Let USTR Do Its Job

Last week, the U.S. House of Representatives passed a bill funding the federal trade agencies that also called for more oversight of them, including the addition of language aimed at preventing the Office of the U.S. Trade Representative (USTR) from negotiating trade agreements that might open up the U.S. government procurement market to enterprises from other countries. The amendment language, part of the fiscal year 2015 Commerce, Justice, Science (CJS) Appropriations bill, consists of one sentence, “[n]one of the funds made available by this Act may be used to negotiate an agreement that includes a waiver of the ‘Buy American Act.’”

The 1933 Buy American Act (BAA) requires the U.S. federal government to prefer U.S. products for all goods, but not services. The BAA applies to goods acquisitions over the micro-purchase threshold of $3,000. Under the BAA, all goods for public use (articles, materials, or supplies) must be produced in the United States, and manufactured items must be manufactured in the United States from U.S. materials. The BAA creates a price preference that favors “domestic end products” from American firms in U.S. federal government contracts for:

• Unmanufactured products mined or produced in the United States;
• Manufactured products in which the cost of its U.S. components exceeds 50 percent of the cost of all components of the item AND the product is manufactured in the United States.

Based on the authority provided by the Trade Agreements Act of 1979, the President has the ability to waive the BAA within the terms of a reciprocal trade agreement. Typically, once a new free trade agreement (FTA) enters into force, USTR will implement this waiver by issuing a Federal Register notice. USTR has waived the BAA for eligible products in acquisitions covered by various trade agreements such as the World Trade Organization Government Procurement Agreement (WTO GPA, which includes 42 countries, most recently, Croatia), the North American Free Trade Agreement, and the Israeli Trade Agreement Act.  If no FTA applies, however, it means that in order for foreign goods to be purchased by the U.S. government, the comparable domestic good must fall under one of three waivers:

• Inconsistent with the public interest;
• There are insufficient or reasonably unavailable quantities of the domestic product or its quality is unsatisfactory;
• Costs 6 percent more than its foreign counterpart (12 percent for a small business).

The amendment language in the recent trade agency funding legislation, proposed by Rep. Alan Grayson (D-FL), is intended to block USTR from negotiating agreements such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP) that would provide foreign suppliers the same treatment as domestic companies when it comes to procurement of goods by the U.S. federal government. Functionally, the House wishes to tie USTR’s hands: more money for negotiating, but only agreements that Congress deems “acceptable.”

Open government procurement is a key element as part of a successful and innovative trade regime, as ITIF has noted several times. In fact, much of the draw of both the TPP and the T-TIP is how they would open up foreign government procurement markets to U.S. manufacturers. This amendment language not only signals a double standard on the part of the United States (you have to open your markets, but we won’t open ours), but it also makes it clear that the House has some serious opposition to the new trade agreements under negotiation. Given the lack of fast track negotiating authority, it is becoming more evident every day that passing the T-TIP and the TPP might be extremely difficult, despite their importance.

Though there is still time to remove or alter the language in a potential conference committee on the CJS bill, the intentions of the House are clear: don’t negotiate without our approval. Unfortunately, this makes little to no sense — countries typically only negotiate trade with the United States because of the existence of an independent agency like USTR. The thought of negotiating with a divided and chaotic Congress is terrifying for Americans, let alone foreigners. Tying USTR’s hands like this is tantamount to cutting off the ability of U.S. trade negotiators to do their jobs.

Interestingly enough, the BAA  is known (in addition to the Smoot-Hawley Tariff Act) as one of the factors worsening the Great Depression for Americans because of its shortsighted approach to the growth fostered by free trade. Apparently the House needs to review its history, because forcing USTR to close the government procurement market to international companies is just repeating our old economic mistakes.