Executive Branch Identification of Discrimination in Foreign Government Procurement

Published by the Government Accountability Office on 1990-05-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                    United   States General    Accounting    Office

For Release          Executive     Branch  Identification
on Delivery          of Discrimination       in
Expected      at     Foreign    Government     Procurement
1O:OO    a.m.
May 1, 1990

                     Statement        of
                     Allan      I. Mendelowitz,        Director
                     Trade,       Energy     and Finance      Issues
                     National       Security     and International
                         Affairs      Division

                     Before    the
                     Subcommittee     on Legislation      and National         Security
                     Committee     on Government     Operations
                     House of Representatives

GAO/T-NSIAD-90-35                                                        GAO Form 160 (12/f=-)
Mr.     Chairman           and Members of the                   Subcommittee:                    Thank you for                 asking
us to testify               on executive              branch        efforts         to identify                  foreign
discrimination                in procurement              under        the Buy American                     Act      of 1988.

This      act,      also      known as Title              VII       of the       Cmnibus            Trade         and
Competitiveness                   Act    of 1988,        requires          the President                   to     identify,             in
an annual           report,         countries          that      discriminate                   against          U.S.
companies           in their            government        procurement               practices.                   Countries
identified               in the     report         are subject          to sanctions                 that         would        limit

their      access          to U.S.         government           procurement,               if     negotiations                 to
correct          their      inequitable              practices         are unsuccessful.                          The U.S.
Trade      Representative                  (USTR) is          responsible            for         implementing               Title
VII     and preparing               the      annual      report.

In response               to your         letter      of May 1, 1989,                expressing                  concern         about
the implementation           of Title  VII,                      we recently               completed              our      report
        . - ._
            -..L ---national   Procurement:                         Problems         in Id?ntifying                       Foreign
Discrimination                Against          U.S.     Companies          (GAO/NSIAD-90-127,                           Apr.     5,
1990).           In this          report       we assessed           the      availability                 and adequacy                 of
information               about      foreign         practices         and reviewed                 executive              branch
efforts          to gather          this       information           for      the    President's                  first

The legally               mandated         efforts       to identify             countries                that
discriminate               against         U.S.      companies         were slow getting                         started.              The
fact      that      much of the              20 months          available           to conduct               the

investigation             was not         used concerned               us,     because           it     is     often
difficult         and time          consuming         to obtain              evidence         of foreign
discrimination.                  Also,      USTR decided          to take             a broad           look         at
virtually         every      country         around      the     world         to     identify           potential
discrimination;                 USTR did      not     focus      its         investigation               on the most
significant             countries         where the       United             States      has the             necessary
leverage         to effect          change.

Information             about     foreign       procurement             practices             falls           into        two
broad       groups:       procurement          covered          by the GATT Government
Procurement             Code,     and procurement               not covered              by the          code.1
Information             on code-covered             procurement               is    fairly            comprehensive                    but

it     takes     time      and expertise            to analyze.                 Information                  on non-code-
covered         procurement           is often        incomplete              and uneven               in quality.
Much of the             information          collected          in the         past      is anecdotal                     or
general,         based      on industry           complaints            or other             information-
gathering         activities             on specific           trade         sectors.            Some         emerging
areas,         such as procurement                of services                and of military                   items,            are

especially          difficult            to investigate            because            they       generally                lack         the
transparency             created         by the     predictable               rules      and open procedures
such as those              applicable         to code-covered                  procurement.

We found         that      the    U.S.      government's           ability            to obtain               information
on foreign            procurement           practices          has been hindered                       in the         past        by a
lack        of procurement            expertise         on the part                of international                       trade

lGenera1         Agreement          on Tariffs          and Trade             (GATT)
officials           and by other                  resource        constraints.                   Also,      the    fear      of
retaliation               from       foreign         governments            still         exists,         and U.S.
companies           have not            come forward              with      many complaints,                    despite
provisions              for    confidentiality.

To illustrate,                 the      United        States       Trade         Representative's                  annual
National           Trade       Estimate            Report        on Foreign           Trade         Barriers,           (NTE
report)           which       was recently              re-issued,            describes             discriminatory
procurement               practices.               The NTE report                depends          on the        same
information-gathering                          methods        as the        Title         VII     report,         but
responsible               U.S.       officials          do not          consider          the     information             in it
adequate           to     identify          countries            for     Title      VII         purposes.
Nevertheless,                 USTR relied             on these           same methods               and sources            for      the
Title       VII     investigation.

As in most trade                     investigations,                   a Federal          Register           notice       was used
to gather           much of the                 necessary         detailed          evidence             from     the     private
sector.             Second,           the        investigation             relied         on Washington-based                     USTR
and Department                 of     Commerce country                   desk officials                  to provide         any
knowledge           of procurement                   problems           gained      through          their        following
code issues               or from         other       overlapping             trade        investigations.                  And
third,        the       investigation                relied       on a detailed                  questionnaire             sent      to
U.S.      overseas            posts       for      information            about       each country's
procurement               procedures              and laws.
After       the     investigation,               the     executive           branch          was required             to
identify          countries         for     potential             sanctions;             decision-makers               weighed
the     evidence        against           the discriminatory                     criteria           specified         in Title
VII.        However,       a more in-depth                  investigation                   might      have developed
additional           evidence           important         to the Title                VII        process.

We believe            future      USTR efforts               should         be more focused                  to make
better       use of available                 resources               and expertise.                 Also,       many of the
countries           investigated            represent              very     small        potential           markets         for
U.S.       companies.            Therefore,             in our report,                we recommended                 that     the
United       States       Trade         Representative                  narrow      the      scope of future                 Title
VII      investigations,             before            information            gathering             begins,       to exclude
those       countries           which      the    United           States        cannot          realistically
sanction           because       we buy very             little           from them.

We testified             last     year      before         +hi-         qllhcommittee             on the
disappointing              record         of the        GATT Government                   Procurement            Code to
open up international                      procurement                markets       to      U.S.      companies            and to
remedy the            imbalance           between        U.S.         and foreign             code-covered
procurement            opportunities.              2     We believe              successful             completion           of
current           negotiations            to broaden              the     code to other               areas,      together
with       a more focused               implementation                  of Title          VII,      will      help    achieve

21nternational   Government                        Procurement               Issues         (GAO/T-NSIAD-89-50,
Sept. 27, 1989).
Some long      overdue   progress      in increasing    U.S.     sales   to      foreign

Thank you,      Mr. Chairman,       that   concludes   my remarks.        I'll       be happy
to answer      any questions    you and the       Subcommittee       may have.

(483531)                                     5