Manufacture This

The blog of the Alliance for American Manufacturing

Rules for taxpayer-funded government projects boil down to helping manufacturers compete.

According to a recent PoliticoPro article, "New NAFTA deal partly channels Trump’s ‘Buy American’ pledge", the U.S.-Mexico-Canada Agreement (USMCA) “would put a patchwork of different systems in place, making it harder for some businesses to sort out how to fulfill the work they will do for the government.”

The deal includes procurement rules only for trade between the United States and Mexico, reporter Doug Palmer notes. World Trade Organization (WTO) procurement rules will cover such trade between the U.S. and Canada, and Trans-Pacific Partnership (TPP) rules will cover such trade between Mexico and Canada. 

A little convoluted? Maybe, I guess, but only out of context; trade agreements are always textbook-thick, and similarly complicated. Confusing or not, the fact remains: The U.S. economy and its government procurement market are among the most open in the world. Some insist that “Buy America” preferences in taxpayer-financed government spending are “protectionist” policies that lead the United States to the precipice of an international trade war. But the opposite is true: Buy America preferences are an important (and legitimate) lever to open foreign procurement markets for U.S. products.

Buy America is a longstanding practice by the federal government, as well as many state governments, and it is well-understood by contracting officers and bidders on public projects. Dozens of states have similar laws that create a procurement preference for American-made goods when they are available in a sufficient quality and quantity and are competitively priced in the global marketplace. For example, New York and Texas just passed bills requiring American-made iron and steel for certain projects including transportation and water infrastructure. If goods are unavailable from domestic sources or the cost of the goods from domestic sources is unreasonable, the preference may be waived. And yet the sky hasn’t fallen.

Criticism of Buy America laws often falsely portrays other nations’ markets as largely unfettered while they are not. The EU and Canada – as well as all other parties to the WTO General Procurement Agreement (GPA) – have broadly excluded many of their procurement markets from the GPA. These exclusions go substantially further than those claimed by the United States. And those parties are under no obligation to provide U.S. firms with access to a wide array of their government contracts.

The general rule under international law permits WTO members to favor their respective domestic suppliers over foreign suppliers of goods and services in government procurements. And they do; annual reports by the United States Trade Representative reveal that many of our trading partners currently maintain a variety of governmental procurement restrictions that exclude the products and services of U.S. manufacturers. However, each country (to the extent it chooses to depart from the WTO’s general rule) is free to commit itself by international agreement to treat foreign suppliers no less favorably than it treats its own domestic suppliers. 

Despite these agreements, U.S. courts have recognized that states are permitted to impose domestic preferences where they are acting as market participants in government contracting.  Simply put: States are free to require domestic preferences in their contracting and do not violate any obligations made under international agreements – even those dealing with government procurement. 

That’s a good thing. When domestic content requirements are applied, procurement officials ensure that U.S. environmental and labor standards are not just a burden to U.S business looking to compete in a global economy, but rather a standard for doing business with the globe’s biggest customer. Locking in these standards up front can also save costs, as demonstrated by the San Francisco-Oakland Bay Bridge which came in twelve years late and $3.9 billion over budget due to faulty construction using Chinese steel.

Tax and toll dollars should not be used to reward companies who have moved their operations, investments and jobs to foreign countries, or to reward foreign producers that completely disregard environmental and workplace safety standards. 

When American governments choose to regulate the way American manufacturers do business and then choose to spend taxpayer dollars on goods produced abroad, it discourages American production and investment, encourages outsourcing and kills American jobs.

In short: Government procurement has been governed by a patchwork of international trade agreements for decades. The new USMCA, if ratified, still allows U.S. manufacturers to compete on a level playing field with international competition for the tax-payer financed markets where Buy America applies. Just as our trading partners have assured their own manufacturers are treated in their own markets.