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September 22, 2017

Comments Concerning the Costs and Benefits to U.S. Industry of U.S. International Government Procurement Obligations

An excerpt from Global Trade Watch's official comment submission on U.S. procurement obligations is below. For the full report, please click here

Public Citizen welcomes the opportunity to submit comments to the U.S. Department of Commerce and the Office of the U.S. Trade Representative (USTR) on U.S. government procurement obligations in trade agreements. Public Citizen is a nonprofit consumer group with more than 400,000 members. A mission of Public Citizen is to ensure that in this era of globalization, a majority can enjoy economic security; a clean environment; safe food, medicines and products; access to quality affordable services; and the exercise of democratic decision-making about the matters that affect their lives.

In the context of a creeping expansion of the scope of “trade” agreements negotiated behind closed doors with hundreds of official corporate advisors, Americans across the political spectrum have become aware and upset about the ways in which today’s “trade” pacts conflict with their goals and values. As agreements have expanded far beyond traditional matters such as cutting tariffs and limiting quotas, more Americans have become engaged in demanding a new approach. As a result, the status quo U.S. trade policy model now faces unprecedented crises politically, economically and socially.

Thus, a review of trade-pact procurement terms is timely. These terms constrain how the public can direct our federal and state officials to spend our tax dollars. The rules require firms operating in trade partner countries to be treated like U.S. firms – and foreign goods to be treated as if they were made in America – with respect to many types of government contracts over a set dollar-value threshold, with some limits for U.S. defense agencies and some products. Effectively, these rules offshore our tax dollars rather than investing them to create jobs and innovation at home. As a result, currently “Buy American” now actually means companies and products from 60 countries must be given the same access to U.S. government contracts as U.S. firms and products for all but the lowest-value contracts. And 37 U.S. states are bound to such rules with respect to the 45 signatory countries of the World Trade Organization (WTO) Agreement on Government Procurement (GPA).

These terms also eliminate a reason that U.S. businesses profiting from U.S. government contracts choose to produce domestically. Such firms advocate for the current trade pact procurement rules because they allow them to relocate production to low-wage countries with U.S. trade pacts – profiting from leaving their U.S. workers behind and often also avoiding U.S. tax obligations – and still obtain lucrative taxpayer-funded contracts. Fifty-six percent of the top 50 U.S. government federal contractors in FY 2016 were certified under just one narrow U.S. government program as having engaged in offshoring, and 41 percent of the top 100 FY 2016 contractors were certified as having offshored American jobs. More than a third of total U.S. government contract spending in FY 2016 went to firms certified as having offshored jobs. This totaled $176 billion in U.S. federal government contracts in 2016. As a candidate, President Donald Trump pledged to punish firms that offshore American jobs. However, in 2017 the flow of federal contract awards to major offshorers has continued, with United Technologies, for instance, receiving 15 new awards despite offshoring 1,200 of its 2,000 Carriers job to Mexico, and notorious offshorer General Electric obtaining scores more. As described in this submission, a U.S. president has the unilateral authority to reverse the waivers to Buy American policies that facilitate this business conduct.

In addition to supporting job offshoring, the current trade pact rules on government procurement also limit the criteria governments can use to describe the goods and services they seek and what conditions may be imposed on bidders. The terms reflect the interests of U.S. corporate trade advisors interested in acquiring access to procurement opportunities in other countries and thus limiting the conditions and terms governments may require of them. But the rules apply reciprocally, meaning that they also severely constrain the ability for U.S. citizens and our elected officials to use procurement as an important policy tool. If the federal government – or a state – does not conform its policies to these constraints, then countries that are part of the agreement can challenge our policies in foreign tribunals that can impose trade sanctions against the United States until our laws are eliminated or changed.  

Given that total U.S. government procurement activity is $1.7 trillion, the implications are significant. When able to set criteria on government purchases, the U.S. federal government and our state governments have the capacity to spur innovation and further other policy goals by creating demand for specified goods and services or those produced under specified conditions. However, currently, the trade agreements with procurement terms to which the United States is a signatory impose constraints on the federal government and, to differing degrees, the 37 U.S. states now bound to comply with some of these trade pact terms. It is worth noting that in the early 1990s, when U.S. states were asked to opt in to being bound to the WTO’s GPA, few governors or state legislatures recognized that doing so would result in a form of international pre-emption that would severely limit their policymaking. As states became more aware of the threats posed, fewer and fewer were willing to become bound to these terms. By the mid-2000s, fewer than a dozen states opted in to these policy constraints in the last Free Trade Agreements (FTA) negotiated by the George W. Bush administration. Reflecting this reality, the Trans-Pacific Partnership did not cover state procurement. However, 37 U.S. states remain bound to WTO procurement policy constraints.

As this submission enumerates, the current procurement terms in U.S. trade pacts represent bad economics and limit domestic policy space, and must be eliminated. Even if the underlying notion of offshoring our tax dollars and imposing one-size-fits-all policies about how taxpayer funds may be expended was a good one in general, doing so is a losing proposition for the United States. The U.S. procurement market is much larger than any but that of the European Union. Thus in exchange for some U.S. firms obtaining some contracts in significantly smaller procurement markets, access on equal terms to U.S. firms is provided to the entire massive U.S. procurement market for any firm operating in a trade partner nation or for goods produced in such a nation, including with respect to firms from nations that provide no reciprocal access, such as China. Improved statistical reporting and information exchange is essential to track the exact impact of such terms.

Notably, a U.S. president has the authority to unilaterally exit the WTO GPA by providing 60 days written notice to the WTO Director-General and thus eliminate U.S. obligations with respect to 41 of the 45 WTO GPA parties with which we do not have FTAs. WTO rules do not provide for penalties in response to such an action. The procurement provisions of various FTAs can be eliminated or altered through renegotiation. With respect to U.S. law effectuating these international law obligations, a U.S. president also has unilateral authority to eliminate the waiver for trade pact partners of domestic procurement preferences. This element of our trade agreements is implemented by regulation, rather than in the trade agreement implementing legislation. The economic and social benefits of overhauling the U.S. approach to trade pact procurement terms are sizable.

Comments

Richard Patten

These comments are a good representation of some of the arguments for local and national manufacturing: jobs, tax revenues to support health care, infrastructure, income inequality, and other social and national goals-as in government for and by the people.

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