Todd Tucker of Global Trade Watch recently complained that the WTO Government Procurement Agreement restricts the ability of the U.S. government to favor domestic solar panel producers through its Buy America procurement policies:
... dig a bit deeper into the NYT story to understand what the phrase "subject to the exceptions..." means in plain English:
Two prominent trade lawyers said in e-mails over the weekend that the law’s language meant that in practice, the Defense Department must buy solar panels from any country that signs the W.T.O.’s side agreement on government procurement. Earlier American trade laws require compliance with that agreement.
Virtually all industrialized countries have signed the side agreement, which requires free trade in government purchases. China vowed to sign it as soon as possible when it joined the W.T.O. in November 2001, but still has not done so.
The two trade lawyers said that the United States was within its rights to discriminate against Chinese solar panels in military procurement.
It's true. We have to exempt the 39 members of the WTO's Government Procurement Agreement from Buy America rules, which includes Korea and other major competitors. These exemptions also apply to an additional 13 countries with whom the United States has so-called "free trade agreements." They would apply to Panama and Colombia if President Obama adopts those Bush-negotiated pacts as his own.
All that's keeping the U.S. Buy America program from giving advantages to Chinese solar panels is a piece of paper (signing the WTO's procurement agreement). China could sign that piece of paper tomorrow, and get those benefits.
Why did U.S. negotiators ever agree to give away the store like that? So much for our bright future of domestic solar panel production.
His point seems to be that the Government Procurement Agreement prevents us from developing a domestic solar panel industry through the use of Buy American provisions. In his view, these international constraints are a bad thing, as procurement could be a useful way to achieve this goal. A similar issue came up in response to my post on the U.S. complaint against Chinese wind power equipment subsidies, which (allegedly) involve a subsidy contingent on the use of local content. In the comments there, I quoted an article from Kevin Gallagher which states: "Every nation should be given all the policy space they need to develop technologies to mitigate and adapt to climate change in a manner that creates jobs and harnesses development. Included in that space should be precisely these types of conditional requirements that have allowed China (like the US before it) to build its domestic capacity for economic development." In addition, Julia and I also recently discussed these issues in the comments to this post, and Aaron Cosbey and I discussed them in the comments here.
Let me try to clarify my thinking about this issue, which might not have been clear enough in the linked discussions. I thought it was fairly well accepted that the WTO allows for protectionism, but simply requires that it be carried out through tariffs, a more transparent mechanism than protectionism incorporated into internal laws (of whatever sort -- regulations, subsidies, government procurement, etc.) Thus, it's fine if you want to use tariffs to develop the solar panel or wind power industries. You just need to negotiate with your trading partners on the issue. No doubt your partners also have plenty of industries they would like to protect, so it shouldn't be too difficult to achieve your goals, as long as they are within reason (that is, you are not looking to protect every industry).
In contrast to tariffs, protectionism buried deep in complex statutory and regulatory language at all the different levels of government is difficult to track. Hidden protectionism of this sort may let countries cheat and use more protectionism than they negotiated for. As a result, WTO rules prohibit it for the most part, so as to force protectionism out into the open.
Here's what I can't figure out. Are the arguments in favor of the use of discriminatory measures -- such as local content requirements or Buy American provisions -- based on the view that there should no international limits on protectionism, and that countries should have unlimited discretion here? Or is there a more modest goal of allowing for additional forms of protectionism beyond tariffs, but still keeping it constrained somehow? If the latter, how would those constraints work? And what about the transparency issue?
Related to all this is the issue of whether governments should engage in "industrial policy," and whether WTO rules allow it. As I understand it, industrial policy is generally thought of as much broader than protectionism. There are many things that governments can do in this regard that don't necessarily constitute discrimination against foreigners, and are likely to be permissible under WTO rules. The problem with evaluating the permissibility of industrial policy, I think, is that there is such a wide range of measures that could be taken, it is hard to say anything definitive about their consistency with WTO rules. If they are discriminatory in nature, it's relatively easy to assess. For measures that are not discriminatory, however, I think you would need to look at the specific details of each measure before deciding on their consistency.
