Firms That Sent U.S. Jobs Offshore Now Claim That Investing U.S. Taxpayer Funds in America Is “Protectionism,” While Falsely Claiming That U.S. Steel, Iron Requirements for Highway, Transit Projects Violate Trade Pacts
Before any more front-page stories get the facts wrong about the preferences for U.S. steel and iron in the American Recovery and Reinvestment Act of 2009, please be advised: Buy America and Buy American are separate pieces of legislation with separate regulatory requirements and different statuses under U.S. trade agreements. The House stimulus package requirement that U.S. steel and iron be used for federal and state transportation infrastructure projects simply extends existing law (the 1982 Buy America Act) and practice and is EXEMPT from coverage under various trade-agreement procurement rules. (What various U.S. trade pact rules do require and what these two “Buy-A” laws require is discussed below.)
Meanwhile, lobbyists from corporations such as Caterpillar and General Electric seem to be intentionally conflating Buy America and Buy American to falsely claim that the U.S. iron and steel rules violate trade-pact rules. Perhaps the real reason these firms have launched a fact-distorting PR and lobbying effort is because they have moved so much production away from the United States to low-wage foreign venues, meaning that their products may see less benefit from this massive injection of government spending.
As well, the notion that these Buy America provisions will launch a global trade war is ridiculous, if for no other reason than the World Trade Organization (WTO) Agreement on Government Procurement (AGP) applies only to 39 countries with an additional 13 countries being signatories to U.S “Free Trade Agreements” (FTAs). The United States has no trade agreement or other procurement obligations to China, Brazil, India and many other major developing-country industrial powers. Further, any number of laws implemented in any number of countries to date in response to the economic crisis violate WTO rules. But these have not been subject to WTO challenge, which suggests that there is some sort of multinational gentlemen’s agreement among WTO signatory governments to ignore each others’ take-backs of non-trade policy space to implement needed regulations during this emergency period. Contrary to recent newspaper editorials repeating the hysterical ‘launching a trade war’ tone of the corporate attack on the Buy America provisions, a review report circulated by the WTO’s director general on January 23 concludes that the global economic crisis has so far provoked little “protectionist” reaction from governments in the form of increased tariffs or other barriers to trade.
Of course, the bigger issue is why “trade” agreements should be encroaching into non-trade matters to impose any limits on how signatory countries’ legislatures decide to spend taxpayer dollars. The gall of some of America’s worst chronic U.S.-job offshorers daring to label investing U.S. tax dollars in America as protectionist is stunning. Or is it? These are the same firms that pushed for the invasion of non-trade policy space by agreements such as the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA) – an overreach that has helped make the backlash to these pacts both nationwide and bipartisan. Indeed, the good name of “trade” has been trashed by the corporate-promoted push to use trade agreements as delivery vehicles for an array of anti-public-interest policies that had been rejected by Congress under normal consideration.
Effectively, “trade” pacts have been hijacked to impose a much broader policy agenda, including radical financial service sector deregulation; extensions of medicine patents that jacked up U.S. consumer costs; limits on U.S. food-safety labeling and inspection policies; and limits on regulation of an array of service sector firms operating within national borders, including health insurance, hospital and pharmaceutical-distribution firms. None of these non-trade policies should be imposed through one-size-fits-all trade agreements. Rather, these are policies that should be decided in the more open, participatory domestic federal, state and local legislatures.
That is just one reason procurement policy is not an appropriate subject for a trade agreement. At issue is not the operation of private sector markets, but rather how the taxpayers’ elected representatives may determine to best spend taxpayer funds to further the public interest. Taxpayers in all countries must have the right to decide how their tax payments are used, rather than having one version of decisions about procurement policy choices imposed – regardless of circumstances and public opinion about policy priorities.
Buy American versus Buy America and how each relates to trade pacts’ overreaching procurement terms
The House stimulus package requirement that U.S. steel and iron be used for federal and state transportation infrastructure projects simply extends existing law (the 1982 Buy America Act) and practice and is EXEMPT from coverage under various trade-agreement procurement rules. The provisions in the stimulus package also replicate the underlying law’s exceptions (see Section 1110 of the American Recovery and Reinvestment Act ) that waive the Buy America terms if applying the preference would be “inconsistent with the public interest,” if iron and steel are not produced in the United States “in sufficient and reasonably available quantities and of a satisfactory quality,” or if inclusion of iron and steel produced in the United States will increase the cost of the overall project by more than 25 percent.
The Buy America Act (23 U.S.C § 103 (3)(4) and 49 U.S.C. § 5323(j) was adopted as part of the 1982 Surface Transportation Assistance Act, and applies to transit-related procurements valued at more than $100,000, for which funding includes grants administered by the Federal Transit Authority (FTA) or Federal Highway Administration (FHWA). Buy America provisions are a condition of U.S. federal government grants to state, municipal or other organizations including transit authorities. Grant programs and state procurement are not covered by NAFTA or the WTO’s Agreement on Government Procurement (AGP). Buy America requires 100 percent U.S. content for iron/steel and manufactured products, although “manufactured” products have been narrowly defined to limit many goods. (The law also used to cover cement.) The FHWA requires all projects it funds to use 100 percent U.S.-manufactured iron and steel products and coatings. The FTA requires all projects it funds to use 100 percent U.S.-manufactured steel and manufactured products with 100 percent U.S. content. Rolling stock (trains, buses, ferries, trolley cars, etc.) components must have 60 percent U.S. content, with final assembly occurring in the United States. Similar conditions are required for contracts for airport projects that receive funds from the Federal Aviation Administration as authorized by the Airport and Airways Facilities Improvement Act. Such projects require that all steel and manufactured products have 60 percent U.S. content and that final assembly occur in the United States.
Meanwhile, the 1933 Buy American Act applies to all direct U.S. federal procurement of goods, although it also can be waived based on three exceptions similar to those in the Buy America Act. Extending domestic purchasing preferences beyond iron and steel to categories of goods and services may or may not conflict with U.S. trade-agreement procurement rule obligations. First, the WTO AGP applies only to 39 countries. An additional 13 countries are signatories to U.S “Free Trade Agreements” (FTAs). China, Brazil, India and many other major developing-country industrial powers are outside both of these categories. Thus, there are no possible trade-agreement procurement violation issues regarding preferring U.S. goods to goods from these countries. Further, U.S. Appendix I to the WTO AGP lists various exceptions, notes which U.S. states are exempt from the rules, and sets monetary thresholds (i.e. projects below these funding thresholds are exempt from WTO rules).
Moreover, such trade-agreement rules can only be enforced if another country brings a case. Any number of laws implemented in any number of countries in response to the economic crisis violate WTO rules. But these have not been subject to WTO challenge, which suggests that there is some sort of multinational gentlemen’s agreement among signatory governments to ignore each others’ take-backs of non-trade policy space during this emergency period. Even if a dispute were filed, it typically takes at least five years to reach a stage at which sanctions could be imposed, and that’s only if the policy in question were judged to violate the rules. Interestingly, according to a review report circulated by the WTO’s director general on Jan. 23, the global economic crisis has so far provoked little “protectionist” reaction from governments in the form of increased tariffs or other barriers to trade.
The Buy American Act (41 U.S.C. § 10a-10d), passed in 1933 by the U.S Congress, applies to all U.S. federal agency purchases of goods valued over the micropurchase threshold (including construction materials), but does not apply to services. Under the act, all goods for public use (articles, materials or supplies) must be produced in the U.S., and manufactured items must be manufactured in the U.S. from U.S. materials unless an exception applies. Many states and municipalities include similar geographic production requirements in their procurements. The law applies to goods purchased by the government for its use (vehicles, office supplies, etc.), and to contracts for the construction materials used in the alteration or repair of any public building or work in the United States. Domestic construction materials are defined as: an unmanufactured construction material mined or produced in the U.S., or a manufactured product (when the cost of domestic components exceeds 50 percent of the cost of all of components).
FAR 52.225-12 implements provisions of the Trade Agreements Act (19 U.S.C. 2501, et seq.) which waive the “Buy American Act” for eligible products that a) cost above a set threshold, and b) which are purchased from countries that have signed an international trade agreement with the U.S. or are otherwise “designated countries.” In all, this waiver requires that the 39 signatories to the WTO AGP – plus U.S. FTA non-AGP countries Australia, Bahrain, Chile, Costa Rica,* El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman,* and Peru* and the 33 least developed countries – to be treated as if they were American firms for procurement occurring in amounts over thresholds set in the agreements and inflation adjusted by U.S. regulation. (See Fed. Reg. Vol. 72 240 CFR 71166 [Dec. 14, 2007] for latest thresholds, which are also listed in footnote 3.) The WTO AGP also sets other limits on how procuring entities may set standards for the goods to be purchased and what conditions may be imposed on bidding companies, but the U.S. Appendix I to the AGP lists exceptions to those terms.
The Buy American law has three exceptions that allow procurement from countries other than the United States or designated countries: the public-interest exception; the non-availability exception (which applies only if articles, materials or supplies of the class or kind to be acquired are not mined, produced or manufactured in U.S./NAFTA, WTO or other designated countries in sufficient and reasonably available commercial quantities, as determined by a contracting officer); and the unreasonable cost exception (which requires a finding by a contracting office that the price differential between the domestic product and an identical foreign-sourced product exceeds a certain percentage of the price offered by the foreign supplier).
Some U.S. states were also bound to meet the trade-agreement procurement rules. Which states are covered for what procurement is a complicated matter laid out in various trade-agreement annexes. You can find a chart listing what states must meet certain WTO rules – states have also listed various exceptions – at https://www.citizen.org/sites/default/files/guide_2.9_final.pdf.
Jan. 29, 2009
- “The Agreement shall not apply to restrictions attached to Federal funds for mass transit and highway projects.” See WTO AGP U.S. Appendix I, Annex 2, Note 5.
- The original “Buy America” legislation was a component of the Surface Transportation Assistance Act of 1982, which adapted requirements from the Surface Transportation Assistance Act of 1978, and was amended in 1987, 1991, 1998 and 2005.
- For central government (WTO commitment covers procurement above these levels of all federal agencies except FAA, with many DOD exceptions, some limited others relating to USAID and Dept. of Agriculture.) Goods and services: $194,000. Construction: $7,443,000; For states (37 states are bound to WTO, fewer to other agreements per chart below with some states covering all procurement and other limiting their commitments.) Goods and services: $528,000. Construction: $7,443,000. For other entities (TVA, port authorities, etc.) Goods and services: $98,000. Construction: $6,481,000.
- WTO Report Finds ‘Limited Evidence’ of Protectionism amidst Economic Crisis, Bridges Weekly, Jan. 28, 2009.
- Signatories to the WTO AGP include Aruba, Austria, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Liechtenstein, Lithuania, Luxemburg, Malta, the Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, the United Kingdom and the United States. FTA countries denoted by an * have pact commitments not yet in effect).