MOD can make more informed procurement decisions, develop forward-looking procurement strategies, and maintain an edge over potential adversaries. 

During the last several years, the government has signed more than 70 trade agreements, each supplying the varying needs of the country. With established trade partners, the MOD can leverage advanced market opportunities that might not be directly available in the local marketplace. 

While many often argue that trade free trade agreements, and the European free trade area increase competition among local businesses and suppliers, it’s often thought to provide access to more innovative technology that is spread across the country’s defence network system. 

Benefits of international trade agreements

With established and new trade agreements, the government allows easier access for UK businesses to tap into foreign markets and makes it more affordable to do business overseas. 

Limited tariff and trade barriers

Trade agreements promote affordable, and more economically advantaged tariffs for businesses. This would ensure that smaller and medium-sized enterprises can freely do business overseas with other countries, without having to compromise financial growth and development, and trade restrictions.

Value for money

In specialised market segments, whereby domestic suppliers cannot meet the needs of the MOD, procurement of international equipment and goods can help ensure value for money. This ensures that public money is used to supply the defence sector with only the necessary equipment and materials that cannot otherwise be directly obtained within the UK. 

Larger investment opportunities

Access to international markets gives domestic businesses more investment opportunities. This is especially important for UK defence suppliers, looking to acquire advanced equipment, goods and other materials. 

Improved economic activity

One of the key benefits of trade agreements is that they help to stimulate the UK economy. In more specialised and sophisticated market segments, trade agreements help to boost economic development that can directly benefit businesses. In 2021, more than £12 billion of defence industry turnover was largely due to exports. 

Enhanced procurement opportunities 

The MOD is one of the largest public buyers of defence equipment and goods in the UK. Through a free trade agreement, the MOD can acquire advanced equipment from trusted trade partners that help them to fulfil their civil duties and promote innovation. 

Fostering a culture of collaboration 

Trade agreements can make it easier to foster collaboration between different marketplace suppliers. This would ensure that UK defence suppliers have access to the necessary resources and knowledge to further enhance defence capabilities that can be made available to the MOD through procurement. 

Disadvantages of international trade agreements

While trade agreements can help enlarge the scope of practice for many UK businesses, and present them with multiple opportunities, there are often disadvantages to these practises. 

High barriers to entry 

Some defence markets may have higher barriers of entry for smaller contenders, which in turn can make it harder for smaller enterprises to collectively participate or benefit from trade agreements. 

Scale and width of international contracts 

Often larger MOD contracts within the defence sector could make it harder for smaller suppliers to become the primary contractors. However, this is not a unique challenge for many businesses, and the government has provided oversight to help promote smaller, less competitive businesses to participate in larger contracts. 

Competitive market landscape 

Foreign players could make the marketplace increasingly competitive for UK businesses and suppliers. This creates unequal distribution of procurement within the defence sector, which often does not directly stimulate economic development, or promote defence innovation for domestic suppliers. 

Supply chain issues

Currently, the MOD manages more than 6,000 defence contracts, both locally and internationally. In some market segments, where UK suppliers cannot meet the needs of the MOD, alternative options would need to be provided. However, these alternatives could create backlogs in the local supply chain for the MOD and the wider defence sector. 

Unforeseen challenges 

While the government undergoes trade agreements with developed economies, unforeseen challenges in developing economies can pose financial and supply chain risks for the defence sector and the local businesses that rely on these trade agreements. 

Defence procurement and international trade agreements 

Establishing new trade agreements requires valuable resources and necessary insight from all signatories involved in the trade agreement. With international free trade agreements, the government ensures that local businesses and British citizens would collectively benefit from these international agreements. 

More importantly, the government provides regulatory oversight throughout the procurement of international goods, to ensure that only necessary defence equipment and materials are obtained through international suppliers. The MOD procurement process helps to create a more dynamic marketplace, whereby 80% of expenditure is used on acquiring goods and services from UK suppliers. 

This oversight helps to continuously promote the procurement of defence materials from local suppliers, and that funding is allocated to help promote domestic businesses and innovation. 

While foreign trade agreements help to ensure a thriving opportunity for collaboration between domestic and international defence suppliers, it further encourages economic activity and helps to promote defence exports. 

Concluding thoughts 

Procurement of defence equipment, goods and materials remains a critical practice for the UK defence sector, and more importantly the Ministry of Defence. With trade agreements, both the government and local suppliers can leverage unique resources, often only available in sophisticated markets.

With the necessary oversight, and regulation the government ensures that the needs of the defence sector can be fulfilled through the procurement of domestic goods and equipment, however, it provides them access to alternative market options as well. 

Foreign trade agreements can become complex to navigate, however, these treaties can promote collaboration between the UK and foreign partners, promote economic activity, foster defence innovation, and help ensure the long-term needs of the defence sector can be met. 

 

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