Many small and medium-sized American businesses can’t compete with non-U.S. firms


With the sixth round of North American Free Trade Agreement (NAFTA) negotiations set to begin in Canada later this month, news reports claim that Canadian negotiators are increasingly worried that the U.S. may unilaterally quit the agreement — something that President Trump can do with the stroke of a pen.

If NAFTA 2.0 negotiations fail, it may not be due to issues involving the U.S./Mexican trade deficit, which receive a great deal of popular attention. Instead, the culprit may be a little-publicized but important aspect of trade that has placed many small and medium-sized American businesses at a disadvantage with Canadian businesses when it comes to government contracts.

Earlier in 2017, the Government Accountability Office (GAO) released a report that cited more than $800 billion in U.S. procurement contracts available for foreign firms. Another way to look at that is $800 billion in U.S. taxpayer dollars going to foreign businesses. This far outpaced U.S. companies’ access to international governments’ procurement opportunities.

Most people would assume that the Buy America Act — a law that’s been around for nine decades, and which is supposed to encourage the U.S. government to buy from American companies — would preclude non-U.S. firms from competing for federal government contracts. But, the law has so softened from its original intent that any parity that previously existed is gone.

The U.S., along with 57 other countries, participate in a World Trade Organization (WTO) Agreement on Government Procurement (GPA) that allows foreign companies to compete for government contracts. GAO cited that the “United States reported opening a greater percentage of its government procurement to foreign competition than the next five largest trade agreement partners combined.”

The spirit of the agreement is to ensure “fair and open competition on a reciprocal basis,” but the dollar value of the procurement opportunities made available by the U.S. to foreign firms is nearly double what the other five largest partners combined make accessible to American companies. The chart below illustrates the scope of this imbalance.

NAFTA requires the trade partners to exchange procurement data annually, and while Canada is a country that greatly benefits from our covered procurements, GAO found that information on government contracting has not been shared since 2005.

Since NAFTA’s enactment in 1994, industries in all three countries have counted on stable supply chains that are based on the framework of NAFTA. Within that framework, US trade with Canada is worth more than $629 billion with Canada and $579 billion with Mexico. Changes to this framework could affect agriculture, auto and textile manufacturers, among many others.

Whatever happens with NAFTA, it should be noted that the administration is not working in a vacuum. Since his confirmation in May, the U.S. Trade Representative, Ambassador Robert Lighthizer, has been leading the U.S. effort, and the release of November Objectives Update clearly outlined the path forward. In addition, Mr. Lighthizer reports that he and his team have spent more than 700 hours discussing NAFTA with members of Congress and their staff “just since August,” and the Federal Register notice to gather input on negotiating objectives published in May 2017 drew more than 12,000 comments.

Mr. Trump has been clear on his view on trade, emphasizing that aspects of NAFTA that place American businesses at a disadvantage with our North American trading partners must be changed. And one area where American companies seem to face a disadvantage is when it comes to doing business with their own government.

Emily Baker serves on the board of advisers for Tsamoutales Strategies, is the founder and managing partner of Portman Square Group Communications and an adjunct professor at Boise State University. She led the General Services Administration Northeast and Caribbean region under President Bush.

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