THE TTALK QUOTES

On Global Trade & Investment

Published Three Times a Week By

The Global Business Dialogue, Inc.

Washington, DC Tel: 202-463-5074

Email: Comments@gbdinc.org

No. 13 of 2015

FRIDAY, FEBRUARY 13, 2015

Filed from Portland, Oregon

Click here for Wednesday's quote from Norman Bessac of Cargill.

THE PROGRESS OF "NO" - CHRISTIE'S PROCUREMENT DECISION

"Building walls around our State, or our Nation, will not improve the lives of our citizens."

Governor Chris Christie
February 5, 2015

CONTEXT

New Jersey-population 8.9 million-has a bicameral legislature. The two houses are the General Assembly and the Senate. Legislation was introduced in both houses last March to beef up the Buy American provisions of New Jersey law. A final version of the principal bill, NJ Senate Bill No. 1811, was approved by both the Senate and the Assembly on December 18, 2015. On February 5, 2015, Governor Christie, a Republican, vetoed Senate Bill No. 1811, along with four other bills with similar objectives. Today's quote is from his veto message.

The Governor did not reject the stated goal of this new Buy American legislation. As he put it:

"I believe in the need to support American companies as they endeavor to compete in an ever-changing global market place. That is why current law requires public work to be sourced, whenever practical, from American suppliers."

The bill he voted, however, would have gone quite a bit beyond that. Current law relates to construction and public works in New Jersey. S-1811 deals with virtually all state purchases, includes a local-content test, and adds for good measure new and onerous reporting requirements.

In explaining his veto, Governor Christie wrote:

"Rather than helping Americans, these bills will simply drive up the price of doing business, and threaten job creation."

He also pointed out that:

"[F]oreign-headquartered companies are responsible for over 225,000 New Jersey jobs. Those companies, in turn, infuse billions of dollars into New Jersey's economy, not only in direct investment and jobs, but indirectly to thousands of other New Jersey business that provide goods and services to support their operations."

What's Next? The U.S. Constitution gives the President just ten days to decide on a response to the legislation that lands on his desk. Clearly, New Jersey law is more generous. Otherwise the process is similar. The legislature could override Governor Christie's veto. Recent history suggests that is unlikely. In his five years in office, Chris Christie has vetoed more than 350 bills. None of those vetoes has been overridden, and we doubt this one will be the first.

COMMENT

We think the governor made the right call and for the right reasons: building walls around New Jersey or America will (as a general proposition) only make America's economic challenges more difficult and strong growth more elusive. We also think that having a significant interlude between the final passage of these new Buy American bills in the New Jersey legislature and Governor Christie's action on them has turned out to be an aid to good government. It provided time for knowledgeable experts to weigh in.

To be sure, there were warnings well before the December votes. In early December, for example, Canada's Consul General in New York, John Prato, commented that "This bill here will have dire consequences for the trading relationship between Canada and the state."

It is generally worth listening to Canadian officials in situations like this. That's not because they are always right. They are not. The U.S.-Canada trading relationship is huge, with lots of disputes. And U.S. negotiators need to be tough because the Canadian negotiators are. That's true for many of America's trading relationships. The difference is that Canadians are more likely than others to speak out publicly on issues like this. In any case, Mr. Prato's comments were made before New Jersey's new Buy American bill was on Governor Christie's desk.

Between the votes in the legislature on December 15, 2014, and his veto message on February 5, 2015, we assume the governor got lots of mail about S-1811, from union supporters of the legislation, from business opponents, and from others. Two letters that struck us as especially noteworthy were the letter to the governor from the Organization for International Investment (OFII), dated January 12, and the letter from the National Foreign Trade Council (NFTC) dated January 28.

In her letter, Nancy McLernon, the president and CEO of the Organization for International Investment, highlighted the dramatic expansion in the number of products and purchasing entities that would be covered by the new Buy American bill. And she questioned whether the bill would create any jobs in New Jersey. Ms. McLernon wrote:

"The proponents argue this bill would lead to local job creation in New Jersey. OFII disagrees because U.S. subsidiaries [of foreign-owned corporations] employ approximately 73,000 state manufacturers, producing products that often rely on global supply chain[s]. These jobs are at risk if the firms are unable to sell to the state and localities. Additionally, the legislation does nothing to guarantee that products will be sourced from New Jersey, as they could meet the bill's domestic content requirements if sourced from California or South Carolina for instance."

Bill Reinsch, the president of the National Foreign Trade Council, amplified the point, writing:

"Not only does exclusion of foreign content for procurement inevitably require the state to purchase products at a higher cost, the disclosure requirement for companies bidding on contracts could cause competitive suppliers to forego bidding."

***

When Ambassador Froman appeared last month before the Senate Finance and House Ways and Means Committees, he argued-correctly, we believe-that America's is essentially an open economy. And yes, the average trade weighted applied tariff in the United States is low, 2.1 percent. But tariffs don't tell the whole story. There isn't an American exporter who isn't frustrated by non-tariff barriers abroad, and America's non-tariff barriers have to be included in any honest portrait of America's trade policy.

Finally, a word from someone we had not known about until we started hunting for reactions to Governor Christie's veto. He is Vernon Orgonek, who writes for the PressofAtlanticCity.com. He is not a fan of expanding New Jersey's Buy American laws. Here is some of what he wrote:

"Economic markets are not a choice. Even calling them 'free markets' is misleading, because it implies there is some alternative that's not free.

"There is only the market, the vast and complex interaction of all humans on the planet, each selling their services and fruits of their labor, each doing their best to get what they need and want in the most effective efficient way.

"Politicians can interfere with the market, and like to do so because it creates opportunities for them to confer favors and get rewarded. They can posture about blocking those enemy factories abroad to force jobs back into U.S factories.

"The champions of market interference were the Communists of the old Soviet Union. By the time their nation failed, they had put the Russians so far behind they may never catch up."

Yes there are things here we would quarrel with. There is also a refreshing clarity we can only admire.

Enjoy the Weekend!

SOURCES & LINKS

On Rejecting S-1811 is a link to Governor Chris Christie's veto message of February 5, 2015, with his views on legislation to expand New Jersey's Buy American provisions.

About the Bill takes you to a New Jersey government web page with information on this legislation.

One Possible Veto is a Wall Street Journal story of February 4, which discusses the history of Governor Christie's vetoes and suggests one that might be overridden.

From the Organization for International Investment is a reference to OFII's January 12 letter to Governor Christie. This excellent letter does not appear to be readily available from the OFFI website, and so we have temporarily posted it on the GBD site, which you can read here.

From the National Foreign Trade Council is a link to the NFTC's January 28 letter to Governor Christie.

A Canadian Reaction is a link to the NJ.com story of December 11, 2014, with the comments from Canada' Consul General in New York.

Applied Tariffs takes you to a WTO tool for researching key trade date on WTO members, including average tariff rates.

Just the Market is a link to the article by Vernon Ogrodnek that was the source for today's final quote.

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R. K. Morris, Editor