NY Rejects Buy American Restriction

Last week, the New York State Assembly stripped a Buy American requirement from the state’s proposed budget for fiscal year 2016-17. The provision would have required use of U.S.-produced iron, steel and manufactured goods in public infrastructure projects financed by the state’s dedicated infrastructure investment fund. Even though the proposed domestic content requirement would not have applied to procurement covered under international agreements, the foreign business community and U.S. trading partners sought its removal. Their criticisms of the proposed legislation were reminiscent of those directed at the 2009 stimulus package, which included a similar restriction.

On March 24th, the Organization for International Investment (OFII), a business association representing U.S. subsidiaries of global companies, such as Bombardier, Samsung, Siemens and Toyota, wrote the NY Governor urging removal of the domestic content requirement. Its letter emphasized that restricting access to the state’s procurement market “would create an inhospitable market” for global companies and hurt the state’s efforts to attract and retain foreign direct investment. OFII also pointed to effects the domestic content requirement would have on global supply chains that depend on components, subcomponents and parts that are produced both locally and overseas. Limiting the source of products to those produced domestically could disrupt supply chains.

The diplomatic community also weighed in opposing the domestic content requirement. They included the European Union, which according to an EU official, registered its concerns in a letter to the NY Governor. That is yet another instance in which the EU has protested U.S. legislation that limits procurement to domestic sources. As discussed in a recent post, the EU questioned the strengthening of Buy America requirements in projects administrated by the Federal Transit Administration during the latest round of negotiations of the Transatlantic Trade and Investment Partnership (TTIP).

New York’s rejection of the Buy American restriction reflects its long-standing support of international agreements that cover government procurement. Since the 1990s when states were first asked to authorize coverage of their procurement under trade agreements, New York State has been a leading participant in those agreements. In addition to signing on to the WTO Government Procurement Agreement (GPA), it covers procurement under all of the free trade agreements (FTAs) that include state procurement in U.S. commitments.

Under those agreements, NY provides broad coverage, committing its state agencies, the state university system, public authorities and public benefit corporations to conduct their procurement in accordance with the GPA and FTAs. It has taken limited exclusions from its commitments. They include construction-grade steel, transit cars and buses.

New York’s rejection of the protectionist legislation was similar to the New Jersey Governor’s veto in 2015 of several legislative measures that would have imposed new Buy American requirements on procurement by NJ state agencies. In vetoing the legislation, the Governor cited concerns that it would chill international development and increase costs for taxpayers. The veto responded to protests by a trade group representing American companies engaged in international trade and investment, as well as representatives of foreign investors.

The rejected NY provision was modeled after a domestic content requirement in the American Recovery and Reinvestment Act of 2009 (ARRA). That federal stimulus legislation required the use of domestically produced iron, steel and manufactured goods in projects funded by the Act. Even though ARRA required application of its Buy American requirement in a manner consistent with U.S. obligations under international agreements, i.e., that it would not apply in projects covered by a trade agreement, it raised the ire of U.S. trading partners, especially Canada. Their opposition was similar to that directed at the NY legislation.

By turning back the protectionist legislation, New York has reaffirmed its commitment to an environment that encourages international trade and foreign investment.

Jean Heilman Grier

April 5, 2016

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