Inside US Trade
Industries Clash Over „Buy American‟ Provisions In Stimulus Package
_______________________________________________ Date: January 30, 2009
Congressional efforts on behalf of the U.S. steel industry and certain U.S. manufacturers to limit foreign purchases of iron, steel and manufactured goods used in infrastructure projects in the stimulus package face staunch opposition from multinational companies such as General Electric, Caterpillar and Boeing. The $819 billion stimulus package, approved by the House on Jan. 28 in a 244-188 vote largely along partisan lines, would require the use of U.S. iron and steel in the construction and maintenance of infrastructure projects in the package. A Senate version of the bill goes further, requiring the use of U.S. iron and steel as well as U.S. manufactured goods in the construction and maintenance of those infrastructure projects. The Senate is expected to vote on its version of the stimulus package next week. According to opponents, such restrictions would send a bad message to trading partners such as China and India and possibly violate U.S. World Trade Organization commitments. Proponents of the provisions point out that the so-called “Buy American” and “Buy America” requirements included in the House and Senate versions of the bill are in line with the U.S. obligations in the WTO Government Procurement Agreement (GPA). Buy American provisions refer to only federal procurement while Buy America provisions refer to federal funding that is passed down to state governments for procurement, according to private-sector lawyers. The proponents say that the provisions in the stimulus package allow for waivers that will give federal officials the ability to procure from other countries that are members of the GPA. They also said that many of the state and local projects covered are explicitly exempted from U.S. GPA obligations or the states in question have not signed on to the GPA. They also point out that India and China are not members of the GPA, so the U.S. has no market access commitments for government procurement to them at all. The current strategy of the opponents is to pressure the Obama administration to oppose the provision, not to line up members of the Senate to offer an amendment striking the provision, according to private-sector sources. One source said that these companies plan to “lean on” President Obama by making their case that the provisions are protectionist measures. One opponent said that the position the new administration takes could be an early signal of Obama’s possible trade policy.
The provisions were brought up during a meeting between Obama and 13 corporate executives at the White House on Jan. 28, according to two private-sector sources familiar with the meeting. Obama has not publicly taken a stance on the Buy America and Buy American provisions and a White House spokeswoman said in a statement that administration officials were still reviewing the provision. “We are reviewing the buy American proposal and we are committed to a plan that will save or create at least 3 million jobs including jobs in manufacturing,” said Spokeswoman Jen Psaki. In a Jan. 29 press briefing, Peter Power, a spokesman for EU Trade Commissioner Catherine Ashton, said EU officials were “looking into the situation” and said it would be “premature” to take a stand on the provisions before reviewing the final text of the legislation. “However, the one thing we can be absolutely certain about, is if a bill is passed which prohibits the sale or purchase of European goods on American territory, that is something we will not stand idly by and ignore,” he said. But a European Commission source agreed with the analysis of U.S. supporters that the EU would not face discrimination under the stimulus bill. But the source said that EU officials believe that the provisions could “send the wrong signal” to other countries that it the United States is moving toward protectionism. Both the House and Senate bills specify that that these infrastructure projects would include airports, bridges, canals, dams, dikes, pipelines, railroads, multiline mass transit systems, roads, tunnels, harbors and piers. The House provision covers infrastructure projects worth $64 billion, according to an Jan. 22 statement by Rep. Tim Ryan (D-OH). He said the provisions would ensure that the money in the stimulus package would be spent in the U.S. not in India or China. Ryan is a member of the Appropriations Committee and the House steel caucus who supports the provision initially sponsored by Rep. Pete Visclosky (D-IN) and approved unanimously by the House Appropriations Committee on Jan. 21. Sen. Byron Dorgan (D-ND) offered his Buy America and Buy American provisions included in the version of the stimulus package approved by the Senate Committee on Appropriations on Jan. 27 by a 21-9 vote. His amendment includes the Visclosky provisions, but go further by requiring that U.S. manufactured goods must be used in the infrastructure projects covered by the bill. In a Jan. 21 letter sent to House Speaker Nancy Pelosi (D-CA) and House Minority Leader John Boehner (R-OH), 53 House members, including 46 Democrats and 7 Republicans, said the provision should be included in the stimulus package. It makes “sure that American taxpayer dollars are used to create American jobs in America -- not Chinese jobs in China,” the letter said.
“We cannot afford to spend hundreds of billions of dollars ... only to watch contractors and subcontractors turn around and send that money abroad,” the House members wrote. According to a Jan. 16 report by the Alliance for American Manufacturing, using only U.S. products in infrastructure projects would create an additional 77,000 jobs annually. Opponents made their case in a Jan. 22 letter to the House and Senate leadership signed by 15 business groups. They argued that the Buy America and Buy American provisions in the House and Senate would run counter to the Nov. 15 G-20 Joint Declaration commitment to “refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing [WTO] inconsistent measures to stimulate exports.” Under the House version of the stimulus bill, federal agencies must use American iron and steel provided they do not invoke several available waivers. Foreign iron and steel can be used if the use of U.S. steel “will increase the cost of the overall project by more than 25 percent,” or if iron and steel are “not produced in the [U.S.] in sufficient and reasonably available quantities and of a satisfactory quality.” Additionally, projects would be exempted from the provision if using U.S. iron and steel “would be inconsistent with the public interest,” according to the provision. One lobbyist said that the 25 percent threshold is a steep increase from the “Buy American Act” which allows the use of a foreign product if the same U.S. product exceeds the foreign price by 6 percent or more. He said this will increase the cost of the overall project by more than 25 percent. Subpart 25.204 of the Federal Acquisitions Regulations (FAR) states, “Unless the head of the agency specifies a higher percentage the contracting officer must add to the offered price 6 percent of the cost of any foreign construction material proposed for exception from the requirements of the Buy American Act based on the unreasonable cost of domestic construction materials.” A private-sector lawyer said that the 6 percent figure is a minimum requirement of the act and allows a higher percentage to be set. Supporters of the Buy America and Buy American provisions also point out that public interest waiver in the House and Senate stimulus bills will allow the U.S. to enact the provisions while still complying with its GPA obligations. This exception means that federal procurement officers do not have to apply the “Buy America” provisions to countries that have signed on to the GPA, according to private-sector lawyers. This would leave the Buy America restrictions in place for countries that have not signed the GPA, including China, India, Brazil and Russia and for which the U.S. has no market access obligations as a result.
These proponents also point out that the U.S. GPA obligations do not apply to many infrastructure projects within the stimulus package. Note 5 of Annex 2 of the GPA states that the agreement “shall not apply to restrictions attached to Federal funds for mass transit and highway projects.” Also, General Note 2 of Appendix 1 of the GPA states that GPA requirements do not apply to federal funds, if they are given to state governments even those 37 states that have agreed to be part of the GPA. Of those 37, 12 states have taken a further exemption on opening purchases of steel, coal and motor vehicles to foreign companies, a private-sector lawyer said. Thirteen states have not signed the GPA, which means they have no obligations under the agreement, proponents say. In a related effort, Rep. Larry Kissell (D-NC) on Jan. 28 introduced an amendment to the stimulus package that would require that any uniforms purchased by the U.S. Department of Homeland Security’s Transportation Security Administration must be made with 100 percent U.S. content The amendment would be an extension of the “Buy American” provisions in the Berry Amendment which requires the Department of Defense to grant preference to U.S.-made textile products. No companion legislation had been introduced in the Senate. -- Brian Scheid