Commentary | Economic Growth

Buy American and the Recovery Program: Now What?

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In February 2008, the U.S. Air Force stunned the aerospace industry, many members of Congress, and thousands of Boeing workers in Washington State and Kansas when it awarded its $35 billion contract to build a midair refueling tanker to the European Aeronautic Defense and Space Company and Northrop Grumman. As House Speaker Nancy Pelosi asked, did the Pentagon give “sufficient consideration to the impact of the contract award on jobs in America…”?   The answer, according to an assistant secretary at the U.S. Department of Defense was that the Air Force gave it no consideration at all.  With job losses reaching epic numbers and Congress debating an economic recovery package that will provide billions of dollars to rebuild the U.S. infrastructure, such consideration must be part of government spending decisions.

“Jobs” should be the mantra for any policy maker looking to restore the nation’s economy. As jobs are eliminated month after month, consumption is falling, retail sales are shrinking, more homes are going to foreclosure, and tax revenues are declining sharply. Having surged to 8.1 percent this past month, the unemployment rate is expected to climb still higher. The American Recovery and Reinvestment Act (ARRA) will help, but Congress needs to find more ways to prime the pump and create American jobs now.

The U.S. government has for many years spent hundreds of billions of dollars a year on private sector labor, goods, and services.   Now that Congress has enacted the economic recovery program, billions more will be spent on equipment, labor, and services for “shovel-ready” projects involving our nation’s infrastructure.  Such government expenditures ought to maximize efforts to reinvigorate the manufacturing sector, which has been decimated over the past few years. This won’t happen unless the President and Congress implement the recovery program by utilizing strong measures to ensure that expenditures directly contribute to domestic employment. As past experience indicates, little or no consideration is usually given to directing government spending in a way that will promote the employment of U.S. workers. Unfortunately, the EADS-Northrop Grumman deal is more the rule than the exception.

The concept of using government programs to directly promote job creation is hardly novel. One of the government responses to the Great Depression was the enactment of the Buy American Act in 1933, which required the federal government to support domestic workers by purchasing goods made in the U.S.   The Act states:

“Notwithstanding any other provision of law, and unless the head of the department or independent establishment concerned shall determine it to be inconsistent with the public interest, or the cost to be unreasonable, only such unmanufactured articles, materials, and supplies as have been mined or produced in the United States, and only such manufactured articles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in the United States, shall be acquired for public use…”  41 USC Sec. 10(a)

Domestic sourcing requirements like those in the Buy American Act are critical to our recovery, and Congress should be applauded for including them in the ARRA. 

It is not adequate, however, merely to adopt well-intentioned domestic sourcing laws.  Despite its intent, vaguely written waivers to the Buy American Act create huge loopholes through which jobs can be exported to other countries – paid for by U.S. taxpayers. At present,  grounds for waivers include: a finding that the cost of the domestic end product would be unreasonable without a waiver, that domestic end products are not reasonably available in sufficient commercial quantities of a satisfactory quality; or that a domestic preference would be inconsistent with the public interest. Notably, the impact of a waiver on U.S. employment is not a factor in determining whether to grant a waiver. This is particularly problematic with respect to waivers based on “public interest” given that a waiver’s impact on reducing U.S. employment could undermine the public interest rationale on which the waiver is based. Thus, a concise definition is needed to determine what is “inconsistent with the public interest,” and this must take into account both short and long term impacts on domestic employment.

The waiver process should also be improved by clarifying the term “unreasonable costs.” The definition of this term should be restrictive enough to give most domestic bidders preference over their foreign competitors.  The cost analysis should exclude from consideration factors related to start up costs for domestic production.  Further, federal agencies should be required to determine whether domestic production could be initiated to meet procurement needs and how adding to global competition and supply would impact the long term cost analysis.

Products should also be required to be at least 75 % U.S.-made in order to qualify under the Buy American Act as domestic. (Content is generally 50 % under current law.)  This requirement should act as an incentive to contractors to initiate domestic production, as well as to bring offshored work back home. Domestic content calculations should also be limited to tangible items such as raw materials, production, components, parts, and assembly.  Costs associated with non-tangible items such as intellectual property rights and patent rights, should be excluded.  Current domestic content requirements are vague, reflect a myriad of interpretations, lack uniformity, and do not always comport with a common sense understanding of “made in America.”

Federal agencies and state and local governments must be held accountable for their decisions with respect to domestic sourcing, particularly if a decision to waive domestic sourcing involves funds provided by the newly enacted stimulus package.  Public reporting through the Federal Register and timely postings on public websites like Recovery.gov should be required every time a waiver of domestic sourcing is requested.  Reporting requirements should also be imposed with respect to decisions on these waiver requests. The government should use its central website for posting federal, state, and local waiver requests as well as the determination of those requests.  In addition, the number and details (e.g., category of job, pay rate, location) about jobs that are supported by federal funding should be publicly reported on the central website. Precise employment information of this nature is critical for the government to determine if its efforts are contributing to sustainable job creation, one of the overall goals of the recovery program.

The federal government needs to embrace wholeheartedly the goal of creating good jobs in the United States.  Including domestic sourcing requirements, like those reflected in the Buy American Act, strengthening enforcement of such requirements, and creating transparency in all aspects of the program will go a long way towards achieving that goal and strengthening the role of government as an engine of economic growth.

Owen E. Herrnstadt is Director of Trade and Globalization for the International Association of Machinists and Aerospace Workers.


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