American call-center jobs may be one casualty of a pending Pacific trade deal that would allow U.S. federal contract work to be shifted to Malaysia, Vietnam and Brunei.
[Kathleen Miller| February, 08 2016 | Bloomberg]
Opponents of the 12-nation Trans-Pacific Partnership are seizing on the provision as an example of how the pact may help U.S. companies with overseas operations to cut costs when vying for their own government’s work, and hurt U.S. workers in the process.
“If you can pay workers $2 an hour, it’s a really easy way to achieve cost savings at the expense of American jobs,” said Dan Mauer, a legislative representative for the Communications Workers of America, a labor union with about 700,000 U.S. members.
The trade measure exposes sensitivities about jobs and the economy in a presidential election year. Outsider candidates -- especially Republican Donald Trump and Bernie Sanders on the Democratic side -- are appealing to populist anti-establishment voters, saying they’ll stand up for workers who risk losing their jobs because of trade agreements. Democratic contender Hillary Clinton also opposes the TPP.
The agreement, signed Thursday in New Zealand, allows companies in Malaysia, Vietnam and Brunei to receive the same treatment as American businesses when competing for many U.S. agency contracts. It may actually be more likely to help U.S. companies that have operations in those countries.
“For global American companies with operations in Malaysia and Vietnam, the benefit would be that they could have the additional flexibility of supplying a U.S. government contract from those locations,” said Marc Mealy, vice president for policy at the U.S.-ASEAN Business Council, an advocacy group for U.S. corporations operating in Southeast Asia.
The U.S. in 2015 awarded contracts totaling as much as $625 million for call-center work to companies including subsidiaries of General Dynamics Corp. and CenturyLink Inc.
The trade pact would also give U.S. companies better access to government contracts in the three Asian countries. The possible beneficiaries include General Electric Co., Motorola Solutions Inc., Microsoft Corp., Hewlett-Packard Co. and Cisco Systems Inc., according to an Obama administration official involved in negotiating the accord.
Still, the U.S. government procurement market, which typically awards more than $400 billion in contracts each year, dwarfs the roughly $37 billion in total contract spending by the national governments of Malaysia, Vietnam and Brunei combined, according to data from Public Citizen, a watchdog group that opposes the trade deal.
“Governments should retain the right to use fiscal policy to create jobs domestically when that is the policy priority,” Celeste Drake, an AFL-CIO trade and globalization policy specialist, said in an e-mail. The Pacific accord “limits that choice and expands the number of countries whose firms will get equal treatment with U.S. bidders, regardless of whether the U.S. has a verified recession or depression.”
The other countries that are part of the Pacific deal, including Japan, Mexico and Canada, are among more than 50 nations that are already eligible, through other agreements, for equal standing with American suppliers when competing for some U.S. government work.
The accord wouldn’t alter some directive designed to favor U.S. companies, including certain “Buy America” requirements attached to federal money for state and local transit, highway and water projects, sensitive Defense Department purchases, and programs designed to boost spending with veterans or small businesses.
Also still in place would be areas where the Southeast Asian countries’ cheaper labor markets might pose a significant threat to U.S. workers, such as the production of textiles or footwear for the military. State and municipal government contracting provisions favoring hometown companies would remain, at least initially.
Adelicia Cliffe, counsel for Crowell & Moring LLP in Washington, said many of her firm’s clients are watching the trade accord closely. The contracting clauses would especially help companies that make hardware and software information technology products, she said.
Circuit boards and microcomputers are not typically made in the U.S., though they are made in many Asian locations including Malaysia, Cliffe said. “To date, they’re either not selling those products to the U.S. government on contracts, or they’re doing a sufficient amount of work in the U.S. to substantially transform the foreign hardware into domestic products.”
Karan Bhatia, GE’s vice president of global government affairs and policy, and a former Deputy U.S. Trade Representative, said in a 2014 interview that the company made “very clear” to U.S. trade negotiators that domestic preferences are “bad policy.” The company doesn’t foresee the trade accord affecting its sourcing for U.S. federal contracts, GE spokesman Josef Skoldeberg said in an e-mail Thursday.
Fairfield, Connecticut-based GE received U.S. government contracts valued at as much as $1.7 billion during the fiscal year that ended Sept. 30, according to data compiled by Bloomberg, including more than $20 million for work abroad.
GE has about 1,300 employees in Malaysia, none of whom do manufacturing, Skoldeberg said. Their tasks include aircraft engine maintenance, as well as lighting and power projects, according to its website. In Vietnam, GE employs about 1,000 people to perform tasks including the production of wind turbine generators, Skoldeberg said.
Motorola, based in Schaumburg, Illinois, received $148.3 million in U.S. contract work last year, including $142 million planned for U.S. locations, with the rest slated for countries including Japan, South Korea and Kuwait.
The communications equipment company makes most of its non-U.S. products in Malaysia, according to its financial statements. It would be “logical” that the company could save money by producing commercial radios or other equipment in that location, said Keith Housum, a senior research analyst with Cleveland, Ohio-based Northcoast Research.
The U.S. government constitutes between 10 and 12 percent of Motorola’s business, he said.
Ellen Wichman, a Motorola spokeswoman, declined to comment on whether the deal could be used to help the company compete for U.S. contracts. The company supports the trade deal and is “exploring what all it means for our company,” she said in an e-mail.
Microsoft, based in Redmond, Washington, as well as HP and Cisco Systems are “very entrenched with the U.S. government,” said Daniel Ives, a senior analyst with FBR & Co. in New York.
The three tech vendors collectively won as much as $2.5 billion in U.S. government work last year, with roughly $2.4 billion slated for American locations, according to data compiled by Bloomberg. Representatives of all three companies declined to say whether the trade accord would prompt them to move U.S. government work to Malaysia, Brunei or Vietnam.
Ives said shifting work to Southeast Asia locations for the companies is unlikely to “move the needle,” although “incrementally here and there, though, it could add up.”
Workers from Agilent Technologies Inc., a Santa Clara, California lab-equipment maker, were approved for federal government aid in 2013 after they reported losing their jobs when Agilent sent manufacturing work to Malaysia from North Carolina, according to a Department of Labor online database.
Agilent got as much as $61 million in U.S. contracts last year, according to data compiled by Bloomberg. Company spokeswoman Victoria Wadsworth-Hansen declined to discuss whether the company might shift U.S. government work overseas if the agreement is approved.
It’s unclear when the U.S. Congress will consider whether to approve the trade deal. Republicans largely supported Obama’s push for legislation allowing fast-track completion of trade deals, but Senate Majority Leader Mitch McConnell, a Kentucky Republican, has said Congress shouldn’t vote on the Pacific deal until after the November election.
Senator Chris Murphy, a Connecticut Democrat, has said that weakening domestic preferences in U.S. contracting would undermine national security and reduce jobs.
“Congress can’t forbid companies from shipping jobs overseas, but we sure as hell shouldn’t help them do it,” Murphy said in a statement in 2015 after voting against legislation to speed consideration of trade agreements.