Buy American (and be damned)!

Randy Jahn insists he did not want to play the “Buy American” card. But when his Illinois company lost a government contract to a foreign manufacturer, he had no choice, said the marketing director of Hoist Liftruck Inc.

The U.S. company lost a U.S. Defense Department bid in 2010 to build four 18-ton-capacity hoist trucks to Daewoo International Corp., the South Korean industrial conglomerate. The deal was worth $670,000, not huge dollars on a global scale, but big enough for Hoist.

Photo: John Burke

Last year, the Defense Department spent about $336 billion on contracts, mostly with defense and aircraft giants such as Lockheed Martin and Boeing Corp.

Daewoo, which means “great universe” in Korean, is no industrial slouch. It recently won a $1.4 billion contract from Chevron Corp. to build a natural gas drill rig off the coast of Australia.

In contrast, Hoist was founded 31 years ago in a Chicago suburban house owned by its president Marty Flaska. At its peak, Hoist had as many as 300 workers. But the long-running U.S. recession has cut Hoist’s sales by 90%, forcing a reduction of workers to just a handful.

When the hoist truck contract went to Daewoo, Jahn complained through his Illinois Congressman, Dan Lipinski, that the Defense Department was not abiding by the 1933 Buy American law, variations of which appear from time to time in other pieces of U.S. legislation. The law dictates that American-made goods be used in government contracts whenever practicable.

The latest appearance of the Buy American provision is in the $447-billion Jobs Bill presented to Congress by President Barack Obama in September. It extends procurement restrictions to states and other parties if they receive federal funding.

Jahn said Hoist doesn’t object to bidding competition — as long as everyone is on a level playing field. “We bid on military contracts all the time,” said Jahn, insisting Hoist’s bid was nearly identical to the South Korean steel giant’s. “But this contract just raised red flags.”

Lipinski agreed. “When Marty and Randy came to me last year and told me that a contract had been awarded to a South Korean company that should have gone to them under the rules of the Buy American Act, I was appalled, so I joined with them to take action,” said Lipinski at a news conference held Oct. 18 at the Hoist plant.

“When I questioned the Pentagon I got a boiler-plate response saying that this contract complied with the Buy American Act,” he said.

“But that claim didn’t hold up to scrutiny and eventually they were forced to admit that in fact the Buy American Act had been violated,” he continued. “The Department re-bid the contract and Hoist won.” He said the contract would lead to 40 new jobs at Hoist.

According to the Illinois Congressman, the Defense Department has violated the Buy American Act at least 44,000 times.

Lipinski’s timing of his press conference was intriguing. Just days before, Congress, in a rare bi-partisan move, voted to approve a U.S.-South Korean trade agreement (KORUS). It also approved similar deals with Panama and Colombia.

The KORUS pact, according to U.S. Trade Representative Ron Kirk, will be “the United States’ most commercially significant free trade agreement in more than 16 years,” since the North American free trade agreement (NAFTA) that gives Canada and Mexico open access to the U.S. market and vice-versa.

South Korea is the world’s 15th-largest economy and the U.S.’s seventh-largest trading partner. The U.S. International Trade Commission estimates that the reduction of Korean tariffs and quotas on goods alone will add $10-$12 billion to annual gross domestic product and could generate as many as 70,000 American jobs.

But Lipinski and 59 fellow Democrat congressmen and 38 Democratic senators disagreed. They voted against KORUS, as well as the Panama and Colombia trade pacts. Still, the bill passed and was signed into law by President Obama on Oct. 21.

The Canadian government has long complained about the Buy American Act, as well as a companion 1983 Buy American bill, which insists on American-made components in federally funded mass transit projects. The Canadians say they violate NAFTA. The issue was vigorously argued in 2009, when the Buy American provision surfaced in the $787-billion economic stimulus bill in the United States. Canada ultimately won an exemption in that bill.

“History has shown that in times of severe economic challenge, the global economy is revived by lowering trade barriers and that raising them will have the opposite effect,” Canadian Trade Minister Ed Fast said in a recent statement about the Jobs Bill.

The Mexican government is equally concerned about the re-emergence of the Buy American provision. “There is an unfortunate disconnect in understanding how critically important trade —particularly trade with Mexico and Canada — is to job creation and economic growth in the U.S.,” said Arturo Sarukhan, the Mexican ambassador to the United States.

“All of this does not fit in a bumper sticker whereas, unfortunately, ‘Buy American’ does,” he told Business without Borders. “What in fact we should be pushing for is ‘Buy North American.’

Complaints from trading partners, however, are not resonating in the United States, which is facing nearly double-digit unemployment, fears of a double-dip recession and a presidential election next year.

“In case you haven’t noticed, it’s not so easy for [Obama] to get things through Congress,” David Jacobson, U.S. ambassador to Canada, said in a recent speech in Ottawa. “So he had to make a tough call.”

Some economists do not agree.  “It was a real setback for President Obama to include a Buy American provision in his Jobs Bill,” said Gary Hufbauer, of the Washington-based Peterson Institute for International Economics.

“The Jobs Bill is going nowhere, but trade ministries around the world are well aware of protectionist backsliding by the Administration,” he told Business without Borders. “This has given license to any number of local-content measures in far-flung parts of the globe, many of them resulting in lost export sales by U.S. firms.”

Scotty Greenwood, executive director of the Canadian-American Business Council in Washington, said protectionist swings are nothing new, especially in times of economic stress.

“We oppose Buy American everywhere it arises,” she said. “But it’s a bit like playing whack-a-mole at the carnival.”

Read more:
Protectionism in Brazil
Protectionism in Argentina
Protectionism is back