Buy American Order A Good First Step: Enacting EO’s Goals Requires President Biden to End 60 Nations’ Trade-Pact Buy American Waivers

Today, President Joe Biden signed an executive order to start the process of strengthening Buy American policies. Lori Wallach director of Public Citizen’s Global Trade Watch issued the following statement.

“Today’s order is a good first step that can help rebuild our nation’s economic and health resilience, promote innovation and create American jobs if it leads to the many Buy American loopholes and waivers actually being eliminated and domestic content rules actually being strengthened.

“Thanks to past presidents granting a trade-pact waiver to Buy American, today billions in U.S. tax dollars leak offshore every year because the goods and companies from 60 other countries are treated like they are American for government procurement purposes.

“If the Biden administration’s planned stimulus funds are to be reinvested in the U.S. to rebuild our resilience and create jobs, then the massive trade-pact loophole to Buy American needs to be closed immediately. Otherwise billions will leak out in offshored government procurement contracts. The Biden campaign platform plans to change regulations and trade agreements to make sure that the U.S. and our allies can use domestic taxpayer dollars to spur investment at home was visionary with respect to this problem.

Today’s executive order identifies what needs fixing. To deliver on the order’s goals, cross-agency standards must be implemented so that agencies are not waiving Buy American rules because an import is slightly cheaper or allowing goods with low U.S.-made value to qualify for domestic procurement preferences. As well, the administration needs to create new ways to recruit small and medium sized manufacturers to produce the goods the government needs, rather than regularly declaring that no domestic goods are available and waiving Buy American rules.

BACKGROUND:

More details are available in this briefing paper, which explains:

• Firms and products from 60 nations with which the United States has trade pacts have been given the same access to U.S. government contracts as domestic firms and goods for all but the lowest-value government contracts. This Buy American waiver is enacted by regulation. Congress delegated authority to the president to change the waiver list at any time. (19 U.S.C. 2511) 
• The current trade-pact waiver policy offshores our tax dollars rather than investing them to create jobs and innovation at home. These Buy American waiver applies to subsidiaries of firms based in countries that have not signed agreements, such as China, and have not provided reciprocal access as long as a subsidiary is operating in a country that has a signed a U.S. trade pact. These limits on procurement policy apply to most U.S. federal purchases, with limits for U.S. defense agencies and some specific products listed in each trade deal.
• Today, products from and firms in these 60 countries get treated as if they were American under  trade-pact Buy American waivers: Armenia, Aruba, Australia, Austria, Bahrain, Belgium, Bulgaria, Canada, Chile, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Dominican Republic, El Salvador, Estonia, Finland, France, Germany, Greece, Guatemala, Honduras, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxemburg, Mexico, Moldova, Malta, Montenegro, Morocco, Netherlands, New Zealand, Nicaragua, Norway, Oman, Panama, Peru, Poland, Portugal, Romania, Singapore, Slovak Republic, Slovenia, South Korea, Spain, Sweden, Switzerland, Taiwan, Ukraine, UK.
• Even if the underlying notion of offshoring our tax dollars in exchange for providing opportunities for individual U.S. firms to obtain contracts from other governments was a good one, the way it is done in trade pacts is a losing proposition for the United States. A recent GAO report found that the United States opened twice as much procurement to foreign firms as the next five largest WTO GPA signatories combined (European Union, Japan, South Korea, Norway and Canada). In exchange for some U.S. firms getting some opportunities to bid on equal terms with domestic firms on contracts in other nations (most of which have much smaller amounts of procurement), almost all U.S. government contracts are made available on terms equal to U.S. firms for all firms operating in 60 other countries.
• These constraints are enacted through a waiver of Buy American and other domestic procurement preference policies through regulation, not by statute. The Trade Agreements Act gives the president discretionary authority to waive domestic procurement preferences, but does not require a waiver. This waiver authority has been delegated to the U.S. Trade Representative (USTR). USTR’s practice is to add new trade agreement countries or countries joining the WTO procurement agreement to a list found at 48 CFR 25.400.
• Setting limits on how our democratically elected federal and state governments can spend our tax dollars on procurement was not a traditional focus of trade agreements. U.S. firms that offshored production did not want to be excluded from lucrative U.S. government contracts. They pushed for trade pacts to include rules that required companies operating in trade partner countries to be treated like U.S. firms – and foreign-made goods to be treated as if they were made in America.
• The Procurement Act of 1949 gives a U.S. president broad powers to enact “policies and directives” for federal contracting. President Lyndon Johnson used this authority to issue an executive order in 1965 to prohibit contractors from discriminating against any of their employees – not just those performing federal work – on grounds of race or gender. President Barack Obama used this authority to set minimum wage and sick leave entitlements for federal contract employees.
• The U.S. government has a long tradition of using its contract spending, which was more than $600 billion in 2019, to promote national policy goals. For instance, a share of federal government contracts must be awarded to small businesses and women- and minority-owned firms; to qualify for government construction projects, firms must agree to pay workers prevailing wages; and the Buy American Act in effect since the Roosevelt administration requires preferences for purchase of American-made products. Indeed, the president has the authority under the Trade Agreements Act of 1979 to ban altogether government purchase of goods from countries such as China that have not signed trade pact procurement agreements.