Buy-American Laws Failing to Aid U.S. Firms

WASHINGTON —  California’s depressed Humboldt County, eagerly awaiting 500 jobs from its first new manufacturing industry in decades, suffered a major disappointment in July when Exxon Corp. decided to save $100 million by having two floating oil-drilling platforms fabricated in Korea instead of the coastal city of Eureka.

The local congressman, Rep. Douglas H. Bosco (D-Occidental), responded in time-tested fashion: He tried to outlaw what had happened to Eureka. Complaining that “we need good blue-collar jobs, work for young people and heads of families,” he introduced legislation requiring that future drilling platforms be built in the United States.

Bosco’s “buy-American” plan, which has already passed the House, represents an increasingly common response to the difficulties that beset U.S. companies competing with firms overseas, where labor costs are low. In addition to a host of protectionist measures already in place at the federal level, no fewer than 37 states--not including California--have variations of laws requiring government agencies to buy American.

In practice, though, most of these efforts to shelter the government market are doomed to failure. Technology and modern production methods have spread to all corners of the globe, enabling foreign bidders to offer not only low prices but high quality, and government agencies have found ways to take advantage.

Laws Widely Ignored

State buy-American laws appear to be ignored more than they are enforced. State officials, when asked how their laws are working, typically would rather discuss governors’ trips abroad to seek investors who will open factories in their states.

At the federal level, where the Defense Department is supposed to favor American suppliers, a Pentagon spokesman said: “Each contract is looked at on its own merits.” Business executives and government officials acknowledge that loopholes in the department’s buy-American rules allow a massive volume of military imports.

And when buy-American provisions have worked, economists say, there has been an enormous cost for the jobs they have protected. In the case of Exxon’s floating oil platforms, for example, keeping the jobs in Eureka would have cost the oil company $100 million--$200,000 per job for 500 jobs that would have lasted for about two years.

Murray L. Weidenbaum, President Reagan’s first economic adviser, estimates that protectionist measures of all kinds, including buy-American restrictions, already raise prices to U.S. buyers by $58 billion a year.

“We delude ourselves if we think that the solution to the real problems facing American industry is more government intervention,” Weidenbaum, now an economist at Washington University in St. Louis, wrote in a recent study.

More Restrictions

None of this is stopping Congress from enacting more buy-American restrictions. Already this year, Congress required the Tennessee Valley Authority and other federal power agencies to award contracts for heavy-duty electrical equipment to U.S. firms as long as their bids do not exceed those of the lowest foreign bidders by more than 25%.

A similar 25% price advantage, enacted in 1982 for steel used in federal highway and bridge construction, is regarded as the government’s most effective buy-American provision. The steel industry says this advantage is probably worth a million tons of steel and 10,000 U.S. jobs a year in steel and related businesses.

“The legislation is very successful in terms of . . . keeping people working,” said Kenneth Kovack, a lobbyist for the United Steelworkers of America.

The steelworkers have joined construction unions and domestic steel producers to push for Bosco’s bill, which would impose a strict buy-American policy on the oil-drilling platforms that operate in federally controlled waters of the outer continental shelf. Bosco said that domestic industry would enjoy new orders generating $10 billion in revenues and 25,000 jobs, with coastal California receiving a substantial share of the platforms.

“I’m not a protectionist,” said Bosco, who has opposed bills to curtail textile imports and to require cars sold in the United States to have parts made in America. However, he notes that the government allows only domestic oil companies to produce oil from the outer continental shelf and says it would make sense to insist that the platforms and rigs for extracting the oil be made in America.

Even without any government regulations, Exxon had hoped that the two new drilling rigs it needed to triple its oil production from the Santa Barbara Channel could be built in the United States. It knew that nine of the previous 10 rigs for U.S. waters had been fabricated overseas.

Exxon’s Effort

To ease the way for U.S. bidders to do their construction work in Eureka’s protected bay, Exxon spent almost $1 million on legal fees and related expenses in arranging for the state and local permits to construct the rig “jackets”--the eight-legged, 1,000-foot-deep structures that hold drilling platforms 100 feet above the water level. The city, welcoming Exxon’s effort, offered a site for a rental fee of $1 a year.

Korean Bid

With such incentives, three U.S. companies bid for the Exxon contract; however, so did three foreign companies. Industry sources said that Hyundai Corp., a giant South Korean conglomerate, offered to build the two platform jackets for about $100 million--half the cost of the lowest domestic bid.

So much for Exxon’s plans to buy American. “The difference was just too much for a prudent business decision,” said D. G. Warner, the Western division manager for Exxon Co. U.S.A.

Jim Hoff, a former Eureka Chamber of Commerce president, said the Exxon contract would have provided a “beacon of hope” to the region 250 miles north of San Francisco, where the timber industry has been suffering. However, he said he could not fault the oil company for accepting Hyundai’s bid.

“My hat is off to Exxon,” Hoff said. “They tried. They wanted to have at least one domestic site so they could allow domestic contractors to bid on the project.”

Jobs for Eureka

And Eureka is not entirely frozen out of the floating oil rig business. Some 200 people will soon be working on the “topside”--the working area, crew quarters and drilling rig--for a third platform that Exxon plans to locate in the Santa Maria Basin near Point Conception. Local officials hope they can also land the contracts for building the topsides for the two platforms being assembled in Korea.

Bosco’s buy-American proposal for floating oil rigs is not the only such bill that has cleared the Democratic-controlled House this year. Earlier this year, the House adopted an amendment barring foreign companies from federal contracts for high-voltage transmission equipment.

The Reagan Administration and the Republican-controlled Senate resisted that hard-line approach, and the final compromise provides domestic companies the same 25% price advantage enjoyed by suppliers of steel to federal highways and bridges.

“These buy-American provisions are like pests or rodents. They turn up everywhere and have to be fought at every turn,” said Raymond S. Calamaro, a Washington attorney representing ASEA, a Swedish firm afraid of losing its sales of electrical-generating equipment to TVA, the Bonneville Power Administration and other federal power agencies.

‘Protectionist Fever’

John J. O’Hara, president of ASEA Inc., the American subsidiary, called the 25% rule an “ill-advised and dangerous trade restriction” enacted in a fit of “protectionist fever.” He pointed out that Sweden, which he called “an open market for sales of electrical equipment,” already runs a trade deficit with the United States.

Outside Washington, state officials have had even less success than the federal government at erecting bulwarks against governmentally purchased imports.

California, for example, once had a “buy-California” law that gave preference in state contracts to bidders manufacturing most of their products within the state. The state Court of Appeal struck down that law as unconstitutional in 1970.

In Connecticut, one of the 37 states with buy-American provisions still on the books, Larrye deBear, Democratic Gov. William A. O’Neill’s press secretary, said: “We know that foreign companies are going to sell their goods in the U.S. Given that, let’s do the best we can to convince the companies who are going to sell in this state that they should set up companies in Connecticut to assemble, market and service their products.”

Overseas Trips

O’Neill has made two overseas prospecting trips, and the state has opened offices in West Germany and Japan. DeBear said no one has pressed the governor to enforce the state’s buy-American law.

Similarly, Alabama’s buy-American law is virtually a dead letter. Democratic Gov. George C. Wallace recently returned from a 20-day industry-hunting trip to Hong Kong, China and Korea, according to his press secretary, Billy Joe Camp. And an Austrian chemical company recently opened a plant in Evergreen.

The New Jersey Assembly, the lower house of the state legislature, earlier this year passed a sweeping law requiring the state to buy only domestic products. Republican Gov. Thomas H. Kean fought the bill, and the version ultimately enacted makes foreign products acceptable as long as the seller has a distribution agent in New Jersey.

“We send people all over to convince foreign corporations to invest in New Jersey,” Carl Golden, Kean’s press secretary, said in an interview. “They have invested millions and created thousands of jobs,” and he said it did not make sense to try keeping out goods from overseas.