EPI: Closing loopholes in Buy American Act could create up to 100,000 U.S. jobs

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By closing loopholes in the Buy American Act, the 21st Century Buy American Act will increase demand for U.S. manufactured goods and create at least 60,000 to 100,000 U.S. jobs. The Buy American Act requires “substantially all” direct purchases by the federal government (of more than $3,000) “be attributable to American-made components.” However, there are a number of exclusions or loopholes in the Buy American Act. The single largest is an exception for “goods that are to be used outside of the country,” and the 21st Century Buy American Act includes provisions to close it. In addition, current regulations interpreting the Buy American Act state that “at least 50 percent of the cost must be attributable to American content,” which can reduce net demand for American made content.

[Reposted from the EPI site  |  Robert Scott  |  November 20, 2015]

Between 2010 and 2015, the “goods used outside of the country exception” was used to purchase $42.3 billion in goods that were manufactured outside of the United States, an average of $8.5 billion per year.1 The 21st Century Buy American Act would require most or all of those goods to be U.S. made, increasing demand for U.S. manufactured goods by up to $8.5 billion per year.2 Although labor markets have improved in the United States since the recession, there remains substantial slack and 2.6 million jobs were still needed to catch up with growth in the potential labor force in September 2015. I assume, based on recent research by my colleague Josh Bivens (Table 5) that wages earned by new manufacturing workers will support a macroeconomic multiplier of 1.6 in the domestic economy over the next year.3 I also assume, based on total GDP and employment levels in 2014 that a 1 percent increase in GDP adds 1.3 million jobs to the economy. Thus, the $8.5 billion increase in spending on domestic manufactured goods (with 100 percent domestic content) would increase GDP by $13.6 billion (0.08 percent), creating up to 100,000 new jobs in the domestic economy.

 

These are rough estimates based on well-known macroeconomic relationships. If labor markets continue to improve then the macroeconomic multiplier will shrink, but S. 2127 would continue to support tens of thousands of jobs in manufacturing and other industries supported by demand for manufactured products.

These estimates are conservative because they do not include the impact of an additional element of the 21st Century Buy American Act, which would also increase the domestic content of all purchases covered by the Buy American Act to 60 percent. This much needed rule change would ensure that at least 60,000 domestic jobs would be created by the 21st Century Buy American Act over the next year by closing the “goods used outside of the country exception.” In addition, this rule change would also increase the demand for American-made manufacturing content for all manufactured goods purchased under the Buy American Act (which averaged over $160 billion per year between 2010 and 20154).

The 21st Century Buy American Act is smart manufacturing policy and a good first step towards rebuilding American manufacturing. Its passage would set the stage for bi-partisan cooperation on fundamental reforms such as eliminating currency manipulation, which could create 2.3 million to 5.8 million U.S. jobs, including up to 2.3 million jobs in manufacturing. Both are critically needed to restart the recovery of manufacturing employment, which has added no net jobs since January 2015.

 


1. Analysis of Federal Procurement Data System, personal communication from the office of Senator Chris Murphy, October 22, 2015.

2. S. 2167 contains exceptions for “national security reasons,” and for purchases that would be “more than 50 percent more expensive” for the Federal Agency making the purchase, which I assume would apply to only a small proportion of the subject purchases.

3. This is the multiplier Bivens uses for infrastructure spending, which is similar to manufacturing in its impact on the domestic economy. Both support relatively high wage jobs in manufacturing (for both types of spending) and in construction (for infrastructure). High wages in turn support high levels of repending in the domestic economy, which generates large macroeconomic multipliers.

4. Personal communication from the office of Senator Chris Murphy, October 22, 2015.

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  • commented 2015-12-04 23:02:38 -0500
    55 Countries whose products enjoy waivers of Buy American requirements in US government procurement:

    Country Basis of Waiver US Statute

    Armenia WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Aruba (Netherlands) WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Australia Australia FTA  United States-Australia Free Trade Agreement Implementation Act (Pub. L. 108-286)
    Austria WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Bahrain Bahrain FTA United States-Bahrain Free Trade Agreement Implementation Act (Pub. L. 109-169) 
    Belgium WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Bulgaria WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Canada WTO GPA; NAFTA Uruguay Round Agreements Act (Public Law 103-465); North American Free Trade Agreement Implementation Act of 1993 (19 U.S.C. 3301)
    Chile Chile FTA United States-Chile Free Trade Agreement Implementation Act (Public Law 108-77)
    Colombia Colombia FTA United States-Colombia Trade Promotion Agreement Implementation Act (Public Law 112-42)
    Costa Rica CAFTA-DR Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (Pub. L. 109-53)
    Croatia WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Cyprus WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Czech Republic WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Denmark WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Dominican Republic CAFTA-DR Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (Pub. L. 109-53)
    El Salvador CAFTA-DR Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (Pub. L. 109-53)
    Estonia WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Finland WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    France WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Germany WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Greece WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Guatemala CAFTA-DR Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (Pub. L. 109-53)
    Honduras CAFTA-DR Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (Pub. L. 109-53)
    Hong Kong China WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Hungary WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Iceland WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Ireland WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Israel WTO GPA; US-Israel Free Trade Area Agreement Uruguay Round Agreements Act (Public Law 103-465); United States-Israel Free Trade Area Implementation Act of 1985 (19 U.S.C. 2112 note)
    Italy WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Japan WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Latvia WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Liechtenstein WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Lithuania WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Luxembourg WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Malta WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Mexico NAFTA North American Free Trade Agreement Implementation Act of 1993 (19 U.S.C. 3301)
    Morocco Morocco FTA United States-Morocco Free Trade Agreement Implementation Act (Pub. L. 108-302)
    Netherlands WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Norway WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Oman Oman FTA United States-Oman Free Trade Agreement Implementation Act (Pub. L. 109-283)
    Panama Panama FTA United States-Panama Trade Promotion Agreement Implementation Act (Public Law 112-43)
    Peru Peru FTA United States-Peru Trade Promotion Agreement Implementation Act (Pub. L. 110-138)
    Poland WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Portugal WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Romania WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Singapore WTO GPA; Singapore FTA Uruguay Round Agreements Act (Public Law 103-465); United States-Singapore Free Trade Agreement Implementation Act (Pub. L. 108-78)
    Slovak Republic WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Slovenia WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    South Korea WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Spain WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Sweden WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Switzerland WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    Taiwan WTO GPA Uruguay Round Agreements Act (Public Law 103-465)
    United Kingdom WTO GPA Uruguay Round Agreements Act (Public Law 103-465)

    Additional countries with PENDING waivers of Buy American requirements in US government procurement:
    China WTO GPA Negotiating accession to WTO GPA
    Jordan WTO GPA Negotiating accession to WTO GPA
    Moldova WTO GPA Negotiating accession to WTO GPA
  • commented 2015-12-04 20:33:45 -0500
    Introduction of the 21st Century Buy American Act seems a positive step towards restoring the domestic manufacturing that is essential to reviving prosperity for our citizens. But I am concerned that, as I will explain below, the bill as it is now written is mostly symbolic and may not substantially improve the domestic content of our government procurement that has been undermined by our larger trade policy. And of course even if Congress were to restore an effective “Buy American” policy for government procurement, without fixing our trade policy now resulting in huge merchandise trade deficits and off-shoring of much of our manufacturing, the much larger private sector consumption of excessive imports will continue and our nation’s historic economic decline will also continue.

    Why do I say this bill is mostly symbolic and may not substantially increase domestic content in government procurement? Because the Buy American Act of 1933 (and thereby its potential revisions by the 21st Century Buy American Act) seems to be largely superseded by the 1979 Trade Agreements Act and by the participation of the USA in the WTO Agreement on Government Procurement, which became US law through the Uruguay Round Agreements Act. Those laws governing our foreign trade require the President (and his appointees such as the USTR) to waive substantial portions of the Buy American Act in order that products of foreign countries be considered equal to products of the USA if those countries are signatories to the WTO Agreement on Government Procurement (GPA) or trade agreements (FTAs) entered into by the USA.

    For example, Article III of the WTO GPA says:

    [EXCERPT]:

    With respect to all laws, regulations, procedures and practices regarding government procurement covered by this Agreement, each Party shall provide immediately and unconditionally to the products, services and suppliers of other Parties offering products or services of the Parties, treatment no less favourable than:

    (a) that accorded to domestic products, services and suppliers; and

    (b) that accorded to products, services and suppliers of any other Party.

    [END EXCERPT]

    Most of our FTAs contain similar language.

    I have compiled a list of 55 countries whose goods are entitled to waivers of the Buy American Act based on their being signatories to either the WTO GPA or an FTA with the USA. As of December 4, the USTR website also notes there are 10 more countries now in the process of acceding to the WTO GPA, including 3 with which we do not have an FTA waiver of “Buy American in our government procurement: China, Jordan and Moldova. [We do have FTAs with Jordan and Moldova now, but I cannot find any waiver of government procurement requiring domestic content.] That process would increase our “Buy American waiver” list to 58 countries, with China likely to become a huge source of additional imports under our government procurement.

    And so in order for this bill to be genuinely effective at restoring genuine a “Buy American” policy in our government procurement, rather than merely symbolic, it should be amended to require revision of the Trade Agreements Act of 1979 and the Uruguay Round Agreements Act and the Federal Acquisition Regulations System. These laws and regulations should all be amended to make the 21st Century Buy American Act and the Buy American Act of 1933 supreme over any FTA or treaty or any other international agreement. Until then, the 21st Century Buy American Act seems mostly symbolic and likely to be ineffective.

    Will Wilkin
    Deputy Director
    Balanced Trade Associates
    www.balancedtrade.us