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Buy American: Creating or Costing U.S. Jobs?

November 17, 2009 // 8:00am10:00am
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Buy American has hurt the U.S. economy and cost the country jobs, said Dawn Champney of the Water and Wastewater Equipment Manufacturers Association at an event hosted by the Canada Institute. The program explored the effectiveness of the controversial Buy American provision included in the Obama administration's stimulus package. The provision states that only U.S. iron, steel, and manufactured goods may be used in construction projects funded by the stimulus bill. The clause has prompted considerable concern in Canada that such measures will disrupt cross-border trade with its largest trading partner, and could be a sign that the United States was leaning toward protectionism to help its ailing economy.

Two Opposing Views

Champney explained that Buy American has greatly disrupted the U.S. private sector's ability to begin important infrastructure and other projects. Though the United States has historically used similar provisions in the past, said Champney, the Buy American provision included in the stimulus bill features much broader compliance requirements. This expansion is most noticeable for projects carried out at the municipal level. Under Buy American, noted Champney, municipal governments are currently required to complete stimulus projects using 100 percent domestic materials. Similar legislation in the past has required a far smaller compliance percentage.

To make matters worse, noted Champney, state governments do not possess the staff capacity or training to deal with complicated regulatory procedures such as Buy American. The result has been the delay of countless stimulus projects. According to Champney, $3.43 billion worth of stimulus projects in the water sector alone have been delayed as a result of Buy American. Delaying these projects has cost the United States 120,000 jobs and an estimated $21 billion of economic activity. Champney maintained that while companies can apply for Buy American waivers, very few waivers have actually been submitted because most manufacturers consider them time consuming or worse, fear a public backlash for using foreign materials.

In contrast, Bob Baugh of the AFL-CIO made the case that Buy American is in fact creating jobs and is an essential component to the U.S. economic recovery. He said that the current economic crisis presented the United States with a rare opportunity to revitalize the country's manufacturing sector, which has lost 5.5 million jobs since the year 2000. He lauded the government's efforts to use stimulus money to create green jobs that will help the United States transition to a low-carbon economy. Baugh described the inclusion of Buy American as necessary to ensure that the United States create and retain jobs in manufacturing that will help lead the country out of difficult economic times: "...[I]f you recycle dollars within your own economy, you will create more direct and indirect employment."

Baugh also noted that the collapse of the auto sector forced the United States to ask the difficult question of whether or not the country needs an auto industry. The government's efforts to save the auto industry reflect just how valuable America's auto sector is to the country's manufacturing base and the overall economy, he noted.

Though Buy American has sparked a fierce policy debate with U.S. trading partners and some sectors within the United States, Baugh stressed that the provision is legal under the WTO Government Procurement Agreement. With respect to Canada, Baugh maintained that many of the trade problems associated with Buy American would be neutralized if Canadian provinces agreed to the WTO procurement agreement. He also said that while much attention has been given to the United States' Buy American provision, it is important to remember that most other countries are taking similar measures to stimulate their own economies.

A Perspective from the State Level

U.S. states are in the midst or their worst fiscal crisis in years, said Christopher Whatley of the Council of State Governments. States are projected to have $350 billion in cumulative deficits over the next two fiscal years. While the stimulus package has helped blunt the state crisis considerably, it still falls far short of what is needed to bring states out of their current financial woes.

Whatley said that the stimulus package was designed so that states are the key drivers of spending the funds and implementing the bill's provisions. He echoed Champney's point that such a design has created major problems because states do not have the necessary staff or institutions needed to implement U.S. trade policy on their own. He recommended that Canadian provinces, which have a much greater capacity to handle procurement issues, should offer to advise state governments how best to manage Buy American.

Despite delays and confusion over implementation, Whatley maintained that the U.S. government is now entering a three month peak period for awarding government contracts funded through stimulus money. He noted that the stimulus package could have been much improved and would have had a longer term impact if it had included more than the modest amount of $40 billion for infrastructure.

Jeffrey Schott of the Peterson Institute for International Economics noted that while Buy American is legal under WTO procurement procedures, the provision is still a form of protectionism that has unfortunately served to raise the cost of public procurement for those projects using U.S. stimulus funding. Schott said that Buy American greatly complicated and delayed the procurement process to the extent that the United States missed a real opportunity to help Americans through difficult economic times when they needed it the most. He stressed that the United States runs a great risk of retaliation from other major trading partners over Buy American, and noted that similar clauses are already appearing in other proposed U.S. legislation, which could have serious ramifications for the well-being of an already fragile U.S. economy.

By Ken Crist
David Biette, Director, Canada Institute

  

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