Following Up: Why Buy American Reform is More Urgent – & Feasible – Than Ever

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Buy American, Following Up, free trade agreements, GAO, Government Accountability Office, Government Procurement Agreement, GPA, NAFTA, North American Free Trade Agreement, Obama, The Wall Street Journal, Trade, World Trade Organization, WTO

Although it doubtless wasn’t an intention of Wall Street Journal reporters Coulter Jones and Shane Shifflett, their article this morning on President Trump’s recent efforts to strengthen the U.S. government’s Buy America regulations considerably bolstered the case that overhaul is indeed vital – and within reach politically.

As I reported last month, a February Government Accountability Office (GAO) study showed that the United States is getting completely fleeced by its adherence to provisions in various bilateral or regional trade deals (like the North American Free Trade Agreement), along with a worldwide plurilateral agreement, that aim at eliminating domestic preference programs like Buy American regs.

The two main problems, according to the GAO? First, the best available data reveals that the United States has opened up its government purchases to foreign competition much wider than the nearly 50 other signatories of the Government Procurement Agreement (GPA) sponsored by the World Trade Organization (WTO). Second, Washington’s implementation of this arrangement and of similar provisions in other trade deals has been so negligent that the U.S. government never bothered even to find out how well the GPA, or any of the similar agreements, was working until two Democratic Senators commissioned the GAO study – more than twenty years after the global agreement was signed.

Journal correspondents Jones and Shifflett spent most of their article purporting to explain that any administration efforts to boost Washington’s purchases of U.S.-origin goods and services would amount to “swimming against the tide.” After all, as they documented, “For the current fiscal year beginning in October, foreign businesses have received a bigger share of federal contract dollars than in any other year since at least 2009.” In fact, “foreign-owned companies already hauled in more money from federal contracts in the past three months [i.e, during the Trump presidency] than in any corresponding period in a decade.”

Moreover, any changes to procurement policy made by President Trump “would likely face legal challenges….Additionally, any executive order Mr. Trump may issue requiring the government to buy exclusively American-made products has the potential to be challenged in court, or overturned by Congress or a future administration” – because of trade treaties that aimed “to make it easier for U.S. companies to compete overseas by mutually easing trade restrictions with other countries.”

But the recent rise in federal contracts for foreign-made goods, according to the article, has nothing to do with either Trump administration negligence or uncontrollable forces. As the authors point out, “Much of the payout to foreign-owned firms in the first quarter of this calendar year was set in motion by the Obama administration.” Of course, that was the same Obama administration that came into office in 2009 and oversaw that previously noted longer-term surge in contracts awarded to foreign goods and services providers.

Further, those trade treaties described by the Journal piece as such towering obstacles to a Buy American overhaul are the same trade treaties that the GAO has strongly indicated are utter failures.

The administration knows about the unacceptable record of these arrangements, as do the Democratic Senators who requested the GAO study. How difficult, then, would it really be for the president to muster bipartisan Congressional support for declaring these deals null and void – at least pending convincing evidence that they’re working after all? And given the pervasive discrimination U.S.-based goods and service providers clearly face in most foreign government markets, how difficult would it be for Mr. Trump to win similar legislative backing for narrowing the loopholes and waivers contained in the current Buy American regulations – and monitoring and enforcing tighter rules much more effectively?

In other words, how many American lawmakers would insist on continuing to obey broken treaties and on refusing to re-level the procurement playing field unilaterally for domestic businesses and their employers? The answers may not be obvious to Mainstream Media journalists. They’re surely more obvious to politicians accountable to American voters.

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(What’s Left of) Our Economy: Where America Has Literally Been Asleep at the Switch on Trade

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Buy American, Canada, Commerce Department, European Union, free trade agreements, FTAs, government procurement, Government Procurement Agreement, GPA, Japan, Jeff Merkley, NAFTA, North American Free Trade Agreement, Norway, Politico, South Korea, Tammy Baldwin, Trade, Trump, Wilbur Ross, World Trade Organization, WTO, {What's Left of) Our Economy

Here’s a big, sincere shout-out to U.S. Senators Jeff Merkley (Oregon) and Tammy Baldwin (Illinois). Thanks to their insightful curiosity, Americans have just gotten evidence that their country’s trade policy is indeed as much of a disaster area as claimed by President Trump and other critics.

Their accomplishment? The two Democrats asked the Government Accountability Office (GAO) to look into how well Washington has been implementing a more than two-decade-old global trade agreement aimed at opening government procurement markets around the world. Also examined: the trade liberalization record of government procurement provisions of bilateral and regional trade agreements signed by the United States (like the North American Free Trade Agreement, or NAFTA).

The findings were released last month (and alertly reported by Politico‘s trade correspondents), and make clear that the United States has been getting royally shafted. Moreover, these results have been inevitable both because the global deal was so poorly conceived from an American standpoint, and because literally no one in the U.S. trade policy-making apparatus has been tracking the results of either the global agreement or the relevant sections of the narrower trade deals agreement affecting literally trillions of dollars worth of actual and potential sales.

Even worse, the blithe assumption that other signatory countries has been scrupulously abiding by all of these procurement agreements has sharply limited America’s willingness to expand and tighten the Buy American rules that cover its own official purchases – in the process, passing up major opportunities for growth and job creation at a time of economic weakness. And P.S. This includes President Trump.

The GPA is a “plurilateral” agreement negotiated under the auspices of the World Trade Organization. In other words, accession by WTO members is voluntary. Still, the deal, which went into effect in 1996, currently encompasses 47 countries that are now committed to placing foreign enterprises and their own domestic entities on an equal footing when they compete for government contracts. Nine other WTO members are in the process of signing on. Most of America’s bilateral and regional trade agreements also prohibit discrimination in awarding these opportunities for supplying governments with goods and services. Consequently, 19 other countries have promised the United States to open their official procurement markets to the United States in return for America opening its own to them. (All of these governments have carved out various agreed on exemptions. And sub-national governments are covered by these deals as well.)

With stakes this high, you’d think that at some point the U.S. government would display reasonably consistent interest during the multi-decade lives of these trade agreements in whether they’ve been paying off. But according to the GAO researchers, you’d be wrong.

Even though the GPA requires detailed, annual reporting of procurement statistics by signatory governments, the GAO’s

“review of data that the United States and next five largest GPA parties [the European Union, Japan, Canada, South Korea, and Norway] submitted to the WTO for 2008 through 2013 found that a number of parties did not submit the reports annually, the submitted reports did not include all required data, and each party’s reports included inconsistencies that limit the data’s comparability. Further, a lack of common understanding on definitions of key terms has led to inconsistent reporting practices among the GPA parties, and a GPA statistical working group has made little progress in addressing such challenges.”

Some specific failings:

>”although Canada submitted annual notifications with central government procurement data for 2008 through 2013, the notifications did not include data on procurement by subcentral governments or by other government entities”;

>”Japan’s annual notifications have not included procurement by entities such as utilities and state-owned enterprises that are covered by the GPA”:

>”South Korea has not submitted notifications for any year except 2010, and Japan has not submitted a notification for 2012 although it did so for other years through 2013.”

>”Of the U.S. FTAs [free trade agreements] we reviewed, only NAFTA requires its parties to report annual statistics on government procurement; however, the last data exchange between the three NAFTA parties took place in 2005. As a result, information about the extent to which U.S. FTA partner governments open procurement to U.S. suppliers is not available.” [Emphasis added.]

The United States has been far from a whiz in reporting, either. But its failings have been much less excusable given all the evidence provided by the GAO showing that it’s opened its procurement markets much wider than any other GPA or FTA signatory. Despite the above data limitations, the GAO nonetheless felt confident in concluding that for 2010, “[T]he United States reported more than twice as much GPA-covered government procurement as the next five largest GPA parties combined, although total U.S. government procurement is less than the combined total for the other five parties.”

In money terms, the value of contracts opened to non-discriminatory bidding by the United States at all levels of government was $837 billion. The value of contracts opened by those five non-U.S. GPA parties that promised to liberalize the most in absolute terms was some $381 billion. Yet total government procurement in the United States that year was some $1.7 trillion, the GAO estimates. For the other five GPA signatories, it was much larger – $4.4 trillion.

Moreover, because of the aforementioned reporting failures, it’s not possible at all for the U.S. government, or the American people, to gauge procurement liberalization under free trade agreements – with the exception of Canada. But when their procurement budgets are added in, and duplication eliminated (e.g., for Canada), the total market that should be available to American business and workers at least in principle is $4.4 trillion. 

The GAO doesn’t conclude that U.S. trade partners are simply capitalizing on Washington’s indifference to flout their treat obligations. In fact, in one instance, it even tries to get them partly off the hook: “Many EU member states, as well as Japan and South Korea, have actual government expenditures smaller than the United States’ and are therefore likely to have more smaller-value individual procurement contracts that fall below the GPA threshold levels.” (Decisions on the smallest government contracts typically are one of the main GPA and FTA procurement carve-outs.)

But if so many foreign government contracts are too small to be opened for non-discriminatory bidding, then obviously these trade deals are too poorly structured to give American producers anything remotely like reciprocity. And more important, Washington so far has had no way of knowing judging by any measures whether non-discrimination in principle is being translated into non-discrimination in fact .

As Mr. Trump’s Commerce Secretary, Wilbur Ross, recently noted, “There’s not a lot of point making trade deals if you don’t enforce them.” He could have added that such enforcement is impossible without seeking and obtaining reliable data on results. Donald Trump’s predecessors have flunked these two crucial tests of American trade policy-making. Until he gets strong evidence to the contrary, it’s time for the president to take the logical next step, assume that the GPA and the FTA government procurement measures have been serious mistakes, and ignore them as thoroughly as America’s competitors evidently have.