Posted on 12/20/2003 2:02:39 PM PST by Willie Green
For education and discussion only. Not for commercial use.
There was a media firestorm last week when it was “discovered” that the United States was only going to allow American firms and those from allied countries to bid on $18.6 billion of Iraq reconstruction projects. Yet, this was old news.
When the Pentagon set up its Office of Reconstruction and Humanitarian Assistance, its mandate was to make contracts only with American firms. The U.S. Agency for International Development had similar rules. As USAID administrator Andrew Natsios said last April,. “Some countries have complained that they were not invited to bid for these projects, which are funded by U.S. taxpayers.” He then noted “foreign aid agencies in most countries try to award contracts to their own companies, supporting business at home while delivering assistance abroad -- just as Americans want to see their tax dollars support jobs at home.” British Prime Minister Tony Blair also defended the right of Americans to “decide how to spend their own money.”
As Washington administers postwar Iraq, it must structure economics in line with geopolitics. If foreign governments and corporations are free to act against American interests without cost to themselves, how can they be deterred from doing so again? France, Germany, Russia and China bet on the wrong horse when they backed Saddam Hussein against the U.S.-led coalition, and deserve to lose their stakes. U.S. policy should guard against the use of trade and investment by foreign states to establish factions hostile to Coalition objectives. Economic policy should be used to strengthen Coalition-Iraqi ties.
The accusation of the liberal Washington Post that the Bush administration is being “arrogant and self-defeating” and engaging in a “spiteful unilateralism” was pure nonsense. The alignment of Great Britain, Italy, Spain, Japan, Poland and some two dozen other countries supporting the United States is just as multilateral as the opposing alignment. Even the claim that France and Germany would reject U.S. initiatives to lessen Iraq´s international debt burden has been proven wrong, as special envoy James Baker received pledges from both France and Germany that they would cooperate in writing down Iraq´s debts. Indeed, the U.S. hardline on contracts may well have strengthened Baker´s hand by demonstrating Washington´s willingness to impose economic costs on non-cooperative governments. It is better for Paris and Berlin to accept some negotiated debt reduction than face an Iraq that could justifiably reject all claims by those who had funded the deposed tyrant.
The real problem highlighted by the Iraq contracting ruckus centers on the World Trade Organization and is of America´s own making. It is another consequence of misguided 1990s trade policy that President George W. Bush should revoke. The European Commission (an arm of the European Union) is considering filing a complaint with the World Trade Organization claiming that under the Government Procurement Agreement (GPA), governments in most cases must open their purchasing processes to international competition and treat domestic and foreign firms equally. The GPA was signed in 1994 as part of the Uruguay Round which created the WTO, but is actually a separate agreement which only 28 nations have signed. Unfortunately, the United States not only signed it, but pushed for it.
Governments have long used procurement to support domestic industry, particularly public infrastructure, national defense, and other strategic sectors. It is both good politics and sound economics for money taken out of the economy through taxes or borrowing to be plowed back into the economy via procurement. The United States, with a $2 trillion Federal budget, is well positioned to make use of such policies itself, but instead its trade negotiators – perating as usual under the undue influence of transnational corporate lobbyists – chose to give up this capability in the hope of opening foreign government markets. The results have not been encouraging.
Article V of the GPA takes into account “the development, financial and trade needs of developing countries” so that they can continue to restrict procurement to “promote the establishment or development of domestic industries....[and] support industrial units so long as they are wholly or substantially dependent on government procurement.” They are also free to negotiate “mutually acceptable exclusions from the rules on national treatment.” In developing countries, the general population is very poor and does not present a very attractive market. The only customer with any appreciable amount of money is the government. Thus opening procurement in developing countries would make sense as a U.S. objective, but the GPA did not do this. Indeed, even with these exemptions from the GPA rules, most developing countries have refused to sign the GPA.
GPA Article XVI bans the use of offsets “in the qualification and selection of suppliers” yet as the U.S. Commerce Department´s Bureau of Industry and Security has reported, “Today, virtually all of the defense trading partners of the United States impose some type of offset requirement. Countries require offsets for a variety of reasons: to ease the burden of large defense purchases on their economy, to increase or preserve domestic employment, to obtain desired technology, and to promote targeted industrial sectors.....Developed countries with established defense industries are using offsets to channel work or technology to their domestic defense companies. Countries with newly industrialized economies are utilizing both military and commercial related offsets that involve the transfer of technology and know-how.” Thus the GPA has failed again to advance American interests even in the sector in which the United States has its greatest comparative advantage.
Yet, when the House Armed Services Committee earlier this year proposed reforms to bolster the domestic production of critical weapons technology for the American armed forces, the office of U.S. Trade Representative Robert Zoellick objected even though the GPA allows “the protection of essential security interests relating to the procurement of arms, ammunition or war materials, or to procurement indispensable for national security or for national defense purposes.” Thus, the GPA has been used mainly to cut the throats of American business.
The GPA and WTO are based on non-discrimination, an entirely wrongheaded notion of how the real world of international relations works. There is a natural hierarchy of concerns which any responsible government must recognize and which demands discrimination. First comes concern for one´s own country and its people, then for allies in mutual support. Neutrals deserve no consideration unless induced to become allies. And rivals are to be denied the economic and other means needed to advance their opposing agendas. The Iraq model fits reality and should be continued, the WTO model is based on a dangerous fantasy of international harmony that does not in fact exist. It should be abandoned before it leads to economic and national security disasters.
William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
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