The Obama Administration has continued negotiations on the Trans-Pacific Partnership agreement behind doors closed to the media and without the Congressional involvement that was requested by Congress. Besides being a threat to our national sovereignty as I discussed in a previous blog, it is time to shine the light on another egregious provision that would hurt American manufacturers.
The Buy American Act was passed by Congress in 1933 and required the U.S. government to give preferential treatment to American producers in awarding of federal contracts. The Act restricted the purchase of supplies that are not domestic end products. For manufactured products, the Buy American Act used a two-part test: first, the article must be manufactured in the U.S., and second, the cost of domestic components must exceed 50 percent of the cost of all its components. Other federal legislation passed since extended similar requirements to third-party purchases that utilize federal funds, such as highway and transit programs.
“Buy American” provisions do not help all U.S. firms equally. Corporations headquartered in the U.S. that offshore most of their manufacturing operations do not benefit from the system designed to promote domestic production in the way that companies with actual U.S. manufacturing operations do. However, strengthening the “Buy American” provisions in our federal procurement system is one of the recommendations I made in my book to benefit American manufacturers and help save American manufacturing.
If a domestic producer offers the government a more expensive bid than a foreign producer, it can still be awarded the contract under certain circumstances, but more recent free trade agreements have granted other nations the same negotiating status as domestic firms.
In certain government procurements, the requirements may be waived if purchasing the material/parts domestically would burden the government with an unreasonable cost, as when the price differential between the domestic product and a identical foreign-sourced product exceeds a certain percentage, or the product is not available domestically in sufficient quantity or quality, or if doing so is not in the public interest. In recent years, the requirements have been increasingly waived to the point that we have lost domestic sources for some defense components and products.
In addition, the President has authority to waive the Act in response to the provision of reciprocal treatment to U.S. producers. Under the 1979 GATT Agreement on Government Procurement, the U.S.-Israel Free Trade Agreement, the U.S.-Canada Free Trade Agreement, the North American Free Trade Agreement, the Central American Free Trade Agreement, and the Korea Free Trade Agreement, access to government procurement by certain U.S. agencies of goods for the other parties to these agreements is granted. Every one of these trade agreements have increased the trade deficit that the U.S. has with the parties to these agreements.
The Obama administration is currently pushing to grant the several nations involved in the Trans-Pacific agreement the same privileged status. What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries.
Supporters of TPP argue that it would be good for America because these rules would apply to all the countries signing the agreement, so U.S. firms would be able to bid on procurements contracts in other countries on a national treatment basis. The question is whether this new access for some U.S. companies to bid on contracts in the TPP countries is a good trade-off for waiving Buy America preferences on U.S. procurement?
Lori Wallach of Public Citizen has written several articles warning about the dangers of the Trans-Pacific Partnership. In an article titled, TPP Government Procurement Negotiations:
Buy American Policy Banned, a Net Loss for the U.S., she points out that the total U.S. procurement market is more than seven times the size of the combined procurement market of the current TPP negotiating parties: Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. But the United States already has trade deals with procurement provisions with six of these countries: Australia, Canada, Chile, Mexico, Peru and Singapore. Removing these countries would mean that the U.S. procurement market is 24 times the size of the total “new” TPP procurement market.
She concludes “the size of the new procurement markets that the TPP may open for the United States is in the order of $53 billion (national) to $72 billion (total), which is a terrible trade for giving up the U.S procurement market of $556 billion (federal) to $1.7 trillion (total).”
In addition, she notes that the TPP procurement rules would constrain how our national and state governments may use our tax dollars in local construction projects and purchase of goods and limit what specifications Governments can require for goods and services, as well as the qualifications for bidding companies.
She warns that if we do not conform our domestic policies to the TPP terms, the U.S. government would be subject to lawsuits before foreign tribunals empowered to authorize trade sanctions against the U.S. until our policies changed. “Also, any “investor” that happens to be incorporated in one of these countries would be empowered to launch its own extra-judicial attack on our domestic laws in World Bank and UN arbitral tribunals with respect to changes to procurement contracts with the U.S. federal government.”
A letter from Rep. Donna Edwards (D-Md.) and 68 other Congressional Reps to President Obama on May 3, 2012 states in part, “We are concerned about proposals we understand are under consideration in the Trans-Pacific Partnership (TPP) agreement negotiations that could significantly limit Buy American provisions and as a result adversely impact American jobs, workers, and manufacturers…We do not believe this approach is in the best interest of U.S. manufacturers and U.S. workers. Of special concern is the prospect that firms established in TPP countries, such as the many Chinese firms in Vietnam, could obtain waivers from Buy American policies. This could result in larger sums of U.S. tax dollars being invested to strengthen other countries’ manufacturing sectors, rather than our own.”
On November 30, 2012, 24 Senators sent a letter to President Obama outlining guidelines for the TPP and calling for Congressional consultation for the TPP. The letter urged that the TPP:
“Maintain “Buy American” government procurement requirements. The American people, through their elected officials, should not be prohibited from establishing government procurement policies that prioritize job creation in the United States. We hope that you will direct USTR negotiators to ensure that any TPP not restrict “Buyer American” and ”Buy Local” government procurement policies at the Federal or sub-federal level.
Require strong Rules of Origin. The Rules of Origin in the TPP should ensure that only signatories to the TPP will benefit from its increased market access and other provisions so that employment opportunities in the U.S. may be expanded. Non-TPP members must not be allowed to use weak rules of origin as a backdoor way to enter the U.S. market and further depress U.S. job prospects.
Ensure that State-Owned and State-Supported Commercial Enterprises (SOEs) operate on a level playing field. Given that SOEs are more common in the other TPP countries than in the U.S., the TPP should require that SOEs competing with private U.S. enterprises operate and make decisions on a commercial basis. The agreement should also incorporate a reporting requirement so that countries have to provide information on the operation of their SOEs in other TPP countries on a regular basis.”
Country of Original labeling is another one of the recommendations I’ve written about in previous blog articles and is the main recommendation of Alan Uke in his book Buying Back America. This would help American consumers make choices when they purchase consumer goods and allow professional procurement specialists in industry and government to choose to support American manufacturers through “Buying American.”
The TPP treaty would exacerbate our trade deficit problem and make it even harder for American manufacturers to compete in the global marketplace. Instead of weakening “Buy American” requirements through additional trade agreements such as TPP, we need to strengthen the requirements.
This drastic curtailment of “Buy American” procurement provisions is another reason why we must make sure Congress rejects any fast-track authority the Obama administration seeks to invoke when it comes time to get final congressional approval for the Trans-Pacific Partnership agreement.
Please join me in opposing granting fast-track authority by signing the petition at the American Jobs Alliance website and contacting your representatives directly at http://act.americanjobsalliance.com/5516/tell-obama-no/