State-Level Buy American Bills Seen As Both Common Sense and International Trade Violation in Waiting

“My impression is [there are] more than usual and making more progress than usual,” said NFTC President Bill Reinsch of state Buy American bills. Such legislation may have reached its public zenith a few years ago, when the “Great Recession” and “stimulus package” were part of the everyday vernacular, industry observers said. Reinsch said he did not know the exact number of bills introduced this session for states; a search on state political database OpenStates counted nearly a dozen introduced in 2013.

For each one, the NFTC sends a letter to the governor and pertinent state lawmakers, urging opposition to the bill. The letters say state Buy American legislation conflicts with the World Trade Organization’s plurilateral Government Procurement Agreement (GPA). The conflict could spark WTO sanctions against the U.S. as a whole, since the U.S. -- not individual states -- is the WTO signatory. ‘If somebody cheats, it’s the feds that are on the hook,” Reinsch said.

The GPA, which the U.S. signed onto in 1996, mandates nondiscrimination in government procurement. The agreement doesn’t necessarily apply across all aspects of government: Most countries exempt their Defense Departments, for example, due to national security concerns. The federal government can’t force the agreement upon states; they get to choose freely, and so far 37 U.S. states have (read the complete list here).

That includes Texas, Maryland and Arkansas, all legislatures that had Buy American bills introduced this year. Maryland’s passed both the House and Senate, though has not been signed by the Governor. Maryland’s bill -- like many other states -- includes a caveat that it should not be inconsistent “with the state’s obligations under any applicable international agreement to which the state is bound” (here).

“To me that defangs the whole thing,” Reinsch said. How states interpret the law, however, remains to be seen. “That’s why we’re going to be watching Maryland pretty closely.” So far, no state-level bill has caused any sort of WTO action. “We’re worried though,” Reinsch said.

Most of the bills also negate Buy American requirements should they raise project costs above a certain percent. Some restrict requirements to public works or transportation projects. “We’re not trying to tell private industry where they ought to be buying products,” said Kansas State Rep. Paul Davis. He introduced a bill mandating American products for taxpayer-funded government projects in February (here).

There are those who see these bills as “some form of protectionism,” said Davis, a Democrat and the Kansas House Minority Leader. But “we’re just restricting it to government expenditures.” Davis said WTO obligations are not a concern “I have heard from anybody” in crafting the bill, which he hopes to push through the legislature next year. “We’ve had a number of positive comments from republicans and democrats who see this as a really common sense thing to do.”

For Reinsch, however, the bills lead states into foreign trade territory, one in which they do not have authority. “[The] whole thing is an area where the federal government ought to control the field,” he said.

Alan Tonelson, research fellow at the U.S. Business and Industry Council, agrees. “We are strongly sympathetic with the state level initiatives,” he said. But the USBIC, which represents domestic manufacturers, is still not in favor of state Buy American bills.

“Not because we care a whit about these foolish international obligations, but because we care about the U.S. Constitution.” The constitution “clearly designates the federal government as this nation’s trade policy making agency,” Tonelson said. If states truly want to strengthen their economies, and the U.S. economy at large, they should refocus their efforts on changing federal trade policies, he said.

Buy American has a Long History; Future Trade Agreements Could Alter Policies

Buy American legislation has been around at the federal level since the mid-1930s; because the act predates the World Trade Organization, the requirements are grandfathered in and don’t put the U.S. at risk of trade violations.

The common debate over these bills is whether they help or harm the economy. Groups like the Alliance for American Manufacturing are vigorous defenders of Buy American, calling the domestic preference “a common-sense first step for policymakers seeking to rejuvenate the productive wealth-creating sector of our economy” (here). The U.S. Chamber of Commerce, meanwhile, fought Buy American provisions in the 2009 stimulus bill, saying they spawn red tape, higher costs and trade retaliation (here).

The GPA, meanwhile, was revised last March. The U.S. Trade Representative’s office said the revisions expand the procurement to provide U.S. goods, services and suppliers “with new opportunities to participate in central and sub-central procurement in the other GPA Parties” (here). So far, Liechtenstein is the only WTO country to have ratified the revised GPA.

The Trans-Pacific Partnership and proposed EU-U.S. agreement will likely include new government procurement policies. Those new trade pacts “would further limit the U.S. government’s legal authority to carry out the Buy American policies,” Tonelson said.

Reinsch said he didn’t know whether state-level Buy American initiatives will continue to grow, but “that’s what I’m afraid of. We’re writing each [state] to try and nip it in the bud.” -- Jessica Arriens