[CTC_TRADE] Owen Herrnstadt | Green jobs, with strings attached

[Citizens Trade Campaign]

Owen E. Herrnstadt is Director of Trade and Globalization for the
International Association of Machinists and Aerospace Workers, and gave four
suggestions in December to help make sure the stimulus is . . . stimulating.
As the debate moves forward concerning foreign components inserted into the
green economy, this piece is a good touchstone . . . . 

Green jobs, with strings attached
 <http://www.epi.org/authors/bio/herrnstadt_owen_e/> Owen E. Herrnstadt 

http://www.epi.org/analysis_and_opinion/entry/green_jobs_with_strings_attach
ed/ 

After General Electric announced this year that it would close its aviation
facility in Albuquerque and terminate 400 long-time employees, the union
representing them, along with New Mexico's governor, the state's
congressional delegation, and the city of Albuquerque, proposed a solution.
Why not consider alternative uses for the facility, such as the development
of clean energy machinery like wind turbines? After all, a priority of the
American Recovery and Reinvestment Act (ARRA) is investment in domestic
renewable energy production, and millions in stimulus dollars are available.

GE demurred. "This is a challenging time for these businesses," GE Aviation
President and CEO David Joyce wrote to the Congressional delegation, citing
the "difficult economic climate and lack of policy initiatives such as a
national RES (renewable energy standard)." In other words, we need more
specific energy policies. He might have added that GE is already in the
game: Among other things, it is involved in a program that would use wind
turbines manufactured in China.

The Recovery Act passed by Congress and signed by President Obama in
February 2009 was intended to jump-start demand in the U.S. economy and
create American jobs. An innovative feature of the act was its attention to
investment in renewable energy projects, such as a joint venture in Texas to
develop a giant wind farm. The fact that the turbines from the project will
be supplied by A-Power Energy Generation Systems of China, and that A-Power
has partnered with GE Drivetrain Technologies to produce wind turbine
gearboxes in Shenyang, does not, apparently, violate domestic sourcing
requirements provided for in various sections of the act. The Treasury
Department, explained, "There are no restrictions on the use of the funds."

The Texas joint venture is only one of many projects directed toward clean
energy that could potentially use U.S. taxpayer money to create
manufacturing jobs overseas. Recently, the Investigative Reporting Workshop
(IRW) at American University reviewed 11 wind farm projects funded with
stimulus money and found that they are dominated by foreign manufacturers,
most of whose production capacity is outside the U.S.

That stimulus money could support manufacturing jobs in other countries, at
a time when manufacturing job losses in the U.S. are accelerating and the
unemployment rate has surged to 10.2 percent, is not surprising.  The
stimulus grants in question are not directly tied to U.S. manufacturing
employment. As reported by IRW, Dan Tangherlini, an assistant secretary for
management at the Treasury Department, explained, "There are no restrictions
on the use of the funds." 

The absence of a strong domestic sourcing requirement for all clean energy
programs in the stimulus is indicative of how government procurement in
general and stimulus money in particular fails to fully utilize taxpayer
funds to create manufacturing jobs in the U.S. For example, the provisions
in the ARRA adopting Buy American requirements have been significantly
diluted. The Recovery Act does contain domestic sourcing requirements (with
some exceptions): "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. While these domestic sourcing provisions
are clear in the statute, their implementation was greatly weakened by the
Office of Management and Budget (OMB). It issued interim regulations that
narrow the definition of "manufactured goods used in the project" to those
related to "construction materials incorporated into the 'building or work."
The result is that one of the largest opportunities to support U.S.
manufacturing workers - the domestic production of equipment, including
tools, used in conjunction with the Recovery Act - has been lost.

The practical result of the OMB interim regulation is that, although the
cement being used in construction under the Recovery Act may have to be
domestically produced, the cement mixer and trowel do not. This narrow
interpretation eliminates incentives for the domestic manufacture of goods
and equipment used under the act. If you are a manufacturer who has
outsourced your production overseas, why produce at home when you can
maintain your offshore production and still obtain stimulus funding? With
the lack of incentives for domestic sourcing go the much-needed
opportunities to create manufacturing jobs.

Even the Buy American program that serves as a model for a portion of the
Recovery Act contains so many loopholes that it fails to fully realize its
potential to support manufacturing jobs. The purpose of the Buy American
Act, passed in 1933 during the Great Depression, is to create demand for
domestically produced goods and, in doing so, utilize government procurement
to foster employment. It has been maligned by those on the right who argue
that Buy American provisions limit government from procuring the cheapest
goods available. But with millions of manufacturing workers unemployed, the
real question is not whether Buy American costs the government too much
money, as they argue; It is whether
<http://www.epi.org/analysis_and_opinion/entry/buy_american_and_the_recovery
_program_now_what/> Buy American is effectively being implemented to support
U.S. jobs.

To begin, the general domestic content requirements of the Buy American Act
are satisfied if just 51% of content is attributed to the U.S. Many U.S.
taxpayers would probably be startled to learn that a product that has only
51% U.S. content is considered to be made domestically. This begs the
question, how is U.S. content defined and how is it calculated?
Surprisingly, there is no easy answer. Are intangible items such as patent
rights and research and development included in the calculation? How are
materials valued? Is the origin of components and subcomponents considered,
and if so how? Are executive salaries and benefits included? Is there a
uniform policy on implementing domestic content requirements throughout the
federal government? If not, why?

In addition to questions regarding content, Buy American provisions also
contain waivers that are available when the use of foreign-sourced goods is
in the "public interest," when domestic end products are not reasonably
available in sufficient commercial quantities, or when the cost of the
domestic end product is unreasonable. At no time in the waiver process is
consideration given to the number of domestic jobs that could be impacted if
the waiver is granted.

Given the nation's startling manufacturing job losses and its historic high
unemployment, the administration is rightfully searching for a manufacturing
policy that will restore good and sustainable jobs at home, since restoring
these jobs is critical for economic recovery. Here are four proposals that
can advance that policy:

 1) Require employment impact statements

The Administration should adopt a simple, common-sense policy that directly
links domestic employment with certain government activities. One way to
accomplish this is to require detailed employment impact statements (EIS) as
part of the decision-making process for government procurement contracts,
assistance grants, and awards. The results reflected by the EIS should be a
significant factor in the final determination concerning the project or
transaction under consideration.

The EIS would contain information pertaining to employment that would be
maintained, created, or lost if the program in question were approved; as
much as possible it would detail the duration, wage, location, and category
(e.g., production, maintenance, etc.) of the jobs. Verification could be
conducted through payroll records, furnished, on a proprietary basis, to the
government agency responsible for approval of the proposed program. Since
many of the companies receiving federal money are already required to keep
and maintain payroll records under federal wage and hours laws, this
requirement would not force them to duplicate their efforts.

To assure that employment impact statements and reliance upon them are fully
and effectively implemented, federal agencies would need to submit annual
reports to Congress summarizing the procedures used and the results. The
reports would furnish Congress and the administration with valuable
information about how government programs are assisting with the creation
and maintenance of jobs.

 2) Review current domestic content requirements

Domestic content requirements currently in effect are a mess, and the
administration should move quickly to make them simple, effective, and
transparent. Domestic sourcing requirements for stimulus programs should be
adopted, and government programs that do require some degree of domestic
sourcing (e.g., Buy American, the Recovery Act, and the U.S. Export-Impact
Bank) should be reviewed to ensure that the requirements are being taken
seriously by contracting agencies and are effectively implemented. Troubling
questions concerning how domestic content is measured and applied must be
addressed. What factors do agencies include in determining content? Is the
calculation limited to raw materials, production, assembly, and maintenance,
or are intangible items like the value of research and development and
intellectual property rights, which can be used to inflate domestic content,
included? How is the origin of components and subcomponents considered?

Further, the OMB should reconsider its interim regulations that artificially
narrow the definition of manufactured goods. And waiver applications to Buy
American requirements should be reviewed with domestic employment in mind.

3) Establish new opportunities for fostering domestic production

Many small manufacturers are facing difficulty because they cannot obtain
credit from commercial banks. A U.S. Jobs Development Bank could target
assistance to key manufacturing industries. The bank would operate much like
the U.S. Export-Import Bank but, instead of supporting businesses that
export goods, it would support a broader array of companies that cannot
obtain commercial credit. The credit would be tied to the creation or
maintenance of manufacturing jobs in the U.S. Credit would also be available
to support the renovation, modernization, and retooling of facilities to
expand manufacturing capacity.

4) Create a President's Council on Manufacturing Policy

Other countries have well-developed manufacturing policies aimed at
employment, growth in exports, and enhancements to strengthen their economy.
An example is  <http://www.epi.org/publications/entry/bp201/> offsets, that
mandate the transfer of technology and production to a country in return for
defense purchases.

In contrast, the U.S. has no national manufacturing policy and no mechanism
for developing one. Even if U.S. manufacturing weren't in free fall, the
president should create a permanent Council on Manufacturing. It would
consist of senior government officials as well as private sector
representatives who would advise the administration and Congress on
manufacturing policies aimed at restoring domestic manufacturing and
high-quality domestic manufacturing jobs. One of its responsibilities would
be to assist the administration and Congress in ensuring that policies
throughout the government contribute to domestic manufacturing. The council
would also advise the administration on manufacturing industries that are
essential to national security and make recommendations for creating a
positive environment for spurring start-up companies.

We can no longer be complacent with the hope that manufacturing is cyclical
and will recover given a little patience. The changes we are witnessing in
the sector are structural, and retaining a robust manufacturing industry and
good jobs that strengthen communities and the nation requires a direct and
structural response, not the least of which is spending U.S. government
stimulus money here when the products and workers are right here waiting.

Until we restore the respect due manufacturing and the thousands of domestic
jobs it creates, the industry will continue to fade, and along with it our
hope for a healthy, sustainable economy. The actions proposed here might be
too late to help the 400 workers at the GE facility in Albuquerque, but they
can close the book on future sad stories by reviving a robust domestic
manufacturing industry.




 

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