Senior Vice President, Head of International, U.S. Chamber of Commerce
January 24, 2018
In soccer, an “own goal” occurs when a player causes the ball to go into his or her own team’s goal, resulting in a goal being scored for the other team.
This can happen in trade, too. One example from the North American Free Trade Agreement (NAFTA) negotiations has left some U.S. business leaders shaking their heads in disbelief.
As part of the Trump administration’s work to modernize the NAFTA, U.S. negotiators have proposed to dramatically curtail the access of Canadian and Mexican firms to U.S. government procurement markets. It is unclear why U.S. negotiators are pushing a proposal that promises no benefit and considerable harm to American companies and workers.
Apparently the U.S. proposal arises from concern that the NAFTA’s procurement rules — by allowing Canadian and Mexican firms to bid for some U.S. procurements on a nondiscriminatory basis — have diverted lucrative contracts away from American companies.
But real world data show that this concern is baseless. Information from the Federal Procurement Data System confirms that just one of the 50 largest contractors* to the U.S. government in FY 2016 was a foreign-headquartered firm. Just one Canadian company showed up in the top 100 contractors; no Mexican companies appeared in the list.
In fact, across the entire federal government, only 2% of all contracts was secured by foreign-headquartered companies in FY 2016. Of this sliver, about 80% were Department of Defense contracts, nearly all of which went to the U.S. affiliates of British European firms.
Nonetheless, U.S. negotiators have proposed to limit Canadian and Mexican access to U.S. procurements in proportion to the size of their domestic procurement markets. Since the U.S. market is much larger, this proposal would strip them of much of the access they’ve enjoyed for nearly 25 years.
It gets worse: The Mexican government in November provided information to U.S. negotiators showing that Mexican firms not only don’t win U.S. procurements — they never even bid. As Bloomberg reported, “Mexican negotiators are seeking to cap the value of procurement-tenders awarded to American companies to the same amount that Mexican firms get in the U.S.”
That would be a disaster for U.S. firms, which win billions of dollars’ worth of contracts in Mexico and Canada. U.S. companies large and small, operating in sectors from water and wastewater infrastructure to insurance and the provision of IT products, make billions of dollars in procurement sales in Canada and Mexico.
These deals support growth and jobs back home in the United States. These firms and their workers benefit directly from the access to Canadian and Mexican procurement markets guaranteed by the NAFTA.
If the United States revokes access to our own government procurement markets, domestic politics will make it necessary for Canada and Mexico to do the same. The losers here would be American companies and workers.
Without these NAFTA rules, U.S. companies would be competing with one hand tied behind their back. In the WTO’s 2017 Trade Policy Review of Mexico, the WTO Secretariat found that Mexico maintains a 15% preference for Mexican bidders over international bidders in cases where Mexico does not have a trade agreement on government procurement.
In other words, the NAFTA and its procurement chapter ensure that U.S. firms are treated like Mexican firms and need not beat bids from Mexican firms by 15% to secure a procurement. That’s a great deal for American companies and workers — one that the U.S. NAFTA proposal would void.
In sum, the U.S. proposal to dramatically curtail the NAFTA’s procurement chapter would harm U.S. workers whose employers win foreign procurements without benefitting any identifiable American constituency.
It’s not too late for the United States to reconsider this damaging proposal and adopt a pro-growth approach that supports American jobs instead. But the time to change course is now.
*That firm was BAE Systems, a U.K.-headquartered defense contractor whose U.S. affiliate employs nearly 30,000 American workers. Nearly all U.S. defense contracts secured by foreign-headquartered firms such as BAE Systems are actually won and fulfilled by their U.S. affiliates, which are incorporated in the United States and are thus legally U.S. companies. Procurement rules in trade agreements are generally irrelevant to their ability to bid for such contracts.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.