Is Buying American Selling Constitutionality?

By: James Carlson

On Thursday, January 28th, the House of Representatives passed the American Recovery and Reinvestment Act of 2009, which is better known in the media as the economic stimulus package.  Senate passed a compromise bill on February 7th, and the House of Representatives approved that bill this past Friday.  The bill resembles a congressional appropriations bill in that it grants funds to various local and national projects. The Governor of each state will receive the funds, and dispenses it according to the bill’s provisions.  One provision in particular is raising constitutional scrutiny, and international condemnation.

The Buy American Provision (H.R. 1 Sec. 1604)

SEC. 1604. USE OF AMERICAN IRON, STEEL, AND
MANUFACTURED GOODS. (a) None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

This provision places limits on how the economic stimulus package will be spent. There are several exceptions where funding must be “applied in a manner consistent with international agreements” and with “the public interest”.  Contractors may opt out of the requirement when purchasing American products raises the price of the project by more than 25 percent or such goods of reasonable quantity or quality cannot be found in the United States.  The original House Bill from January only included iron and steel, but the Senate extended the provision to cover all manufactured goods.  This is a major issue because Canada, whom the United States has a free trade agreement with, is a major steel importer and trading partner with their southern neighbor through NAFTA.

Constitutional Analysis

With the backdrop of a trade war on the horizon, I would like to examine the constitutional arguments through my current understanding of constitutional law. It is important to note that all the funding for the economic stimulus package spans for only this coming year.  That means any injured parties would need injunctive relief before 2010, or the courts may find the issue moot, unless a party can prove certainty with damages.

The Treaty Powers

There are two major treaties at work in this scenario: the North American Free Trade Agreement (NAFTA) and United States’ membership in the World Trade Organization (WTO).  The United States has a free trade pact with Canada, and trade restrictions would violate this.  During the Bush administration, congress placed protective tariffs on steel imports, but expressly exempted Canada and Mexico, fellow members in NAFTA.  The Buy American clause does not do that, but includes a provision in Sec. 1604(d), which requires international agreements be satisfied.

If congress passes an unconstitutional law, and puts wording in the provision that the law may only be applied within the scope of the constitution, is that enough?  This would be a good time to invoke the overbreadth doctrine. It appears congress wants to eat their cake, and have it to.   There’s no clear definition how the government plans to apply this provision constitutionally, and in the confusion, contractors and subcontractors are forced to obey the full limitations for fear of losing their bids or funding.  The bill articulates no actual standard for determining what is valid and what is not.

Title XV of the bill provides for the creation of a Recovery Accountability and Transparency Board to “conduct oversight of covered funds to prevent fraud, waste, and abuse.”  The Board is responsible for ensuring the Buy American provision is satisfied, but it is the governors who determine which parties receive funding.  Because of the disagreement over whether NAFTA must be followed, there is clearly an issue here where the left hand and the right hand will disagree on what to do.

South Dakato v. Dole Test
Since the economic stimulus package is an appropriations bill, all provisions must satisfy the Supreme Court’s criteria set forth in Dole.  Restated briefly, those are as follows:

1. A particular expenditure must serve the general welfare.
2. Congress must unambiguously condition the States’ receipt of funds to  the consequences of participation.
3. Conditions must relate to the federal interest of the national project or program.
4. All other constitutional guards may act as independent bars to the provision.

Let’s examine how these elements apply to the Buy American Section.

General Welfare
The funds are assigned to local improvements and projects, which clearly benefit the general welfare.

Unambiguous Choice
Under section 1402, the economic stimulus package gives state governors the job of allocating state funds as specified by the listed federal grants, and the Buy American clause is a clear condition for distributing funds.  The choice is not ambiguous.

Federal Interest of Buy American
The American Recovery and Reinvestment Act purports to create jobs within the United States, and limiting the bill’s funds to iron, steel, and goods manufactured within the United States would increase the domestic demand for American products.  That would support the federal interest of the bill.

Constitutional Guards
The treaties provision, covered earlier, squarely fits into this category.  Banning Canada steel violates, NAFTA, but banning Chinese steel would not.  Unfortunately, this situation resembles an earlier trade dispute with Canada over “soft lumber.” In that situation, the United States eventually settled for a fraction of the damages after several WTO proceedings.

The ultimate conclusion to my analysis is that because of the short term nature of the economic stimulus package, there is not enough time to challenge the Buy American provision in court, but I would expect economic retaliation on the part of Mexico and Canada in the next few months, as well as several other countries.

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