By Susan Kohn Ross
THE AMERICAN RECOVERY and Reinvestment Act of 2009 has caused a lot of hand-wringing because of its Buy American provisions. Is that concern warranted?
The initial reaction probably wasn’t, but that attitude is changing dramatically and quickly. The Recovery Act holds that as long as the bidder sources inputs from a country that is a signatory to the World Trade Organization’s Government Procurement Agreement or qualifies the foreign input under a free-trade agreement (except the specifically excluded Caribbean FTA), the end-product qualifies for Buy American purposes.
The fallout has started. China recently determined that domestic supplies are to be used whenever possible. Australian Trade Minister Simon Crean reacted swiftly by saying in a Dow Jones article, “This reported move by the Chinese underscores the danger of retaliation and a tit-for-tat trade war.”
Similarly, Canadian provinces and localities say they have lost opportunities because of the Buy American requirements. The Federation of Canadian Municipalities passed a resolution calling on “local infrastructure projects, including environmental projects such as water and wastewater treatment projects, (to) procure goods and materials required for the projects only from companies whose countries of origin do not impose trade restrictions against goods and materials manufactured in Canada.”
The Associated General Contractors of America opposes the requirements, citing the example of water-treatment facilities that use materials either made only overseas, or that cost considerably less than those produced domestically, a common conundrum. Contractors find it challenging to obtain certifi-
cations from subcontractors that all inputs are of American origin.
Given the current economy, everyone is looking to keep employees on the payroll and busy. But the circumstances force contractors to choose between accepting stimulus funds, and paying more for domestically made parts, or opting out of the assistance provided by the Recovery Act. They apparently don’t understand that not everything has to be made in the United States.
Some have suggested there is a backlash against imported goods in the U. S., but what qualifies as an American product? The Cadillac Escalade EXT and Chevy Malibu are assembled in the United States. Few would question their qualifying as American made, but what about the Ford Fusion, Mercury Milan and Lincoln MKZ? They are assembled in Mexico, but for American companies.
Should only products made in the U.S. be considered American or is a product American because the company that sells it is based in the U. S.? What about Toyota or Nissan cars assembled in the United States? They include foreign components, as do many Ford, GM and Chrysler vehicles.
Those who defend Buy American generally do so on t wo grounds. One is that taxpayer money should not be spent on foreign products. Second, the logic goes, using American inputs supports American jobs. While it is admirable to support American jobs, and the reason to want to do so is self-evident, there are four industries the United States has historically protected through high tariffs and non-tariff barriers such as quotas: automobiles, wearing apparel and textile products, footwear, and steel and steel products.
It is generally acknowledged that none of them is particularly competitive in today’s world market.
When was the last time you found a price-competitive American-made garment at your favorite store? Did you pay the difference and buy the American-made one?
Yes, it’s true, for example, that foreign steel is often less expensive than American-made steel, but at the same time, we are spending taxpayer money for these infrastructure projects. Shouldn’t the goal be to get the best return on investment? If you can build it just as safely but cheaper, shouldn’t we use the foreign-made inputs? Doesn’t the government have a fiduciary duty to get the best bang for the taxpayer buck?
While we seem to be closing our borders with the Buy American provisions, we are also opening them by providing opportunities for foreign investment. As an incentive for those thinking to put their money into America, the U.S. offers green card status to foreign investors (plus spouses and children under age 21) who invest in “troubled businesses,” thus preserving the jobs of American workers.
These are complicated issues and difficult times. We want foreign money, but seemingly not foreign products. Can this apparent contradiction be reconciled? A wealth of studies conclude that engaging in international trade generates more and higher-paying U.S. jobs, and provides quality and less expensive goods to consumers.
The argument in favor of Buy American can be reduced to the ever-popular 30-second sound bite. Where are the Business Roundtable and others in explaining why international trade is good for America and supports American workers? How else will the economy really recover? JOC
Susan Kohn Ross is a partner in the law firm at Rodriguez O’Donnell Ross in Los Angeles. She can be contacted at skross@la.rorlaw.com.
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