Manufacture This

The blog of the Alliance for American Manufacturing

A Chinese state-owned enterprise is poised to win a lucrative transportation program bid.

UPDATE: The Massachusetts Department of Transportation officially awarded the $566.6 million contract to CNR on Wednesday. At the meeting announcing the contract, MBTA General Manager Beverly Scott explained that the contract with CNR requires more than 60 percent of the materials used in the project must come from domestic sources. While it is good to see that there will be additional U.S. work involved on this project, the fact that the contract rewards a company that is heavily subsidized by the Chinese government remains a concern, as it distorts the marketplace and crowds out competitive private-sector firms.

Taxpayer dollars shouldn’t reward foreign companies that are heavily subsidized by foreign governments. Unfortunately, that's what’s happening in Massachusetts — and the state’s procurement process is one of the reasons why.

The Massachusetts Bay Transportation Authority (MBTA) is readying to award a $1.3 billion contract to build new subway cars to a subordinate of China CNR Corporation Ltd., a state-owned rail manufacturer supervised by the State Council of the People’s Republic of China. As a result, MBTA is rewarding subsidized competition from abroad and missing a major opportunity to create U.S. supply chain jobs, including in the Bay State.

Here’s the thing: Basic rules of fairness dictate that all bids should play by the same market rules. But state-owned entities like CNR benefit from government subsidies such as grants, tax breaks, loans, and debt forgiveness. This means they can undercut market prices in a way privately owned businesses cannot.

It’s cheating — and American taxpayers shouldn’t foot the bill for foreign governments and companies that don't play fair.

Alliance for American Manufacturing President Scott Paul sent a letter to Massachusetts Gov. Deval Patrick on Tuesday expressing his disappointment with the contract — and the state’s current procurement process. As Paul wrote:

The selection of CNR raises serious concerns about whether this bid selection process adequately sought to maximize domestic job creation and protect the interests of Massachusetts taxpayers. And while it has been reported that you have ‘thoroughly vetted’ CNR, including at a meeting in Hong Kong, we remain concerned that you have left jobs on the table and disappointed that you are both rewarding and further enabling competition tied to the Chinese government.

The contract requires that final assembly on the new cars be done in Massachusetts, so CNR is expected to open a new facility that will employ 150 to 300 workers. But the awarding of the contract to a foreign company leaves potentially thousands of additional supply chain jobs on the table. Paul wrote to Patrick:

By making CNR’s entry into the U.S. market possible, this procurement opens the door to unfair, state-owned competition on other rail and transit procurements throughout the United States – again, with no guarantee of any domestic content being used. This bid process is a drastic departure from federal procurements and those of many other states and cities, which require that U.S.-made parts and components be used in addition to mere assembly. Instead, the MBTA process has failed to recognize that such an award would undermine a highly competitive and extensive domestic supply chain of vehicle, system, and component part manufacturers that employ thousands of U.S. workers, including some in Massachusetts.

You can read the entire letter here.

Paul encouraged Patrick and other Massachusetts policymakers to take appropriate corrective actions to address this procurement issue, including support for Buy America legislation such as S. 2094, which seeks to ensure “Massachusetts’ infrastructure investments are truly American-made.”