Paul J. Carrier
WMU-Cooley Law School
Not to be forgotten is a side agreement of the World Trade Organization calling on signatories to offer equal access to government procurements on a reciprocal basis with benefits to all signatories (the “most favored nation” idea). This is a plurilateral agreement, binding only on its signatories (the number of signatories currently stands at 21 parties, made up of 48 countries – the European Union is one of the multi-country blocs – and there are 35 additional WTO members that are observers expecting ultimately to become full members). The starting point is zero, and signatory states add sectors and projects in their nation-specific annexes to the Government Procurement Agreement (“GPA”). One nation could, for example, open up the supply purchases of a government administrative entity (e.g., office supplies purchased by the Department of Education) in return for access by US bidders for a key sector (e.g., tractors purchased by a Ministry of Agriculture). Typically negotiated bi-laterally, all signatories and bidders from their country benefit from these concessions and seek to open government purchasing markets to international bidders on the basis of openness, transparency, and non-discrimination. Explanations, the actual text, the signatories’ annexes organized into seven groupings, and other information is readily available at a WTO website. This is a different method to even the playing field for international bidders from the tariff rules in the General Agreement on Tariffs and Trade, which called for nations to “pony up” tariff commitments on virtually all products, with the gradual reduction of rates during subsequent rounds of tariff negotiations (again on a “most favored nation” basis).
Because each signatory’s commitment starts at zero and is augmented by adding procurement opportunities to the respective annexes, nations are permitted to have “Buy National” laws and regulations up to the point where these would run afoul of commitments that have been undertaken. The United States has long had a “Buy American Act” for federal procurements.
The concern about renewed vigor of “buy national” policies is that it cuts against the very purpose of the GPA – the gradual but continued ratcheting in favor of further openness of national government procurement markets. Protectionism in any form tends to chill international relations and international trade, and this could actually lead to higher costs to taxpayers for the lack of robust competition. To be sure, there are some areas such as defense, where protectionism stems from considerations of national security or similar. However, a moratorium on international bidders for 2,500 new desks earmarked for the Internal Revenue Service may appear to be unduly cautious.
It has been reported in the media that President Biden has signed an Executive Order calling for the agency in charge of federal procurement to both raise the percentage of US-sourced content in order to be considered as an “American” product and to increase the level of preference afforded to U.S. bidders, i.e., the amount by which a U.S.-based bid may exceed bids from foreign bidders while still being treated on parity. As an example, a domestic price preference of 10% would treat an $11,000 bid from a U.S. bidder as equivalent to a bid of $10,000 from a foreign bidder. The numbers for both forms of preference are not yet decided.
While strengthening the national economy and resuscitating domestic manufacturing are laudatory goals, fears of protectionism will wend their way through the international economy and likely lead to countermeasures by other nations. Whether on balance the potential losses due to other nations’ responses is less than the boost to the national economy (for example, how many US companies will get shut out of foreign markets in response?) remains to be seen. The possible responses are legion, from preventing US insurance firms from operating in a foreign country, to higher taxes or new restrictions on repatriation of profits, or even a tightening of standards for U.S. bidders on foreign countries’ government procurement projects. These are early days yet, but thought should be given to the potential responses over the new policy.
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Paul J. Carrier is a professor of law at WMU Cooley Law School’s Tampa Bay campus focusing on commercial law and international law. He earned a Master of Laws in International and Comparative Law from the Georgetown University Law Center, worked as an international transactional associate for two major international firms, and has taught law as a Fulbright Senior Scholar in Slovakia and Serbia before joining the faculty at the law school.
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