ON: Costs and Benefits to U.S.

Industry of
U.S. International Government Procurement Obligations for
Report to the President on Buy American and Hire American
DOC 2017- 17553

TO: U.S. Department of Commerce and the

Office of the U.S. Trade Representative

BY: U.S. Chamber of Commerce

DATE: September 7, 2017

1615 H Street NW | Washington, DC | 20062

The Chambers mission is to advance human progress through an economic,
political and social system based on individual freedom,
incentive, initiative, opportunity and responsibility.
 The U.S. Chamber of Commerce is the worlds largest business federation
representing the interests of more than 3 million businesses of all sizes, sectors,
and regions, as well as state and local chambers and industry associations. The
Chamber is dedicated to promoting, protecting, and defending Americas free
enterprise system.

More than 96% of Chamber member companies have fewer than 100
employees, and many of the nations largest companies are also active members.
We are therefore cognizant not only of the challenges facing smaller businesses,
but also those facing the business community at large.

Besides representing a cross-section of the American business community

with respect to the number of employees, major classifications of American
businesse.g., manufacturing, retailing, services, construction, wholesalers, and
financeare represented. The Chamber has membership in all 50 states.

The Chambers international reach is substantial as well. In addition to 117

American Chambers of Commerce abroad, an increasing number of our members
engage in the export and import of both goods and services and have ongoing
investment activities. The Chamber favors strengthened international
competitiveness and opposes artificial U.S. and foreign barriers to international
business.
 The U.S. Chamber of Commerce appreciates the opportunity to present the following
comments to the International Trade Administration of the U.S. Department of Commerce and
the Office of the United States Trade Representative on the Costs and Benefits to U.S. Industry
of U.S. International Government Procurement Obligations for Report to the President on Buy
American and Hire American pursuant to Federal Register Notice 2017-17553.

The Executive Order on Buy American and Hire American directs the Secretary of
Commerce and the U.S. Trade Representative to assess the impacts of all U.S. free trade
agreements (FTAs) and the World Trade Organization (WTO) Agreement on Government
Procurement (GPA) on the operation of Buy American laws. The Chamber is pleased to offer
these comments to assist the Administration as it seeks:

to better understand how the U.S. government procurement obligations under all U.S.
free trade agreements and the GPA affect U.S. manufacturers and suppliers access to
and participation in the domestic government procurement process. In addition, because
reciprocal access to trading partners markets is an important motivation for including
government procurement obligations in U.S. free trade agreements and for the United
States membership in the GPA, the Department and the USTR are also seeking
information about the costs and benefits of these obligations to U.S. manufacturers and
suppliers competing in U.S. trading partners government procurement markets.

The U.S. Chamber of Commerce is firmly convinced that many Made-in-USA goods
and services are the best in the world. However, American companies and the workers they
employ do not simply want Americans to buy them; they want to sell their goods and services to
the 95% of the worlds consumers who live outside the United States as well. U.S. trade
agreements are extremely useful tools in the pursuit of this goal. Among other measures, these
agreements open opportunities for U.S. businesses in a global government procurement market
with an estimated annual size of $4.4 trillion, according to an estimate by the Government
Accountability Office. About one-third of this sum is covered by procurement provisions in the
GPA and/or U.S. FTAs.

On the other hand, limiting the reach of these agreements and forgoing new agreements
to open procurement opportunities for American businesses would be costly to U.S. workers and
businesses. U.S. law already includes extensive Buy American rules in a number of areas, such
as the use of U.S.-made iron and steel in transportation infrastructure, as the Trade Agreements
Act and U.S. trade agreements explicitly allow (see below). In sum, American workers and
businesses would be harmed if the United States were to extend the reach of Buy American
rules or unravel the trade agreements that help American companies secure procurement
opportunities abroad.

Background

For decades, the United States has sought to open new opportunities for U.S. goods and
services suppliers to compete on a level playing field for foreign government procurement.
Government procurement typically comprises approximately 10% to 15% of a countrys GDP.

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 The chief vehicle for achieving this goal has been trade agreements, beginning with the
GPA, which entered into force in 1981. It was revised and expanded substantially during the
Uruguay Round negotiations that led to the creation of the WTO. This new GPA entered into
force in 1996. In 2014, the GPA parties implemented another revision of the GPA that provided
U.S. goods, services, and suppliers with new opportunities to participate in central and sub-
central government procurement in the other GPA parties.

Today, the GPA applies to 19 parties covering 47 WTO members (counting the European
Union and its 28 member states, all of which are covered by the Agreement, as one party). The
agreements benefits are not extended to all WTO members but only to GPA members, thus
avoiding free riders.

The parties came to the various GPA negotiations with different priorities: For instance,
one might prioritize access to railway procurements, and another might focus on the water and
wastewater sector. The resulting agreement does not enforce a rigid, one-to-one opening of
opportunities but rather provides a balance of benefitsa rough reciprocityreflecting these
different priorities.

The United States also includes government procurement obligations in its free trade
agreements (FTAs) with the aim of ensuring that U.S. goods, services and suppliers will be given
fair and non-discriminatory opportunities to compete in the government procurement of U.S.
trading partners.

The underlying legal authorities are worth recalling, as USTR comments:

To implement U.S. obligations under the international agreements that cover government
procurement, the United States waives discriminatory purchasing requirements that
would otherwise be inconsistent with the international agreement. The Trade Agreements
Act of 1979 (TAA), as amended, authorizes the President to exercise this waiver with
respect to countries that become parties to the WTO Agreement on Government
Procurement (GPA) or another international agreement and will provide appropriate
reciprocal competitive government procurement opportunities to United States products
and suppliers of such products. Executive Order 12260 delegates the authority to
exercise this waiver to the U.S. Trade Representative.

In addition to providing access to foreign government procurement for U.S. companies

and the workers they employ, including procurement provisions in trade agreements helps ensure
greater competition in government bidding and the efficient use of taxpayer dollars. In other
words, this system helps the taxpayer obtain the best goods and services at the best price.

Costs and Benefits

This year, a group of Democratic senators has argued that including government
procurement in free trade agreements is a losing proposition, pointing to information on the
share of domestic procurement markets that different economies have opened to firms from other
GPA and FTA parties under those agreements. However, a discussion of these trade agreement

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commitments by itself is misleading. This is especially true with regard to the North American
Free Trade Agreement (NAFTA), the chief focus of the senators letter.

Information from the Federal Procurement Data System reveals that foreign firms secure
few U.S. procurements in practice. These data confirm that just one of the 50 largest contractors
to the U.S. government in FY 2016 was a foreign-headquartered firm (BAE Systems, a U.K.-
headquartered defense contractor whose U.S. affiliate employs nearly 30,000 American
workers). Just one Canadian company showed up in the top 100 contractors; no Mexican
companies appeared in the list.

In fact, across the entire federal government, just 2% of all contracts were secured by
foreign-headquartered companies in FY 2016. Of this small portion, about 80% were Department
of Defense contracts, nearly all of which went to the U.S. affiliates of British or other European
firms. It is worth noting that U.S. affiliates of foreign multinationals are incorporated in the
United States and as such need not rely on procurement provisions in international trade
agreements, being legally American in every respect.

Meanwhile, U.S. companies do good business in government contracts in Canada and

Mexico, thanks in large part to the access provided by the NAFTA. The case of Mexico is
particularly relevant as it is not a party to the GPA, making the NAFTA the sole applicable
agreement. In the WTOs 2017 Trade Policy Review of Mexico, the WTO Secretariat examined
Mexicos procurement practices and noted that Mexico maintains a 15% preference for Mexican
bidders over international bidders in cases where Mexico does not have a trade agreement on
government procurement:

3.181. Mexico still gives preferences to Mexican bidders in open international bidding.
These preferences only apply to those countries with which Mexico has no trade
agreement on government procurement. During the review period, the margin of
preference applied in open international bidding did not change and remains at 15% of
the lowest price in the domestic market for goods of Mexican origin in comparison with
imported goods

In other words, the NAFTA and its procurement chapter ensure that U.S. firms are treated
like Mexican firms and need not beat bids from Mexican firms by 15% to secure a procurement.

In sum, it is wrong to say that the NAFTAs procurement rules have stopped the U.S.
government from Buying American. Calls to void the procurement chapter in the NAFTA
would harm U.S. workers whose employers win foreign procurements. The same is certainly true
of the GPA and other U.S. FTAs.

Other Considerations

Abandoning procurement provisions in U.S. trade agreements to extend the reach of

Buy American rules could backfire in other ways. Recent history offers a cautionary tale.

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 When Congress approved the American Recovery and Reinvestment Act of 2009 (Public
Law 111-5), it included Buy American rules that stirred concern at home and abroad. The U.S.
Chamber applauded the inclusion of an amendment requiring that these rules be applied in a
manner consistent with U.S. obligations under international agreements.

This action largely resolved the issue at the national level, but for the first time federal
regulators forced Buy American rules onto states and municipalities receiving funds under the
Recovery Act. The result was red tape and confusion, leading to frustrating delays for so-called
shovel-ready infrastructure projects. Municipalities unfamiliar with these requirements were
obliged to confer with their lawyers to figure out how to comply. The goal of stimulating growth
and countering a sharp recession was frustrated. Project costs rose as well.

Moreover, the expansion of Buy American rules poses added difficulties for
procurements dependent on manufactured goods produced with inputs from global value chains.
For example, the $120 billion water and wastewater infrastructure sector depends on state and
federal procurement, with firms of all sizes taking part. The vast majority of inputs into drinking
water and wastewater infrastructure projects are already American-made, including pipe and
structural steel. This market, however, also depends on incorporating numerous specialized
pieces of equipment, a significant portion of which is produced through international production
and supply chains with other countries. Ironically, in the aftermath of the Recovery Act, many
U.S.-based manufacturers were prevented from bidding on projects because they found it
impossible to avoid sourcing at least a portion of their content from abroad.

This expansion of Buy American rules also invited foreign retaliation and threatened
U.S. access to crucial export markets and the American jobs they support. Chinese officials, for
example, cited the Buy American rules as a justification for their own discriminatory
indigenous innovation policies. Even Canadian provinces threatened to emulate the U.S.
moves.

Imposition of additional U.S. domestic preferences would likely result in similar

protectionist actions by current GPA members which would negatively impact key U.S.
industrial sectors whose exports support overseas government and commercial entities. One
example of a sector that would be affected is the U.S. aerospace industry, which contributed
$144 billion in 2015 in export sales to the U.S. economy. Notably, the aerospace industrys
positive trade balance of $82.5 billion that year was the largest trade surplus of any
manufacturing industry.

The U.S. Chamber released a study that found the cost of Buy American rules in the
Recovery Act was high. Entitled Trade Action or Inaction: The Cost for American Workers
and Companies (September 2009), it found that while Buy American rules in the Recovery
Act will create a limited number of U.S. jobs, the gains will quickly evaporate if other countries
implement buy national policies in their own stimulus programs. If foreign governments lock
U.S. companies out of just one percent of this total spending, the net U.S. job loss could surpass
170,000. U.S. companies large and small, operating in sectors from water and wastewater
infrastructure to the provision of IT products, make hundreds of millions of dollars in
procurement sales in Canada, Mexico, and elsewhere around the globe.

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 The Chamber expanded on this study, including a number of profiles of small
businesses negatively impacted, in The Cost of Buy American Mandates on American
Jobs (February 2010).

Finally, abandoning the procurement provisions in U.S. trade agreements and extending
the reach of Buy American rules would lead foreign companies to question whether America
will continue to welcome foreign investment. Such measures are at odds with efforts by the
federal government and many U.S. states to attract foreign investment to the United States
through programs such as SelectUSA and state-based analogues. Foreign companies that have
invested more than $3 trillion in the United States employ nearly 7 million American workers.
Extending the reach of Buy American rules risks sending a chilling signal to these firms and
suggests that some elements of their operations may be subject to discrimination even if they
invest in the United States.

Conclusion

The United States should learn from this experience. Abrogating commitments in current
U.S. trade agreements relating to procurement or extending the reach of Buy American rules
could put American jobs at risk. Expanding Buy American rules to new sectorsparticularly
to complex manufactured goods produced on the basis of global supply chainscan be
devastating. The Chamber shares the administrations goal of fostering long-term growth that
will promote job creation across all sectors of the U.S. economy and lead to greater prosperity
for the American people. We look forward to working with the administration to chart a
constructive path forward on these issues.

Contact: John Murphy

Senior Vice President for International Policy
U.S. Chamber of Commerce
jmurphy@uschamber.com
(202) 659-6000