Global Procurement Law in Times of Crisis: New Buy American Policies and Options in the WTO Legal System

This is a draft chapter for the forthcoming Sue Arrowsmith & Robert D. Anderson (eds.), The WTO Regime on Government Procurement: Challenge and Reform (Cambridge University Press, 2011). What should governments do to protect their citizens in a global economic crisis? National economies are interdependent and economic risk is systemic on a global scale, but economic policy remains pervasively national in scope. Fiscal policy has not been the subject of much in the way of collective action at the global level, and if it has, states accomplish it in ad hoc political (as opposed to legal) arrangements in response to particular crises. States retain primary responsibilities for structuring institutions to promote economic justice for their citizens. Despite moves towards conceptualizing justice as a global concern, justice remains primarily a concern for domestic constitutional orders. Fiscal policy and economic justice are widely understood as the domain of the political orders of states, national in their reach, tied to notions of statehood. These features of the state are in tension with the increasingly complex interdependencies of states and with the dense web of treaty commitments they have undertaken, particularly in economic matters. The US risked destabilization of these substantial treaty commitments to liberalize procurement markets when President Barack Obama signed the American Recovery and Reinvestment Act of 2009 into law in February 2009. The Act forbids the use of funds appropriated by the US Congress under the Act on the “construction, alteration, or repair of public buildings or public works unless all of the iron, steel, and manufactured goods used in the project are produced in the United States” but requires that these restrictions “shall be applied in a manner consistent with United States obligations under international agreements”. This chapter has two aims. First, it will assess whether the new Buy American provision in the Recovery Act and its implementing federal regulations breach WTO commitments. It will also examine whether the Buy American provisions breach FTA commitments of the US, although the FTA analysis is tangential to the WTO analysis. US trading partners have a weak argument that the US violated its GPA and FTA commitments liberalizing government procurement, but that they may have a plausible claim that the US has violated the WTO Subsidies and Countervailing Measures Agreement. Some countries may have, moreover, a GATT Article XXIII non-violation nullification or impairment claim, but an assessment of the merits of such a claim requires a good deal of further empirical research on the effects of the new Buy American preference on the balance of concessions and the legitimate expectations of affected WTO members and FTA signatories. What follows from this analysis, however, is that the WTO legal system is ill equipped to respond to the economic needs of states when global economic crisis strikes. The second aim of this chapter is to suggest an avenue for a tentative prescription for dealing with future economic crises from a trade perspective. While the overriding emphasis has been on new paradigms of financial regulation, countries should not ignore the potential for new ways of regulating international trade and procurement liberalization. WTO members should develop a new and narrowly tailored safeguards regime from a coordinated and multilateral standpoint specifically to deal with global economic crises. The WTO Safeguards Agreement and the GATT Escape Clause were not designed to deal with such crises. If all or many states promulgate buy-national or other protectionist policies to stimulate their economies during economic crises, that would be another Smoot Hawley moment, resulting in a severe shrinkage of international trade and a reversal of the achievements in trade liberalization that have occurred over the past sixty years. But if states fail to coordinate their fiscal stimulus programs, then fiscal stimulus will be less effective. The lack of coordination might result in free riding, as states implementing stimulus measures add to their public debt while free riding states benefit from increased exports without sharing public debt burdens. The result would be either that states will not promulgate stimulus programs or will promulgate limited programs because they cannot be assured of their effectiveness and that the benefits will flow to their citizens. To promote coordination, a state could strategically implement conditional stimulus legislation, in which its procurement markets are opened on a reciprocal basis only to the exports of states that have enacted stimulus packages. Such policy coordination could preserve hard-fought gains in trade liberalization, but as importantly, it may promote fiscal policy coordination during times of economic crises when such coordination is essential. The US did not pursue such reciprocity, perhaps because it could not have been accomplished, or perhaps not accomplished easily or quickly. The policy solutions, however, are in globally coordinated systemic risk regulation in which procurement rules and policies should play a substantial part. Expenditures of government funds relate directly to economic justice in states and globally.