Will International Trade Agreements Still Provide Protection In American Markets?

Will International Trade Agreements Still Provide Protection In America?

Discriminatory regulations and prohibitions on the free flow of capital act as barriers to trade in international construction services. The GPA aims to tear down these barriers and establish international protections, in part, for the trade in construction services. The text of the GPA establishes rules requiring that open, fair, and transparent conditions of competition are ensured in government procurem

ent. Results suggest that GPA membership has had a positive impact on the trade in construction services.

The GPA consists of 47 WTO members, including the United States. Another 29 WTO members and four international organizations participate in the GPA Committee as observers; nine of these observer status members are in the process of acceding to the Agreement. Signatories to the GPA undertake to provide “national treatment” (i.e. non-discrimination) to services provided by firms in other signatories. The GPA guarantees fair and non-discriminatory conditions for international competitive tendering, through for example, the requirement to put in place domestic procedures by which aggrieved private bidders can challenge procurement decisions and obtain redress in the event that such decisions are found to be inconsistent with the rules of the agreement.

On March 30, 2012, the GPA Parties adopted a revision to the GPA. The revised GPA expands the procurement covered under the GPA and provides international contractors with new opportunities to participate in sub-central government procurement in the other Member Nations. The revised GPA entered into force on April 6, 2014 after ten parties, two-thirds of the Parties to the GPA at that time, deposited their instrument of acceptance, which included the United States.

While international trade agreements normally only apply to national governments, most GPA Members under the revised GPA, including Japan, Korea, and Israel, have added a number of sub-central entities. For example, Canada provides access to its provinces under the revised GPA. In the United States, 37 states have voluntarily adopted the GPA, including the major construction markets of Texas, New York, and California.

States like West Virginia, where major infrastructure spending is imminent, and where stretching capital could result in the completion of more projects, would benefit from adopting anti-discriminatory measures such as those established by the GPA.

A Shift Towards International Realism Could Counteract Sound Infrastructure Policy

Important juridical differences exist across legal systems in the treatment of construction law norms, such as the freedom to allocate contractual risk. Before entering a foreign jurisdiction, foreign contractors must understand these differences. The adoption and application of the GPA, in practice, contributes to the harmonization of international construction law norms. The unification of international construction law norms under the GPA serves to mitigate the risk of legal uncertainty, an important consideration for international builders.

President Trump’s international realist worldview could counteract the gains in certainty that international trade agreements such as the GPA aim to advance. President Trump strongly justifies the philosophical shift by pointing to the fact that the United States has lost about 5.6 million manufacturing jobs between 2000 and 2010, while complying (generally at least) with the rules of international trade law. Consistent with the theory that globalization has had a negative effect on American prosperity, on the campaign trail in 2016, President Trump promised to place tariffs on the “unfair” trade of international goods and services. On April 24, 2017, delivering on this promise, the United States Department of Commerce imposed a preliminary 20% countervailing duty on Canadian softwood lumber.

Though the Canadian softwood lumber issue has existed for many years, European Union Trade Commissioner Cecilia Malmström, and the minister of economy of Mexico, Ildefonso Guajardo said in a joint-statement that President Trump’s actions have triggered a “worrying rise of protectionism around the world.” If trade liberalization is temporarily stifled (or reversed) by an increase in protectionism led by the Trump Administration, then state governments, who will soon need foreign contractors for support, must understand the causes and effects of these policies, or face complicated entanglements.

The Trump Administration Should Create An Infrastructure Exception

The Federal Government contracts out nearly half a trillion dollars of work per year, putting out requests for firms to provide services such as construction. Except in certain cases like sensitive defense work, both domestic contractors and foreign contractors bid on these contracts, competing to provide the lowest price and deliver the best results. Consequently, the Federal Government takes advantage of private firms’ capacity and expertise at the most competitive market rate.

But President Trump’s Buy American executive order lack details, and so it is unclear whether it will result in specific changes to existing law. The Trump Administration’s America First policies signal an effort to strengthen law that protects domestic industry and Americans workers, which may have an impact on those bidding for federal contracts. After taking office, President Trump stated:

“We’re sending a powerful signal to the world. We’re going to protect our workers, defend our jobs, and finally put America first.”

Buy American policy may protect American workers, but it may also harm the nation’s efforts to rebuild critical infrastructure, by causing international contractors to further retreat into their own domestic markets. Ironically, despite President Trump’s campaign speeches on “ripping up” the North American Free Trade Agreement (“NAFTA”), the Trump Administration can look to NAFTA to cure this paradox.

The Trump Administration can cure the apparent conflict between protecting American workers and procuring international builders by carving out exceptions to its America First policies, similar to those established by NAFTA. For example, under NAFTA, Canadian companies benefit from waivers to Buy American provisions based upon public interest, non-availability of material, or unreasonable costs, as well as any national blanket or project-specific waivers that may be in place or may be granted upon application.

Notwithstanding the Trump Administration’s acts, all states with infrastructure that demands immediate attention can reassure international contractors that state governments offer a safe haven by providing international contractors with protections consistent with the GPA. States that are philosophically aligned with the Trump Administration, such as West Virginia, are apprehensive about inviting foreign contractors into domestic markets. But these states should understand that under the revised GPA, the United States maintains all of its current exclusions and exceptions, including set-asides for small and minority firms. Additionally, consistent with GPA general rules, commitments for construction services are only triggered if a project exceeds $7,358,000 USD.

Regardless of how the Trump Administration treats international trade law, states like West Virginia should take action to independently encourage investment. With domestic contractors facing record-setting backlogs, Governor Justice will need foreign contractor support to execute his Roads Building Plan, or face longer project delivery times and increased project costs.

Could Individual States Form A Block And Negotiate An Infrastructure Treaty?

It remains unclear what the real effect of the Trump Administration’s policies will be. If, in the end, the Trump Administration’s policies have no other effect, but to discourage international contractors from bidding and building major state infrastructure work, then what can individual states do? Could an association of individual states form a trading block and negotiate a treaty with allied nations like France, Spain, and Italy, which host many of the world’s largest, most effective, and most mobile international contractors, like Vinci, Technip, Bouygues?

This concept raises an interesting (and disputed) constitutional law issue. The issue is whether individual states have the power, through the Tenth Amendment to the United States Constitution, to execute treaties with foreign nations. In Gade v. National Solid Waste Management, the Court held that even without a conflict between federal and state law or an express provision for preemption, the courts will infer an intention to preempt state law if the federal regulatory scheme is so pervasive as to "occupy the field" in that area of the law. For example, the Court has held that the National Labor Relations Act (“NRLA”) preempts state laws directed at conduct actually or arguably prohibited or protected by the NLRA or conduct Congress intended to leave unregulated. Like the NRLA, the Court would likely infer an intent to preempt state law affecting public procurement in the international trade law dimension, or that the GPA is so pervasive, that it, in effect, occupies the field.

From a pragmatic angle, such a treaty would likely never materialize. Nevertheless, the specter of it, could at least place pressure on the Trump Administration to reevaluate the potential countervailing effects of its America First policies on domestic construction markets, which are essential to the rehabilitation of the nation’s failing infrastructure.

The American Road To Crumbling Infrastructure; Paved With Good Intentions?

America’s roads, paved with good intentions. But good intentions will not fix America’s infrastructure, which is in desperate state of disrepair. On this fact, there is widespread bi-partisan agreement.

Crumbling infrastructure needs replacement, in particular at the state level. The issue is complicated by the states’ equally dire fiscal positions. In response, the Trump Administration has pledged its intent to “get out of the way” and to support the states with federal funding. But the Trump Administration’s promotion of international realism and skepticism for supra-national trade agreements may have unintended consequences. The Trump Administration should monitor the countervailing effects of its policies on domestic construction markets.

By working a foreign contractor infrastructure exception into America First policies, the Trump Administration may be able to untangle a complex Catch-22, and achieve its goal to “Make America Great Again” by putting America and its workers back on a stable road to prosperity.