Category: WTO

Introduction

In the midst of the uproar which surrounded “Liberation Day” and a wave of Trump administration tariffs, on April 3, 2025 the White House quietly released an executive summary of a (non-public) comprehensive report to the President on trade policy, including on “Buy American” policies in procurement. The White House report received little attention in the press, perhaps because it was so technical.

To put the White House report in context, the discussion below first reviews the historical background to the current protectionism in U.S. procurement policy. While “Buy American” policies seem “common sense” to the Trump administration (as they were to the Biden administration), protectionism in procurement marks a sharp departure from postwar U.S. trade policy.

The discussion then turns to the WTO Government Procurement Agreement (GPA). Although the White House report raises concerns about the GPA, for the practical reasons reviewed below it appears — at least at this point — unlikely that the United States will withdraw abruptly from the GPA without at least first attempting to renegotiate its terms.

The White House report also expressed concerns about reciprocal defense procurement agreements (free trade agreements for the defense sector). The White House report cited potential damage to the U.S. industrial base in defense markets opened by these agreements. Because transactions in those defense markets often carry “offset” requirements — a requirement to subcontract with companies in the purchasing country, for example, or a forced technology transfer to the purchasing country — the Trump administration may review reciprocal defense procurement agreements with an eye to limiting arrangements that could undermine the U.S. industrial base.

Finally, the discussion below turns to a separate review by the Office of Management and Budget (OMB), regarding foreign subsidies which may distort procurement markets in the United States. This focus on foreign subsidies echoes the EU Foreign Subsidies Regulation, which allows the EU to take action if a foreign vendor receives unfair and distorting advantages through foreign government subsidies. The White House report signaled that the United States may take a similar approach against foreign subsidies.

Background

The White House report was delivered in response to President Trump’s “America First Trade Policy,” issued in his first hours in office, directing his administration to “review the impact of all trade agreements,” including the WTO Government Procurement Agreement, on the volume of federal procurement covered by Trump’s 2017 executive order (“Buy American and Hire American“) and to make “recommendations to ensure that such agreements are being implemented in a manner that favors domestic workers and manufacturers, not foreign nations” (Chapter 11). The White House report also responded to President Trump’s direction, per the “America First Trade Policy,” that the Office of Management and Budget (an office in the White House) “assess any distorting impact of foreign government financial contributions or subsidies on United States Federal procurement programs and propose guidance, regulations, or legislation to combat such distortion” (Chapter 22).

Only the executive summary of the report was published by the White House; the rest of the report was withheld from the public.

Many elements of the comprehensive report were delivered ahead of schedule. This suggests that the elements that relate to procurement, discussed below, may be referenced by the United States in ongoing bilateral or regional negotiations regarding the comprehensive reciprocal tariffs announced on April 2, 2025 (“Liberation Day”).

Below, each element of the White House report regarding procurement is reviewed. The key language from the executive summary of the report is set forth in blue, and then discussed in detail.

White House: Buy American Is Common Sense

“Buy American is the epitome of common-sense public policy.” – White House Report

After nearly a decade of protectionism under the Trump and Biden administrations, the argument that Buy American policies are “common sense” seems uncontroversial. But protectionism in procurement marks a sharp change from the history of U.S. trade policy since World War II.

In the years before World War II, many governments looked to protectionism in procurement as a solution for the economic catastrophes of the Great Depression. The Buy American Act was put in place in 1933, a few years after the financial crash of 1929 and after the steep Smoot-Hawley tariffs of 1930. At the same time, governments were using protectionism to stoke nationalism and xenophobia, which helped launch World War II. The poster at left, which says (in rough translation) “Hitler builds up — help him — buy German goods,” is an example of this sort of pre-war nationalism intertwined with protectionism.

In part because of this history of protectionism, nationalism and conflict, after World War II many U.S. policymakers hoped to include public procurement as part of a broader effort to open world markets so as to reduce the risks of war. For example, the suggested charter for what was to be the International Trade Organization (what eventually became the World Trade Organization), published shortly after the war in September 1946 by the U.S. State Department, in Article 8 would have included public procurement in a broader framework of free trade.

At the same time, there was a growing recognition that “Buy American” protectionism could carry real costs. A landmark study by Victoria University (Australia), for example, used macroeconomic data regularly relied upon by the U.S. government to conclude (as the Heritage Foundation reported in 2017) that “eliminating all existing domestic content requirements would provide immense benefits to U.S. producers and taxpayers, as well as contribute to significant job growth across the economy.” A 2024 study by international economists similarly concluded that, while “Buy American” laws can increase U.S. domestic employment, they do so at very steep social costs to the U.S. economy.

These political, diplomatic and economic concerns explain why the United States played a leading role into the 21st century in negotiating what eventually became the WTO Agreement on Government Procurement (GPA), which was most recently revised in 2012. (See history) The GPA is a plurilateral agreement (only some, not all, WTO members apply successfully to join), which generally opens member nations’ procurement markets (especially for civilian procurement).

WTO Government Procurement Agreement

“In recent decades, the United States has weakened domestic procurement preferences by opening up our procurement market pursuant to the World Trade Organization’s (WTO) Agreement on Government Procurement (GPA). Unfortunately, this market access is lopsided. A 2019 report by the Government Accountability Office (GAO) on the GPA found that in 2010, the United States reported $837 billion in GPA coverage. This was twice as much as the $381 billion reported by the next five largest GPA parties (the EU, Japan, South Korea, Norway, and Canada), despite the fact that total U.S. procurement was less than that of these five partners combined.” – White House Report

Debate over “reciprocal” access: The debate over whether procurement trade is fair and “reciprocal” ultimately may be unresolvable. While the White House report (cited above) cites a 2019 GAO report to argue that the United States offers foreign vendors much broader potential access to the federal procurement market (“coverage”), the same GAO report acknowledged that only a very small portion of total federal procurement (roughly US$430 billion) actually went to foreign vendors in 2015, the year studied — only roughly $12 billion (less than 3 percent).

The European Commission has argued for a different approach to measuring access to procurement markets. The Commission has urged that the negotiating parties look to the access enjoyed by their vendors to both direct (through prime contracts) and indirect public purchases (through resellers in the foreign market, for example). Taking this approach, in Section 2.1 of a 2021 study the Commission concluded that (compared to foreign firms’ access to U.S. procurement), U.S. firms enjoyed much higher shares of the EU Member States’ public procurement markets, directly and indirectly.

The debate remains open, therefore, about whether there is fair “reciprocity” — however defined — between the GPA member nations.

“Moreover, some GPA partners open their procurement markets to third countries who are not parties, forcing U.S. suppliers to compete for the preferential market access they are entitled to under the agreement. To address this lack of reciprocity and unfair competition, the United States should modify or renegotiate the GPA, and if unsuccessful, withdraw.” – White House Report

The White House report here touches on at least three important issues regarding the GPA:

• The GPA should be renegotiated — and that may prove difficult: Renegotiation of the GPA is not simply an option– it’s built into the agreement itself. Article XXII of the agreement contemplates that the parties “will continue improving the GPA,” the WTO notes. “The GPA 2012 sets out that the parties shall undertake further negotiations to progressively reduce and eliminate discriminatory measures and to achieve the greatest possible extension of the coverage.” In this regard, the WTO points out, “the GPA parties have also agreed to undertake a number of work programmes which will influence the future evolution of the Agreement,” such as in environmental sustainability, and regarding preferences for small- and medium-sized enterprises (SMEs). Some of these “work program” topics may prove very controversial among the GPA parties, and so renegotiations — if they follow this previously agreed path — could take years to complete.
• Abandoning the GPA could be very difficult: Shortly before the end of the first Trump administration in 2021, senior policymakers signaled that the United States might withdraw from the GPA. Withdrawing then would have been difficult, and remains so: among other things, because Canada never joined the government procurement chapter to the regional U.S.-Mexico-Canada Agreement (USMCA), it is not clear how U.S. vendors could gain free access to Canadian public procurement markets (where the United States reportedly enjoys a trade surplus) if the United States withdrew from the GPA.
• Barring third-party access to GPA markets is not (yet) part of the GPA: The White House report suggests that the United States is facing unfair competition because vendors from third parties — such as China, which is not a GPA member — are allowed to compete in GPA markets, such as in the Member States of the European Union. But nothing in the GPA bars the parties from opening their markets to third parties; as a matter of law and practice, a few EU Member States prohibit third-party vendors, as does the United States under the Trade Agreements Act (implemented through FAR 25.403). Barring third-party vendors generally would require a very new (and potentially very controversial) approach to the GPA. If GPA parties were required to exclude non-parties (such as China and Russia) from public procurements, the GPA might become a “friends” club limited to nations loosely aligned with the United States — akin to the “friend-shoring” advocated by the Biden administration. (For context, see the map of GPA members, above.)

Defense Procurement Trade

“An additional challenge is that, although defense procurement is closed to GPA partners, the Department of Defense still gives countries access to our huge defense procurement market by negotiating Reciprocal Defense Procurement (RDP) agreements. Shockingly, these RDPs not only open our market to foreign suppliers, but also require U.S. firms to move industrial capacity offshore as a condition of access to the markets of partner countries. These RDPs must be reviewed to ensure they put America First.“ – White House Report

Assessing the reciprocal defense procurement agreements: The White House report also addressed reciprocal defense procurement agreements. Under these bilateral agreements between the U.S. Department of Defense and allies’ ministries of defense, the parties typically agree to open their markets for defense supplies, services, and research and development. See, e.g., Drew Miller, Is It Time to Reform Reciprocal Defense Procurement Agreements?, 39 Pub. Cont. L.J. 93 (2009).

Year after year, the United States enjoys a substantial trade surplus in the defense sector (see chart below). This defense trade, facilitated by the reciprocal defense procurement agreements, both helps strengthen the U.S. defense industrial base and reinforces the United States’ ties with its international partners. It is unlikely, therefore, that the United States would abandon these defense agreements.

The White House report released on April 3 suggests, though, that the United States might revisit the reciprocal defense procurement agreements because of concerns about the agreements’ impact on the defense industrial base (a recurring concern raised in a recent GAO report on reciprocal defense procurement agreements).

Those concerns about impacts on the defense industrial base may stem from “offsets“ — offsetting concessions that a contractor must make to a foreign government in order to win a contract (typically a defense contract).

Although the executive summary released by the White House does not reference offsets explicitly, the reference to reciprocal defense procurement agreements which “require U.S. firms to move industrial capacity offshore as a condition of access to the markets of partner countries” seems to be a reference to offsets because the reciprocal defense procurement agreements themselves do not require U.S. firms to move industrial capacity offshore. Offset agreements, in contrast, often do demand that a successful contractor move industrial capacity to the purchasing country, which suggests that the White House report was in fact targeting offsets.

While the GPA (discussed above) bans offsets from civilian agency procurements covered by the agreement (see Congressional Research Service report), it is not clear that the Trump administration intends to ban offsets from all defense procurements done under reciprocal defense procurement agreements. An important 2009 study done on the transatlantic defense trade, Fortresses and Icebergs, noted, for example, that U.S. firms were very successful in competing in defense markets that demanded offsets. Id. at 27.

It is more likely, therefore, that the Trump administration will focus on offset arrangements which hurt the U.S. defense industrial base, for example by requiring U.S. firms to subcontract some portion of their work abroad, or by forcing U.S. firms to deliver technical know-how that similarly weakens the U.S. defense industrial base. See, e.g., U.S. Department of Commerce, Bureau of Industry and Security, Offsets in Defense Trade — Twenty-Eighth Study, at 13 (2024); U.S. Government Accountability Office, Agencies Should Improve Oversight of Reciprocal Defense Procurement Agreements (2024). The chart below illustrates how common these types of arrangements — mandatory subcontracting, for example, or required technology transfers — are in offsets.

Whether reciprocal defense procurement agreements could be modified to mitigate these impacts of offsets on the U.S. defense industrial base is, however, an open question.

Foreign Subsidies: Impact on Federal Procurement

“Foreign subsidies can disadvantage domestic products in a country’s government procurement market. The EU has recognized this problem and introduced the Foreign Subsidies Regulation (FSR) to address distortions caused by foreign subsidies for public procurement. OMB assessed the value of the FSR and other policies to tilt the playing field in favor U.S. producers by strengthening domestic procurement preferences and closing loopholes.” – White House report

In Chapter 22, the White House report summarized OMB’s findings regarding foreign subsidies’ potential impact on federal procurement. The January 20, 2025 direction from President Trump had called for an OMB report on “any distorting impact of foreign government financial contributions or subsidies on United States Federal procurement programs,” and to “propose guidance, regulations, or legislation to combat such distortion” — an echo of the EU’s Foreign Subsidies Regulation, which bars government subsidies which may give foreign vendors an advantage in EU procurements. (Background information on the EU Foreign Subsidies Regulation is linked below; see also Pascal Friton, Max Klasse & Christopher Yukins, The EU Foreign Subsidies Regulation: Implications for Public Procurement and Some Collateral Damage, 65 Government Contractor ¶ 63 (Mar. 22, 2023).)

As expected, the April 3, 2025 White House report did indeed follow the pathway of EU Foreign Subsidies Regulation. The White House report acknowledged the EU Foreign Subsidies Regulation (FSR) as a means “to address distortions caused by foreign subsidies for public procurement,” and noted that OMB had “assessed the value of the FSR and other policies to tilt the playing field in favor U.S. producers by strengthening domestic procurement preferences and closing loopholes.” The report did not explain how, exactly, the European Union’s strategy might be deployed by the United States.

Research Resources: EU Foreign Subsidies Regulation

A New Barrier to Transatlantic Procurement: The EU’s Foreign Subsidies Regulation

Editor’s Note: This summary was prepared for GW Law School’s seminar on comparative and international public procurement law.