The business of buying American: Public procurement as trade ...

Review of International Political Economy 13:5 December 2006: 701–724

The business of buying American: Public procurement as trade strategy in the USA Linda Weiss Discipline of Government and International Relations, University of Sydney, Sydney NSW 2006, Australia and

Elizabeth Thurbon School of Politics and International Relations, University of New South Wales

ABSTRACT For all its importance as a policy tool around the globe, the study of public procurement has barely begun. The role of government purchasing in trade strategy, in particular, has been virtually ignored in the international political economy literature. We argue that government procurement increasingly serves as a weapon in the US arsenal of tools for sponsoring national champions, for securing the domestic front against foreign competitors, and for promoting exports via the penetration of foreign procurement markets. Whilst vigorously pressing for enlargement of procurement markets, the US is distinctive in having the most aggressive ‘buy national’ programs, which are enshrined in law and enforced in both formal and informal ways. Also at odds with its own liberal dictates, government procurement in the US involves a considerable amount of proactive state involvement and government– business cooperation.

KEYWORDS Trade strategy; United States; government procurement; Buy America Act; state activism; government–business cooperation.

1. INTRODUCTION In recent decades, the US has worked relentlessly through multilateral and bilateral channels to extend the coverage of international trade rules into domestic regulatory domains, from intellectual property protection to quarantine controls and foreign investment regulation.1 In articulating Review of International Political Economy C 2006 Taylor & Francis ISSN 0969-2290 print/ISSN 1466-4526 online http://www.tandf.co.uk DOI: 10.1080/09692290600950597

R E V I E W O F I N T E R N AT I O N A L P O L I T I C A L E C O N O M Y

the desirability of ‘harmonising’ domestic regulations with ‘international’ rules, US policymakers have drawn heavily on the language of competitive liberalism; the promotion of openness, transparency, and nondiscrimination in order to secure a level playing field for US firms in foreign markets.2 The arena of Government Procurement is illustrative of this discursive trend. According to US policymakers, American firms are currently disadvantaged in foreign government procurement (GP) markets by a host of formal and informal rules aimed at privileging domestic firms, from the subsidising of local companies to the placing of onerous ‘offset’ requirements on foreign firms, from bureaucratic red tape to cultural preferences for local goods and services. Unable to compete in such a discriminatory environment, US firms are unfairly missing out on their fair share of lucrative GP contracts—contracts that they would arguably be winning if permitted to compete on a level playing field. Such unfairness is compounded by the fact that the US itself is dutifully adhering to such norms as a member of the WTO-GPA and various other regional and bilateral agreements, granting signatories reciprocal access to America’s own GP market. If America can bite the bullet and accept a healthy dose of foreign competition at home, why should not others be encouraged to do the same? So run conventional US arguments for stronger international regulations on ‘openness’, ‘transparency’ and ‘non-discrimination’ in government procurement; a cursory glance at the website of the Federal Government’s procurement-oriented Advocacy Centre will dispel any doubt. But how readily do America’s own government procurement policies square with the injunctions of competitive liberalism? We argue that the framing of government procurement issues in the language of competitive liberalism obscures the more strategic dimension of public purchasing policy in the US. In fact, we propose that GP increasingly serves as a weapon in the US arsenal of tools for strengthening national champions and for protecting the domestic front whilst simultaneously promoting the penetration of foreign markets by US firms. Moreover, and again somewhat at odds with liberal dictums, we show that government procurement in the US involves a considerable amount of proactive state involvement and government–business cooperation. An obvious question thus arises: how does the US reconcile these conflicting tendencies of internationalism versus nationalism—of driving reciprocal market opening abroad, while emphasising and privileging ‘Buy American’ at home? Our analysis of GP in America highlights these opposing tendencies and how the US has sought to manage them. But the most significant contribution of this paper—to the field of IPE at least—is its focus on, and serious treatment of, a neglected aspect of trade strategy— government procurement—and its evolving relevance in an era of increasing economic openness. 702

WEISS AND THURBON: THE BUSINESS OF BUYING AMERICAN

Given the scarcity of IPE literature on GP’s significance as a tool of national economic promotion, we begin with a discussion of GP’s historic role as an instrument of industrial policy, whilst highlighting the neglected face of public purchasing as a component of trade strategy. An examination of the peculiarities of the American case follows in which the incongruities of the procurement principles espoused and the policies followed are highlighted. Discussion then focuses on the use of GP as a component of trade strategy in the United States—specifically the use of GP to promote exports on one hand and to protect and upgrade domestic industry on the other. Finally, we consider the implications of our analysis for debates about US trade policy and its conceptual underpinnings. 2 . T H E I P E OF T R A D E A N D D E V E L O P M E N T: B R I N G I N G G OV E R N M E N T P R O C U R E M E N T I N Government procurement (GP) refers to the public purchase of goods and services from the private sector. In spite of privatisation and the popular idea that we live in an era of small government, procurement budgets nonetheless remain steady or rising in the developed world. For the industrialized world, civilian procurement consumes an estimated annual average of 10–15 percent of GDP, though in many industrial countries, government purchases of goods and services can reach 20 percent of GDP (in US, Europe, Canada). For most nations, procurement policy entails optimising the public means of purchasing in the service of national goals and the public interest. Thus, ‘Governments typically wield their purchases as a policy tool, favouring domestic over foreign suppliers. By doing so, they aim to return tax money to domestic residents, create more jobs at home, and reduce imports’ (Miyagiwa, 1991: 1320). Governments have traditionally deployed their purchasing power as a tool for developing a domestic industry and national infrastructure—from the railways and highways of the nineteenth and twentieth centuries to the information and communications superhighways of the twenty-first century. In high-technology sectors where governments may initially be the most significant purchaser of a commodity (such as aircraft, telecommunications equipment, software and computers), procurement policy has often been used as a lever of trade policy to create national champions with an edge in international markets. Even under the stricter trading regime of the WTO, procurement offers arguably one of the few significant policy tools remaining to governments, both central and regional, to foster domestic industry development without falling foul of the multilateral rules.3 Yet for all its importance as a policy tool around the globe, the study of public procurement has barely begun. The role of government purchasing in trade strategy, in particular, has been virtually ignored in the international political economy literature.4 Our interest in procurement policy lies 703


both in the role it may play as an instrument of trade policy more generally and, in particular, as an illustration of a close government–business relationship emerging across the US economic landscape in response to heightened competitive pressures from abroad. Like several other policy instruments—such as patenting and intellectual property (IP) regulation, antidumping and trade remedies, food aid and farm subsidies, public purchasing policy has long occupied an important place in US domestic development and more recently in its global strategy. Both at home and overseas it has led trade officials working in tandem with US industry to institute new structures in order to penetrate foreign markets and to protect the home base. Government procurement thus opens a window onto the cooperative and coordinated character of US government–business relations, as they both seek to limit foreign suppliers in the US market, and to displace foreign competitors in foreign markets.5 A Key Policy Tool for Industry Development and Export Promotion The contribution of public purchasing to industry development is more widely acknowledged than its place in trade strategy. But the dividing line between the two is often blurred. GP can function as an important component of trade policy when used either to strengthen domestic players or to block competitors in the home and foreign procurement markets. Traditionally, in the US home market, GP has been used to nurture a domestic industry to the point where it achieves an edge over foreign competitors. Many governments have understood this process.6 However, the US—with its legally enshrined Buy American programs—has demonstrated more effectively than other nations (excepting perhaps France), the tight nexus between government purchasing and the global growth of national champions: Boeing, IBM, Lockheed, Caterpillar, Motorola are but some of the household names which had their roots in government contracting and continue to rank among the top government contractors. Long-term procurement contracts together with government R&D provided the launch market essential to the take-off of the US computer industry, for example. Over 50 percent of IBM’s revenues in the 1950s came from government contracts, offering a substantial, guaranteed market that helped to push IBM to the head of the pack.7 As science and technology specialists have noted, ‘Military procurement and government-funded R&D were big factors in the early post-war development of the U.S. electronics, computer, and aircraft industries . . . ’ More generally, though, ‘(m)uch of the stimulation given by defense to technology came through adventurous procurement, not through funding of R&D’ (Branscomb 1993: 11; see also Markusen, 1990: 152). A similar emphasis can be seen in new congressional directives stipulating procurement of R&D funded products under the Small Business Innovation Research program (Wessner, 2004: 59). As 704


Borrus (1997) observes in his Congressional testimony, the US government’s procurement of new technologies has been far more important for corporate commercial success than its direct R&D sponsorship. Even in maturity, top contractors such as Motorola, Honeywell, IBM, Microsoft, EDS, and Boeing owe a substantial share of their market (and revenue) to government purchasing policy (see Government Executive, 2005). Today, some 50–60 percent of Boeing’s sales are derived from procurement contracts (Creswell, 2004). EDS, the giant electronic data systems corporation, whose first major contracts came from government (to manage Medicare insurance claims), could count on almost $400 million in federal civilian contracts alone in 2004. In IT, US federal government spending for 2003–2005 will exceed $175 billion, the bulk of which ($95 billion) comes from civilian procurement (Office of Management and Budget, 2005). But procurement can also be used as a tool for export promotion in at least two ways. The first is by nurturing local champions to the point where procurement creates a robust domestic platform for global expansion. Examples abound—from computers and telecommunications to agricultural machinery and aircraft. A recent example of how a US national champion uses government contracts to leverage its position in foreign procurement markets is the case of IT&E, recently awarded a multi-year General Services Administration Management, Organizational and Business Improvement Services contract from the US Government. The company, which provides services connected with clinical research and regulation, underlined the critical role of the procurement contract for its global expansion, emphasising how it would ‘[pave] the way for the company to step up the wide range of services it offers to a variety of governmental agencies and institutions’ across the globe (Business Wire, 2004). By providing a secure home market against foreign competition, procurement policy may thus help firms finance their internationalisation strategy. The second way in which procurement becomes a tool for export promotion is more direct and involves the government–business coordinated penetration of foreign procurement markets. When offered by foreign governments, procurement contracts can significantly enlarge the market for one’s own firms. In the US, we shall see, market enlargement through foreign procurement is being pursued aggressively and proactively through special arrangements to coordinate the resources of government and business. 3. THE US PECULIARITY An analysis of the US approach to public procurement serves to highlight the special role that the US government has undertaken to play on two fronts: no other state has been as globally active in driving open procurement markets; and no other state has been as nationally protectionist in legally mandating ‘buy national’ policies. On one hand, the US acts as the 705


main driver to globalize government procurement markets and enlarge the space for its own firms to operate by establishing the rules of the public purchasing game; on the other, it maintains an aggressive buy national stance which is expressed in an uncommonly tight set of rules that safeguard the home procurement market for American firms.8 Thus, under the banner of greater transparency in government tendering, the US has been the main driver globally of open procurement markets—not only in successive multilateral rounds that culminated in the WTO’s GPA,9 but also, especially, in regional and bilateral trade agreements, where it has made the opening of GP markets of trading partners a key negotiating objective (the most recent FTA with Australia being one such example, elaborated later). At the same time, however, the US has pursued a more aggressively nationalist economic path in its GP policy. As we will show, since the Buy American Act of 1933, the US federal government has mandated a core of ‘buy national’ programs, which require federal and state agencies to give preference to domestically produced goods and services. Many governments throughout the world also exercise buy local preferences, especially at regional and local levels. However, the US goes further in making Buy American a legal requirement for its federal agencies (in addition to the numerous and substantial buy local policies of its state governments). As one of the rare comparative studies concluded, the United States is ‘unique among industrial nations’ in its ‘buy national’ legislation. No other developed country has such ‘explicit legislation regulating government procurement practices’ (Miyagiwa, 1991: 1320). This is evidenced in submissions to the WTO detailing procurement practices: unlike the US, neither the Japanese, the Canadians, nor the EU places general or legal restrictions on the place of origin or nationality of the supplier.10 Indeed according to international law firm Pinsent Masons, far from allowing Buy National provisions, EU procurement directives are designed specifically to ‘prevent “buy national” policies’.11 The main point is not that buy national preferences are absent in Europe (or elsewhere), but rather that the different systems are designed to produce different outcomes. European rules are designed to make widespread discrimination much harder. American rules are designed to make discrimination easier—as detailed analysis will show. Tellingly, even laissez-faire Britain is now turning to the US for lessons in how to link procurement to development of IT capability among British firms (DTI, 2003). Equally significant is that when preparing for accession to the WTO, China turned to the US, not Europe, for lessons in how to safeguard its domestic procurement markets (Guangnan, 2004). However, unlike the US, China’s procurement laws passed in 2002 do not legislate for mandatory purchase of Chinese goods; rather, they allow for preferential treatment for domestic firms in procurement in certain areas (most notably in software).12 706


It is reasonable to expect that international differences in regulatory approach would lend themselves to different outcomes. Precise figures are difficult to obtain in this under-investigated field, but there is plenty of suggestive evidence that the effect of a mandatory Buy American policy is substantial, significantly curtailing US government procurement of imports. The foreign share of the US procurement market has been estimated as 2 percent—a figure which by any reckoning must be deemed paltry. Moreover, the fact that the US has not sought to amend this estimate, coupled with its unusual reluctance to comply with WTO reporting requirements on procurement, and the increasing use of non-competitive tendering under President Bush (US House of Representatives, 2004), would tend to lend credibility to such a figure. It must be said that other governments have also been found to discriminate in favour of domestic suppliers. But it is noteworthy that the list of complaints and criticisms targeting US practices by Canada, Japan, and the EU are a good deal more extensive and wide ranging than those by the US of its trading partners (European Commission, 2003; USTR, 2005). For example, while the US complains only of barriers to contracts for Japan’s public works (USTR, 2005), Japan complains of widespread discrimination against foreign products emanating from the BAA, from the US Appropriations Act, from the Surface Transportation Assistance Act governing mass transit, and from the ever-widening reach of ‘national security’ exemptions which have increasingly excluded competitive tendering (METI, 2004). The EU’s more extensive list notes the US lack of reciprocity in requiring GPA signatories for each contract to seek individual waivers from the BAA, rather than granting them automatically, and for shrouding the appeals process in ‘mystery’ (European Commission, 2003). As our analysis will show, American procurement policy is difficult to justify in the language of ‘foreign unfairness’, which has routinely served as the favoured official justification for protectionist measures in the United States. 4 . P R O C U R E M E NT A S T R A D E S T R AT E G Y I : O P E N I N G GP MARKETS ABROAD The US has a well-documented history of pursuing the opening of foreign GP markets through multilateral channels, playing a central role in the drafting of the 1979 GATT Government Procurement Agreement,13 the 1994 WTO Government Procurement Agreement,14 and the establishment of the Working Group on Transparency in Government Procurement under the 1996 Singapore Ministerial Declaration (Blank and Marceau, 1997). However, it is America’s negotiation of bilateral trade agreements that demonstrates most clearly its GP-linked trade strategy: the use of procurement to expand market access abroad whilst simultaneously protecting the home front. This strategy can be conceptualized in three basic steps, which 707


we consider briefly in turn: (i) bringing non WTO-GPA members ‘in from the cold’ via bilateral FTAs, thus automatically expanding market access for US firms; (ii) implanting ‘American friendly’ GP rules in foreign markets to privilege US firms abroad; and (iii) extracting maximum market access concessions from negotiating partners for minimum cost. (i) Bringing non WTO-GPA members ‘in from the cold’ via bilateral FTAs When entering into bilateral agreements with non WTO-GPA members, the US generally insists on the inclusion of GP issues, which automatically expands market access for American firms.15 One can reasonably assume that this inclusion is made reluctantly by non-GPA members; if a country believed there was anything to be gained from granting reciprocal access to its procurement market, it would simply accede to the GPA. Yet the refusal by so many countries to do just that indicates a widely-held belief that the costs associated with GPA accession far outweigh the benefits, not least because it involves the de-linking of GP from industry development initiatives. Indeed, international scepticism of the GPA runs so deep that non-membership is the norm in the international trade arena (of the WTO’s 148 members, only 37 have signed the GPA). Bilateral negotiations with the US however mean accommodating concessions that cannot be obtained in a multilateral forum, hence the inability of non-GPA members to keep procurement off the table. The 2004 Australia–US FTA is illustrative. Australia refused to join the WTO GPA on the grounds that losses for local firms domestically would far outweigh any reciprocal market access gains. In its one-on-one negotiations with the USA, however, Australia’s resolve to protect GP was broken. Under the AUSFTA, Australia expands already significant market access for US firms by agreeing to abandon all preferential policies for supporting domestic industry development—including the only program that mandated GP as a policy tool for developing domestic capability (in the IT sector).16 Moreover, it agreed to do so in exchange for nothing more than it would have received from the US had it acceded to the WTO GPA (the right to compete for US GP contracts alongside firms from the 36 GPA member countries). The same story can be told for Chile which, despite rejecting the WTO GPA, agreed to bilaterally open its GP markets to US firms on a non-discriminatory basis, whilst abandoning all offset requirements that would link the award of GP contracts to industry development. What these two examples indicate is that the US employs bilateral trade agreements with weaker partners to pry open otherwise restricted foreign procurement markets, thereby expanding market access for US firms. This brings us to 708


the second step in America’s GP trade strategy: implanting Americanfriendly GP rules abroad to favour US firms. (ii) Implanting ‘American friendly’ rules in foreign GP markets The Australian experience again serves to illustrate the US strategy of market enlargement by implanting American-style rules that work chiefly to the advantage of its own firms. Under the AUSFTA, the Australian government was required to reverse a trend in procurement regulation that had shifted from rigid process and procedure controls to a more cost-effective system of prescribing the outcomes to be achieved. The Australian emphasis on ‘best value for money for the Commonwealth Government’, using tax dollars to support domestic industry, jobs, and innovation, has now been supplanted by emphasis on American-friendly process and procedure (Brennan and Hodges, 2004: 14). Thus, the new rules specified in Article 5 of Chapter 15: (a) increase opportunities for US bidders with more open tendering, thus setting aside local supplier arrangements; (b) give US tenderers more time to prepare bids (via the new requirement for Australian government agencies to publish an annual procurement plan 12 months in advance); (c) mandate all tender advertising through one agency to smooth the path for US bidders; and (d) establish new mechanisms to deal with complaints from unsuccessful tenderers. To render these stringent demands more palatable, the US invokes greater ‘transparency’ as the overarching goal. Yet this seems misleading when US firms have long captured a generous share of Australian procurement, especially in ITC (and the lion’s share of defence procurement)— none of which has been reciprocated: Australian firms have long been excluded from the US market. The bilateral deal technically removes the legal barrier to US markets, but in practice tilts the playing field much further by ensuring a bigger share of the Australian procurement market for US firms. As mentioned, it achieves this by stipulating removal of all offset conditions that require winning tenderers to source local inputs or upgrade technology, conditions designed to stimulate local capabilities in Australian industry.17 These new priorities will be enforced by a new mechanism for challenging and overturning GP contracts in the courts, if deemed not to meet the new rules. Henceforth, GP decisions in Australia will take place under the threat of legal challenge from US firms with deep pockets and aggressive habits. Chile was similarly compelled to agree to such provisions in its FTA with the USA, as were Morocco and Bahrain. While these countries have 709


also won the right to challenge the award of US contracts in American courts, the likelihood of much smaller Australian (or Chilean or Moroccan) firms launching an effective challenge against the US government in its own legal system—let alone sustaining the costs—must be considered marginal. Even if such a case were launched, the apparent bias of American legal institutions towards US firms (demonstrated later in the case of Cray versus NEC) would very likely render such challenges fruitless. (iii) Extracting maximum market access concessions from negotiating partners for minimum cost Once a country has agreed to enter into a government procurement agreement with the United States (multilaterally through the GPA or bilaterally through an FTA) American negotiators have proved highly effective in extracting far more market access concessions than they give away. The basic US strategy here is getting trade partners to dump their ‘buy national’ preferences whilst effectively guarding their own. Instead of relinquishing buy national rules, the US agrees to grant a ‘waiver’ for foreign firms from Buy American legislation. The genius lies in the catch: waivers still remain bound by and subject to US laws (such as permanent Small Business Set Asides18 ), administrative decisions not to use open tendering (rampant under Bush’s tenure), and regulations (which create new restrictions). Such new restrictions can be imposed on an annual basis by Congress through the appropriations process. Recent history has shown that when a new US Federal Department’s Annual Budget Appropriation Act is introduced, it will frequently include specific justifications for the exclusive purchase of American goods, effectively negating the waiver principle, or at least laying it open to legal challenge by American firms through US-friendly courts or Congressional lobbying (see Congress Daily, 2003; Murphy, 2001). The result is that BA preferences continue to prevail despite the in-principle existence of waivers. Thus, a recent EU report on American trade barriers concludes that the implementation of waivers is shrouded by ‘legal uncertainty’, the existence of waivers by no means necessarily translating into improved market access for European firms (European Commission, 2003). An American procurement insider concludes more forcefully that the Buy American Act ‘represent[s] one of the most visible and egregious remnants of U.S. protectionism. Its very existence refutes the U.S. desire to only “level the playing field” in international trade’ (Smyth, 1999). In sum, the US approach to negotiating bilateral GP agreements— bringing countries in from the cold, implanting US friendly rules to advantage American firms, and extracting maximum market access concessions for minimum cost—is indicative of the more general strategic deployment of GP policies to expand market access abroad whilst protecting the home front. 710


5 . P R O C U R E M E N T A S T R A D E S T R AT E G Y I I : P E N E T R AT I N G G P M A R K E T S The US appears unique in its aggressive pursuit of overseas procurement contracts to the extent that very few countries enjoy a coordinated or institutionalized approach to assisting firms in the pre- and post-tender stage of foreign procurement. America’s distinctive approach to helping US firms bid for (and win) foreign GP contracts dates back to 1992 when the Clinton administration designated export advocacy as a ‘high priority area’ of its National Export Strategy. Under the 1992 National Export Promotion Act, 19 federal departments and agencies were reorganized to create a highlevel coordinating body, the Trade Promotion Coordinating Committee (TPCC), as well as a new agency within the Department of Commerce, the Advocacy Center, and an Advocacy Network—all with the mission of helping US corporations win procurement contracts in overseas markets, and mobilising the financial and other resources of government necessary to the task. A proactive and coordinated approach Proudly known colloquially as the ‘War Room’, the Advocacy Center differs from other government export-promotion agencies in being created expressly for the purpose of advocating for US firms in foreign procurement and imbued with a mission to intervene proactively (as well as reactively) to secure foreign contracts for US companies. Dozens of specialists in aerospace, banking, computers, energy and so forth closely monitor projects ‘up to five years ahead’ critically drawing on secret information about foreign competitors gleaned from a dense network of intelligence sources, including the CIA and surveillance technology (Campbell, 2001; Malkin, 1995).19 In official discourse, the Center’s role is simply ‘to level the playing field for US products and services abroad’. Its task is to help US exporters resolve problems such as: foreign competitors receiving generous assistance from their own governments; unfair treatment by foreign government decision makers; and politicized procurement processes (linking contracts to aid or other sweeteners).20 The Center assists in the form of ‘a timely letter to a decision maker in a foreign government, phone calls to well-placed foreign government officials . . . [arranging] meetings between foreign officials and U.S. embassy or CS personnel, and [scheduling] cabinet- or subcabinet-level trade missions to countries in question’. Advocacy Center support depends on the extent to which the proposed export is deemed to be in the US national interest (measured against various quantifiable criteria).21 In addition to the Advocacy Center, other trade-related agencies have launched their own initiatives to give US companies a stronger (in official parlance, ‘fairer’) chance to win foreign contracts, including support for 711


project development with front-end engineering and design (FEED) or feasibility studies (the Trade and Development Agency, TDA) and early promises of financial backing (The EX-IM Bank). As Commerce Secretary Evans explained, ‘Demonstrating the likelihood of financing early in the procurement process and providing technical assistance that sets specifications for particular projects [i.e. that sets US specifications] create a competitive advantage for the country sponsoring these supports’.22 Under the purview of the TPCC, the Advocacy Center coordinates assistance from some 18 other agencies, including the CIA, to secure foreign contracts for US firms. The campaign to help US firm ICF Kaiser secure a Czech government contract to modernize the Nova Hutt steel facility is just one illustration among many of how advocacy works to clinch the deal. The $262 million bid, launched in 1994, was successfully concluded in 1997, but not before the full weight of the US international trade administration had been brought to bear. In 1994, the US TDA stepped in to fund ICF Kaiser’s feasibility study for the project. This financial leg-up was backed by ‘continuous business counseling and advocacy support’ (coordinated by the Advocacy Center) throughout the three years of negotiations involving all levels of the US administration, from the Secretary of Commerce and the US Ambassador to the Czech Republic, to the US Central and Eastern European Business Information Center. Finally, when a financing set-back looked set to scuttle the deal, the US Secretary of Commerce placed a personal call to the Czech Minister of Industry and Trade, which led to a favourable and expeditious outcome.23 In another instance, the Advocacy Center was called upon to coordinate support for US firm Chester Engineers, which was facing competition from two Japanese companies in its bid to secure a Taiwanese wastewater recycling contract in 1996. Both Japanese firms—according to the Advocacy Center—were receiving financial support from their own government, giving them an unfair advantage over Chester. So, to help ‘level the playing field’, the Advocacy Center arranged for attractive financing terms through the EX-IM bank to make Chester’s bid more enticing. It then arranged for an advocacy letter from Commerce Assistant Secretary to the President of the Taiwanese procurer, a visit to the procuring firm’s Chairman by the Advocacy Center’s Project Manager, and on-the-ground support for Chester from the American Institute in Taiwan to help them pitch their bid. Chester was swiftly awarded the contract. Such accounts necessarily exclude all reference to the routine use of intelligence agents and spying technology to gain a run on foreign competitors. While such coordinated efforts were institutionalized under Clinton, the Bush administration has maintained a firm commitment to what it calls ‘aggressive advocacy’, following a pattern of chalking up the Center’s ‘successes’ as laid down in the first 100 days of Bush’s Presidency (ITA, 712


2002). More recently, in 2003 the Center established ‘Team China’, a group of advocacy experts in Washington and Beijing devoted to assisting US firms bidding for Chinese contracts. As well as having a direct line to the Secretary of Commerce, the Team liaises on a daily basis with the Special Counsel to the Secretary of Commerce stationed in Beijing (China Business Review, 2005). America’s strategic approach to helping US firms win foreign GP contracts sets it apart from its trading rivals. While most countries display a well-developed system of export promotion (insurance, credit agencies), that is accessible to firms after contracts are secured, none of those most active in procurement markets or perceived as US rivals have an agency dedicated to proactively identifying and coordinating bid efforts prior to and throughout the tender process. Instead, such lobbying is left to the discretion of individual politicians on a bid-to-bid basis. These observations are borne out by an examination of the French and German export promotion regime, the two countries the US reports as its most active rivals in foreign procurement markets (see, e.g. GAO, 1995). 6 . P R O C U R E M E N T A S T R A D E S T R AT E G Y I I I : P R OT E C T I N G T H E H O M E F R O N T Among the GPA signatories, the US has no equal in the extent to which it preserves the home market against foreign incursions. Here the Buy American principle—both as legal and social norm—offers a robust form of protection. While other governments also exercise buy local preferences, especially at regional and local levels, the US goes further than most in mandating Buy American and making this a legal requirement for its federal agencies. As noted earlier, under the GPA, trade partners who give the US access to their procurement market, in theory, have the provisions of the Buy American Act waived. However, there is compelling evidence to suggest that the US remains a tightly held procurement market, with relatively few openings to foreigners compared with its size. At least two major obstacles to an open procurement market in the US deserve highlighting: the numerous buy national programs that skirt the GP agreements through legal and technical loopholes; and informal barriers via the pervasive operation of Buy American norms in government agencies. We discuss each of these obstacles in turn. (i) ‘Buy American’ as legal requirement The ‘Buy American’ Act was passed on March 3, 1933, as part of a broad range of legislation in response to the great depression. In the intervening years, the US federal government has mandated a core of ‘buy national’ 713


programs, which require federal and state agencies to give preference to domestically produced goods and services. Over the course of 70 years, the BA Act has undergone several amendments, successively strengthening existing provisions. Currently, it restricts government purchases of supplies to those defined as ‘domestic-end-products’. Suppliers have to meet a two-part test: (1) the article must be manufactured in the US and (2) the cost of domestic components must exceed 50 percent of the cost of all components. Under the WTO GPA, foreign firms from signatory countries are granted ‘waivers’ from the Buy American clauses. However, as noted earlier, numerous mechanisms provide escape routes from the waiver principle; this helps explain why the estimated share of foreign firms in US government contracts is a paltry 2 percent. In spite of the low penetration of foreign suppliers, support for the BA law remains as strong as ever within the political elite and in many government circles. That support is reflected in current moves to strengthen BA legislation in the Buy American Improvement Act. Under the proposed provisions of the BAIA currently before the Senate the exercise of waivers for trading partners would become even more difficult. To take just one example, each agency would need to file annual reports with Congress, providing itemized lists of all BA waivers, dollar values, and sources—a requirement that appears to be crafted in full knowledge that agencies would find such a requirement so burdensome as to avoid giving out contracts to foreign suppliers in the first place. Additional temporary legislation directly outlawing Federal government outsourcing of job contracts offshore (largely aimed against IT outsourcing) merely emphasizes the breadth and depth of Buy American sentiment and its historic role in preserving US employment and high-technology capabilities. (ii) ‘Buy American’ as national norm In addition to the legislative barriers and restrictions detailed earlier, powerful normative barriers preserve America’s GP market for Americans. A number of peculiarities in American GP practices point to the influence of such norms, including: • limited foreign penetration of the US GP market; • collaborative efforts to fend off foreign competitors in the domestic market; • the sidelining of procedural fairness and transparency to favour national champions; and • the prevalence of ‘Made in America’ language in private-sector bidding practices. Limited foreign penetration. One indicator of the power and pervasiveness of Buy American norms is the fact that only a very tiny proportion of 714


American GP contracts go to foreigners. One estimate, from the Canadian Commercial Corporation, based on a US General Services Administration report for 1999, puts the figure as low as 2 percent.24 Exact figures are hard to come by, since this is one datum that the federal government appears reluctant to disclose to the WTO. Under Article XIX: 5 of the GPA, all parties are obliged to collect and provide to the GPA Committee on an annual basis, statistics on relevant procurements undertaken by that Party. To the extent possible, statistics must also be provided on the country of origin of products and services purchased. The US procurement data, so comprehensive in most other respects, does not make public the share of US and foreign suppliers in procurement. In fact, the US has not reported on procurement since 1999, and none of its reports provide information on the country of origin of its suppliers. By contrast, reports submitted by Switzerland, Norway, Hong Kong and Japan have always included information on country or region of supplier’s origin, and Korea met all reporting obligations and submitted details of country of origin for all GPA affected procurements in 2002.25 It is tempting to conclude from the striking absence of relevant data on this particular issue that the US does not have much to boast about and is not living up to its own demands for transparency.26 Whether the 2 percent figure is correct or not, it seems safe to conclude that US procurement from foreign sources is marginal. Collaborative efforts to fend off foreign competitors at home. The case of supercomputers offers an instructive example of the extent to which the US government and its national champions work together to fend off foreign competitors. The 1995 Cray–NEC antidumping dispute was the most dramatic in a series of trade frictions between Japanese and American supercomputer producers which trace back to the 1980s.27 This saw America’s market leader in the supercomputer industry, Cray Research, working with key US government agencies—chiefly the Department of Commerce (International Trade Commission), but also the Courts of Appeal of the Federal Circuit (CAFC) and Congress—to prevent a major US procurement tender from going to a Japanese supplier, NEC. In 1996, the US National Center for Atmospheric Research (NCAR), funded through the National Science Foundation (NSF), accepted NEC’s bid to provide the Center with four supercomputers over five years. Almost as soon as NEC’s bid was accepted, Cray (the unsuccessful bidder) filed an antidumping petition, charging NEC with a 454 percent dumping margin. The case has a number of unusual aspects, all which serve to highlight the Buy American bias that permeates all levels of the US government. To begin, the contracting agency UCAR maintained all along that NEC had won the contract fairly on the basis of demonstrated superior performance. In a hearing testimony, UCAR confirmed that the NEC material ‘offered and demonstrated overwhelmingly superior technical 715


performance and low risk relative to Cray Research’ and that Cray ‘lost this procurement because of unacceptable technical risk’ in their offer.28 Nevertheless, the US government immediately sided with its national champion; Congress pronounced NEC guilty of dumping and threatened UCAR with a suspension of funding unless it cancelled the NEC deal all before a dumping investigation had taken place. Still more bizarre, when a formal investigation finally took place, NEC was found guilty and penalized for dumping even though the actual sale to NCAR never went through, and even though proof of injury to the petitioner Cray was never determined (and was later denied by the petitioner Cray’s subsequent owner, SGI). Moreover, the dumping margins imposed were the largest on record: 454, 173.08 and 313.54 percent on NEC, Fujitsu and the other Japanese supercomputers, respectively.29 The last point draws attention to the way US institutions discriminate against foreign rivals. In the NEC case, the final margins were determined by the DOC through the ‘Facts Available’ (FA) method. One of four different methods for determining dumping margins, the FA method is notorious for its unfairness in that the facts are those usually supplied by the petitioner: thus the dumping margin determined by the DOC was the same as Cray had petitioned for: 454 percent. The margins are, accordingly, always extremely high,30 and the FA method has never been known to find a negative case! NEC (and the other Japanese companies) were offered the opportunity to dispute the facts supplied by the petitioner by complying with the DOC’s demands, but one by one withdrew from the DOC investigation owing to three unacceptable conditions: (i) the onerous information requirements—most of it of a highly sensitive commercial nature; (ii) the fact that such information would be handed over to the competitor’s ally— the DOC, perceived as a ‘biased’ party;31 and (iii) the need to do so under tight time constraints. Dismayed with the process, NEC appealed to the CAFC. But the CAFC rallied in favour of the US side against the foreign respondent by invoking impossibly high standards of proof. Despite finding that Commerce’s interference in the UCAR procurement had been designed to assist Cray, ‘the Court nonetheless ruled against NEC on the grounds that it was unable to prove that Commerce’s mind was “irrevocably closed” on the issue of dumping’.32 NEC for its part had long ‘suspected Cray of using the dumping charges to bolster the company’s steadily declining sales of vector supercomputers in the face of decreased military and government procurement’ (Kallender, 2001). Ironically, this suspicion was strengthened several years later when Cray revoked its dumping petition and entered into an agreement with its former nemesis to act as the sole OEM distributor of NEC computers in North America. (Cray, with its markets shrinking, was soon taken over by Silicon Graphics Inc. [SGI] which in turn sold Cray to Tera Computer Co., 716


which then became Cray Inc., in 2000.) By that stage, Cray had become something of a shell, with few products and little to offer other than ‘its exclusive sales channels and customer base’ (Kallender, 2001). The Cray case demonstrates how the threat of foreign incursion may serve to mobilize key federal agencies and authorities in the cause of safeguarding the home market for American industry. In particular, it shows how government and business are willing collaborators in the game of minimising participation of foreign rivals in lucrative domestic procurement opportunities. Far from being an isolated example, the supercomputer case joins a long line of GP disputes that span almost two decades of US hightech rivalry with Japan. The sidelining of procedural fairness and transparency to favour national champions. The Boeing 767 tanker deal offers a compelling illustration not only of the extent to which Buy American preferences are entrenched in the public culture and how, under certain conditions, these may override not only procedural fairness and the rules of transparent tendering, but also of how considerations of merit may be sidelined to favour the national champion. The incident in question concerns the favouring of Boeing—nurtured by public purchasing programs and heavily dependent on the procurement market—over and above the more competitive bid of its European arch rival, Airbus. The case has gained much publicity over the past two years or so, not only because of the value of the contracts involved, but also because of the mendacity of the procurement agency and top level public officials who simply ignored competitive tendering and ‘transparency’ obligations, including issues of merit, in their determination to favour Boeing at all costs.33 In 2001, the US Air Force developed a draft Operational Requirements Document (ORD) specifying through 26 criteria what it required of its new tanker aircraft (to provide mid-air refuelling). Instead of then calling for tenders, however, the Air Force passed the ORD over to Boeing and gave the company five months to rewrite the official specs so that it could secure the $23.5 billion contract. In spite of Boeing being unable to meet 19 of the 26 original capabilities required—including the specification that the new tankers be at least as effective as the 40-year-old ones that they would replace—the Air Force nonetheless accepted the rewritten proposal to contain costs. Boeing’s competitor Airbus was then given just 12 days to bid on the project. The Airbus bid met more than 20 of the original 26 specifications and came in at $10 billion below the Boeing price. Nevertheless, the contract went to Boeing. Subsequent emails between the various parties reveal strong support for the Boeing deal at the highest levels; ultimately, the White House intervened to ensure the deal went to Boeing; the agencies critical of the deal for being too costly and not needed were thus instructed to move 717


ahead. In this case, the bidding process was more or less designed from the outset to exclude the foreign player. The Boeing tanker agreement— currently suspended—thus illustrates how deeply Buy American norms are entrenched in the culture. At the very least, the Boeing case provides suggestive evidence that, especially when stakes are high, the Buy American preferences of public officials will trump strictly ‘procedural’ (‘best bid’) considerations. Meanwhile, the prospect of awarding the contract to European Airbus remains anathema to the US establishment. Regardless of its exceptional undertakings, such as the proposal to partner with Boeing or to set up production and maintain jobs in the United States, the European rival finds the door firmly shut. It should be emphasized that there is nothing in principle wrong with a government favouring its own suppliers. The use of tax dollars to sustain domestic production and employment can provide a strong rationale for the kinds of actions witnessed in the Boeing story. What makes such action remarkable and unacceptable for US trading partners, however, is when it is underpinned by the stark absence of reciprocity—indeed, when it is connected to a global strategy to require others to do unto you what you will not do unto them. The use of ‘Made in America’ rhetoric in private-sector bidding practices. Finally, the influence of BA norms and their influence as powerful exclusionary (protective) barriers can also be seen even at the level of the private sector. Perhaps as a result of the rapid spread of cross-border production, such norms are increasingly shaping the strategy of firms in their bid to secure government contracts. Recent examples include two American companies—Sikorsky and Lockheed-Martin—in a year-long campaign, each trying to win critical contracts by laying claim to being not more competitive, but ‘more American’ than the other. While for firms the appeal to ‘made-in-America’ and ‘all-American’ criteria is more opportunistic than a sign of national loyalty, the fact that companies feel bound to make such appeals at all is an indicator of the powerful resonance of BA norms for the broader public and the need for firms to construct themselves as all-American in order to compete—i.e. to appear as a worthy contestant for government contracts.34 They are further testimony to the proposition that BA norms are alive and flourishing in the American polity, powerfully orienting the same authorities who enthusiastically wield the globalisation language of free trade and open markets. 7. CONCLUSION We draw three conclusions from this analysis. First, although subject to multilateral discipline, government procurement offers a powerful tool for national economic promotion in an era of economic openness. In the 718


hands of the world’s superpower, government procurement has moved on from being an important mechanism for nurturing national champions to become a major instrument of trade policy. The ‘Buy American’ principles at the core of US trade policy are part of a larger story that includes the use of more widely analysed tools (such as antidumping and Section 301) in pursuit of market enlargement abroad and market preservation at home. Second, the federal government’s involvement in the promotion of Buy American at home and abroad has resulted in considerable state activism with a proactive and coordinated flavour—characteristics that conflict with the image of a liberal market economy favoured by the US. State activism in this context takes three main forms: market enlargement— leading the drive to open international procurement markets; market penetration—coordinating US-firm bids for foreign GP contracts; and market preservation—preserving the home front for US suppliers against foreign competitors. Thus, in foreign settings, the US government proudly pursues ‘aggressive advocacy’—bringing to bear vast intelligence against foreign competitors in combination with the use of carrots (and occasionally sticks) to land GP contracts for US firms; at home, on the other hand, the US rarely deviates from its BA priorities, taking care to enshrine BA principles in law and to counterbalance any scope for waivers of the rules with additional legal obligations to ‘buy national’. Third, US activism in GP markets serves to underline the opposing tendencies of internationalism versus nationalism: on one hand, the federal government strives to drive reciprocal market opening abroad while, on the other hand, it emphasises market-preserving, Buy American principles at home. This raises the question of how the US seeks to manage such tensions. Since this is an issue that applies more generally to US trade policy, it is one we take up in more depth elsewhere.35 What can be said in this context, however, is that the US government has adopted a proactive and strategic approach to matters of foreign trade generally, and procurement in particular. Under the ideological banner of fighting foreign unfairness, the State centred on Washington has become the willing collaborator of the private sector, driving open foreign markets whilst at the same time working to preserve the home front for US firms. Government procurement has thus emerged as an important weapon in the arsenal of US trade strategy. Despite the best discursive efforts of US policymakers, however, this strategy has more in common with building national advantage than supporting liberal internationalism. ACKNOWLEDGEMENTS We would like to acknowledge a Discovery Grant from the Australia Research Council, which supported research for this project. Thanks are due to three anonymous referees whose comments helped sharpen our argument. 719


NOTES 1 These are often referred to as‘behind the border’ regulatory issues (World Bank, 2002). 2 A burgeoning literature exists on the politics of international harmonisation in a range of regulatory arenas. Works focusing on the role of US policymakers and business leaders in pushing for the international adoption of ‘US - friendly’ rules include: Drake and Nicolaidis (1992); Simmons (2001); Kapstein (1992); Drahos and Braithwaite (2003); Sell (2003) and Weiss, Thurbon, and Mathews (2004). 3 Under the WTO’s plurilateral Government Procurement Agreement, signatories may carve out exemptions for all local government contracts and for federal governments seeking to discriminate in favour of small - to medium sized domestic firms, The WTO’s 1996 Doha Declaration also recognized the importance of GP as an industrial promotion instrument in developing countries and allowed for the continued use of GP for such purposes (so long as norms of transparency were upheld). According to Paragraph 26 of the Doha Declaration, GP negotiations with developing countries ‘shall be limited to the transparency aspects and therefore will not restrict the scope for countries to give preferences to domestic supplies and suppliers’. 4 Indeed, in the most influential political economy literature on ‘Strategic Trade Policy’ in the United States, GP as a policy instrument barely rates a mention, while most space is devoted to tariff, subsidy and R and D issues (see for example Aggarwal et al. (1987); Milner and Yoffie (1989a, b). 5 Research in progress documents a broader US shift towards more collaborative government–business relations in trade and technology policy as well. 6 For an overview of the role of GP in promoting the technological upgrading of domestic industries in a variety of European countries see Rolfstam (2005). Numerous case studies on the use of GP as tool for technological upgrading and the creation of national champions in Europe have also been published under the auspices of a European Commission - sponsored project on Innovation Systems and European Integration. See Edquist et al. (1998). 7 Between 1949 and 1959, IBM was awarded almost $ 400 million in government contracts (Hills, 1982). 8 Jenkins (1992:88) notes a similar contradiction in US investment policy. 9 Substantial amendments to the GATT Government Procurement Code which pushed market opening much further in 1988, for example, were driven through by the US. As the GATT Affairs Division of the US Department of Commerce acknowledge, ‘The United States was successful in securing multilateral agreement on a group of amendments which were largely offered by U.S. negotiators’ (Silberman, 1986: 16). 10 See ‘Communication from the United States: response to questionnaire on government procurement of services’, World Trade Organisation, Document Numbers S/WPGR/W/11/Add.6, 21 October 1996. Accessible at http://www.wto.org/english/tratop e/gproc e/w11a6.wpf; For Canada, the EU, and Japan, see Document N umbers S/WPGR/W/11/Add. 10, 2 December 1996, Accessible at http://www.wto.org/english/tratop e/gproc e/ w11a10.wpf; S/WPGR/W/11/Add.5, 27 September 1996, Accessible at http:// www.wto.org/english/tratop e/gproc e/w11a5.wpf; S/WPGR/W/11/Add. 7, 4 October 1996, Accessible at http://www.wto.org/english/tratop e/gproc e/w11a7.wpf.

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11 ‘Public procurement law: the basics’, http://www.out - law.com/page - 5964. 12 Testimony of Benjamin H. Wu before the Committee on Government Reform, 13 May 2005. Accessible at http:// www.technology.gov/ Testimony/p BHW 050513.htm. 13 The GATT Agreement accorded national treatment for the firms of the 12 signatory countries in a limited number of sectors. (Service contracts, for example, were excluded from the GATT procurement agreement.) 14 The WTO GPA currently has 37 signatories, most of which are developed countries. 15 Of the six recent bilateral FTAs that the US has negotiated with non - WTO GPA members, five include provisions on Government Procurement (the Andes being the exception). Countries signing up to bi - lateral GP coverage despite reluctance to join the WTO GPA are Australia, Bahrain, Chile, The Central American Dominican Republic, and Morocco. 16 DFAT (1997); Brennan (2004); Weiss et al. (2004). 17 Offsets mean any conditions which stipulate use of domestic content or supplies, licensing of technology transfer, investment, counter trade or similar actions to encourage local development. 18 Moreover, in view of the generous definition of what constitutes a ‘small’ firm in the US—including firms employing up to 1,500 people, the ‘small business exceptions’ clause offers a convenient escape route from foreign competition for a large swathe of local firms. 19 By the end of the 1990s, the US administration claimed a gain of nearly $ 150 billion in exports as a result of deploying intelligence activity, including satellite intercepts, against foreign companies (Campbell, 2001). 20 See ‘The Advocacy Center’s Mission’ at http://www.ita.doc.gov/td/ advocacy. 21 The Center’s website states that a bid is considered to be in the national interest if the US content of the product to be provided exceeds 50 percent of the total value. When US content is lower, other factors associated with US ownership may be considered. 22 Testimony of Secretary of Commerce Donald L. Evans on Progress Implementing the National Export Strategy before the Senate Committee on Banking, Housing and Urban Affairs, 21 May 2003. 23 The Advocacy Center ‘Success Stories’, at http://www.ita.doc.gov/td/ advocacy/Icfkaise2.htm. 24 See http://www.ccc.ca/eng/images/content/markt research/market-usnon-defence-procurement.html. 25 The collated information for each reporting country is available at http://www.wto.org/english/tratop e/gproc e/gpstat e.htm. 26 Thomas (2000: 255–7) finds a similar reluctance regarding US reporting of subsidies to the WTO. 27 Tyson (1993) and Anchordoguy (1994). 28 See Buzbee (1997). Cray had only been able to meet one out of four UCAR requirements, and only one of eight systems offered could have been tested. 29 See Maur and Messerlin (1999: 2). Under US anti - dumping rules, if one foreign company is found guilty of dumping in the US market, the penalties apply to all firms producing the same good in that country. Consequently, all Japanese supercomputer producers were penalized, even though they had nothing to do with the NEC case.

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30 Compare the 454 percent with the DOC’s pre - decisional analysis which concluded dumping margins ranging between 163 and 280 percent. 31 Earlier in the process, NEC asked the ITC to appoint an ‘unbiased body’ to rule in place of the DOC. NEC had evidence—a memorandum to the NSF—that the DOC had prejudged the case before it went to trial. See Inside US Trade, 13 September 1996. 32 In a subsequent petition to the Supreme Court, NEC contended that ‘the CAFC decision effectively creates a double standard which discriminates against foreign respondents in antidumping cases by requiring them to meet a much higher burden of proof than that applied in other administrative proceedings’ (Business Wire, 1998). 33 Joseph L. Galloway, a senior military correspondent and former chief for United Press International, provides a caustic commentary on this case. See Galloway (2004) ‘Air Force Let Boeing Rewrite Contract’, 31 March http://www.military.com/NewContent/0,13190,Galloway 033104,00.html. 34 See Swibel (2004:60). The contest was over a $ 70 million replacement helicopter for President Bush, but the larger stakes involve ‘a much bigger honeypot: $ 7 billion of development contracts for engineering up to 200 Air Force search and - rescue helicopters, starting in 2006.’ 35 This issue is discussed in depth in our paper ‘The Mythology of US Trade Policy’, presented at the World International Studies Congress, Istanbul, September 2005.

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