US economy

A fresh battle over Buy American

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Hello from DC, where the US Trade Representative has just revealed it has held a series of meetings with labour unions, advocacy groups and businesses to discuss the Trips waiver debate at the World Trade Organization. We sense there could be more to say on this topic soon.

In the meantime, the main bar today is on another WTO-related matter — the Government Procurement Agreement, which is again (sort of) a talking point in DC. Charted Waters looks at the rise in the consumption of poultry.

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Senators and multinationals clash over the GPA

President Joe Biden’s Buy American programme is back for another airing, but this time it has a $2tn infrastructure package in tow. 

To recap: Biden’s big new plan sets aside up to $621bn in funding for traditional infrastructure upgrades, including roads, bridges, public transport networks, electric vehicles and vital hubs such as ports and airports. It also sets out $561bn for green housing, schools, power and water upgrades, $400bn for elderly care improvements, as well as $480bn for manufacturing and $200bn for broadband.

What has this got to do with trade policy, you might ask? Well, when he unveiled it, Biden raised eyebrows among the big non-US multinationals with US operations. “When we make all of these investments,” Biden said, “we’re going to make sure . . . that we buy American.” He added: “Not a contract will go out . . . that will not go to a company that is an American company with American products, all the way down the line, and American workers.”

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But, we hear you cry, where does this leave the US’s commitment to the WTO’s Government Procurement Agreement, a pact covering access of foreign companies to public procurement contracts?

We’ve written before about the interaction between the Buy American programme and the GPA. Buy American aims to keep US government dollars — whether they be federal or state dollars — going to US companies, and has been around in some form since 1933. But the GPA opens up US public procurement contracts worth more than $182,000 to the twenty signatories of the GPA (these contracts are also open to other countries with which the US has bilateral trade agreements). The two can work together as the US essentially issues waivers to the Buy American rules for GPA signatories and select trade partners.

What’s changed? Well, there’s now a growing US political rallying call for a suspension of all waivers that has foreign-based multinationals rattled. Last week, Democratic Senators including Tammy Baldwin, Sherrod Brown, Chris Murphy, Elizabeth Warren, Jeffrey Merkley — wrote to the White House to demand that all waivers from the Buy American restrictions — that is, waivers that allow the countries that are signatories of the GPA to bid for US government contracts — be suspended for “all extraordinary Covid-19 relief and recovery-related spending (including recovery-related infrastructure spending)”. “This approach would ensure that extraordinary Covid-19 relief and recovery funds are reinvested at home during the process of renegotiating the trade-pact terms that apply to ordinary procurement,” they wrote.

Of course, this has not gone down well with multinationals who have a US presence, who argue that they do, in fact, employ American workers. The Global Business Alliance, a trade group that represents the US arms of foreign multinationals, has written to the White House and says it has contacted all of the senators who signed the letter. They argue that foreign direct investment into the US is a good thing for American workers.

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The US Chamber of Commerce, a business lobby group, has long argued that American companies gain more than they give by being part of the GPA, estimating that the US has only awarded about 3 per cent of federal contracts to foreign companies over the past 5 years.

There is, however, a real risk that in effect pausing its commitment to the GPA would cause retaliation. While scrapping waivers for all signatories would be fine under US domestic law, it would violate the country’s international agreements, reckons Jean Grier, a US government procurement expert.

There are, for sure, some foreign companies that are contributing to Biden’s overall policy goals — Korean battery maker SK Innovation, for example, is building a huge new plant in Georgia, producing electric batteries for the likes of Ford and Volkswagen. It’s been beset by its own problems — see here — but the plant brings US jobs. LG Chem, the world’s largest producer of electric-vehicle batteries, has also pledged to build two US plants, creating 10,000 jobs. None of this is to argue that they should receive federal dollars under the infrastructure bill, but to point out that foreign investment in the US does align with at least some of Biden’s stated goals. There is a risk, as the business community warns, that too much Buy America rhetoric could have a chilling effect.

It isn’t clear exactly how hard a line Biden is going to take on all of this. The White House did not respond when asked if it would consider pausing the GPA, thereby ensuring that none of the federal dollars up for grabs in the big infrastructure plan go to overseas companies. That doesn’t seem to be something Biden is in a rush to do — although, from the sound of the political packaging, he absolutely has the GPA in his sights. 

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Charted waters

Despite the growing popularity of plant-based diets, meat still remains popular across the rich OECD group of nations. Notably chicken. While consumption of red meat has remained pretty stable over recent decades, poultry consumption has jumped.

Line chart of per capita meat consumption in all OECD countries (kg per person) showing in the rich nations, the biggest change in habits has been a huge rise in the consumption of chickens

We’re not sure what’s caused poultry to rise up the pecking order, but the latest battle between US fast food outlets to produce the best fried chicken sandwich suggests it has some way to run yet.

Don’t miss

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  • Europe’s low-tax nations have responded positively to the Biden administration’s plans for a radical reform of global corporate taxation, even though they will lose out — but signalled that Washington can expect a fight over much of the detail.
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Tokyo talk

The best trade stories from Nikkei Asia

  • China’s largest sportswear company is at loggerheads with its own international subsidiary over whether to use cotton produced by forced labour in Xinjiang. 
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  • Leading Japanese ketchup producer Kagome has stopped importing tomatoes from Xinjiang, citing human rights concerns. 
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