GAO Procurement Report: Valid Criticisms, Questionable Comparison

On March 13, 2017, the U.S. Government Accountability Office released a report, with an attention-grabbing title: United States Reported Opening More Opportunities to Foreign Firms Than Other Countries, but Better Data Are Needed. Based on a broad comparison of the procurement that the United States and other parties reported that they covered under the WTO Government Procurement Agreement (GPA), GAO concluded that the U.S. covers nearly twice as much as the other large parties combined. That conclusion prompted the congressional requesters of the study to recommend suspension of U.S. compliance with its government procurement obligations in trade agreements. But, the GAO’s comparison is undercut by its own findings of deficiencies in the procurement data of the U.S. and its GPA counterparts. This post highlights concerns with the GAO’s comparison of procurement covered by the U.S. and other countries, but also recognizes the significance of its recommendations for improving procurement data.

The GAO compares the procurement that the U.S. reports to the GPA with the procurement reported by the five next largest GPA parties (Canada, the European Union, Japan, Korea and Norway). It concludes that the U.S. covers significantly more procurement. But, the agency did not attempt to examine or compare the procurement actually covered by the parties.

A primary concern with the GAO report is the implication that the value of procurement agreements should be determined by the size of covered procurement, as opposed to whether the parties are offering comparable coverage in terms of the entities, goods and services subject to the agreements. The U.S. approach to procurement negotiations has not been to ask other countries to match U.S. procurement “dollar for dollar”. Rather, it has sought comparable coverage based on reciprocity.

The basic principle of procurement negotiations has been that if the U.S. opens certain procurement, other countries should open comparable procurement; and if they do not reciprocate, the U.S. denies them access to U.S. procurement. For example, the U.S. does not give Japan rights to participate in National Aeronautics and Space Administration procurement because it does not open the procurement of its space agency. When Oman did not cover its defense ministry in a free trade agreement, the U.S. denied it access to U.S. Department of Defense procurement. Until Canada opened the procurement of its provinces in a 2010 bilateral agreement, the U.S. deprived it of access to state procurement.

GAO based its report on the statistics that the U.S. Trade Representative (USTR) submits to the WTO with respect to procurement that the United States covers under the GPA. The U.S. reports the actual value of federal contracts but only estimates the procurement of the 37 states covered by the GPA. The state estimates are based on U.S. Census Bureau surveys of state finances, and specifically two sub-sets of direct expenditures: current operations (minus compensation) and capital outlays. GAO considered the U.S. estimate of state procurement for FY 2010 to be overstated by around 10%. But, it seems very doubtful that states would cover 90% of the reported estimates.

Any attempt to assess the procurement covered by states must take into account the high threshold that they apply. The GPA only applies to state purchases of goods and services that are at or above $522,000. Many states likely have few procurements above that threshold. An assessment of state procurement also needs to take into account the exclusions or restrictions on state procurement. Under the GPA, states may reserve procurement for U.S. small businesses. They also take a variety of exclusions, such as for construction grade steel; some exclude all services or goods. Also, state procurement that uses federal funds for highways and mass transit is subject to Buy American restrictions that apply to iron, steel and manufactured goods, which states cannot waive unless they meet strict requirements.

The GAO also pointed out deficiencies in the reporting of other GPA parties, likely leading to significant understatements in their reported procurement. For example, Japan does not report any procurement statistics for its Other Entities, even though it covers 114 entities in that category, in comparison to the 10 entities that the U.S. covers. Moreover, a number of Japan’s Other Entities have functions that are comparable to agencies that the U.S. includes in its federal entity list. Another deficiency is Canada’s omission of any procurement by its provinces and Other Entities.

In a March 10 letter, the Senators (Tammy Baldwin (D-WI) and Jeff Merkley (D-OR)), who requested the GAO report, called on the President to suspend Buy American waivers for foreign firms until government procurement chapters in U.S. trade agreements are renegotiated. Such a suspension would, of course, be inconsistent with U.S. obligations under those agreements, to treat foreign suppliers in the same manner as U.S. suppliers for procurement subject to the agreements.

Moreover, the Senators’ proposal overstates the waiver of Buy American requirements. Despite broad authority to waive domestic preferences, the GAO found, in an earlier report, that the U.S. only waives application of two such provisions: the Buy American Act of 1933 and a Department of Defense domestic source restriction, the Balance of Payments Program. The U.S. excludes all the other Buy American requirements from its obligations under the GPA and other trade agreements, meaning that the U.S. can apply those preferences without running afoul of agreements. Those exclusions include the small business set-asides, which apply to almost a quarter of federal procurement, and restrictions that follow funds to states for highways and mass transit programs.

The GAO report is valuable in pointing out deficiencies in U.S. procurement data, as well as that of other GPA parties. To remedy those deficiencies, GAO made recommendations to the four U.S. government agencies responsible for WTO statistics: USTR, the Department of Commerce, the Office of Management and Budget and the General Services Administration. The improvements should include developing a means for reporting statistics on actual state government procurement rather than relying on estimates. In addition, it recommended that USTR submit a proposal to the WTO GPA working group on statistical reporting that “aims to improve the quality of statistical reporting by the WTO parties to address the weaknesses” that GAO identified.

It would be unfortunate if the GAO’s comparison of the size of the U.S. and other countries procurement markets overshadowed its more significant conclusions and recommendations on the need for better procurement data and undermined procurement agreements that open foreign government procurement to U.S. goods, services and suppliers in more than 60 countries.

Jean Heilman Grier

March 15, 2017

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