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The "Buy American" Act and the gains from avoiding protective legislation

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The "Buy American" Act and the gains from avoiding protective legislation

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Content THE "BUY AMERICAN" ACT AND THE
,1
GAINS FROM AVOIDING PROTECTIVE LEGISLATION
by
David Lane Parry
A Thesis Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(Economics)
August 1967
UMI Number: EP44858
All rights reserved
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D issertation P u b lis h in g
UMI EP44858
Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author.
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789 East Eisenhower Parkway
P.O. Box 1346
Ann Arbor, Ml 48106-1346
, v
UNIVERSITY OF SOUTHERN CALIFORNIA
THE GRADUATE SCHOOL
UNIVERSITY PARK
LOS ANGELES, CALIFORNIA 9 0 0 0 7
This thesis, written by
David Lane Parry
under the direction of h..X.S..Thesis Committee,
and approved by a ll its members, has been p re
sented to and accepted by the D ean of The
Graduate School, in p a rtial fu lfillm en t of the
requirements fo r the degree of
Master of Arts
Dean
Date. August__1967_
THESIS COMMITTEE
..
r CfAirman
..
TABLE OF CONTENTS
Page
LIST OF TABLES ...............................
Chapter
I. INTRODUCTION..................... 1
Statement of the Problem
History and Significance of the Problem
Background of Buy American Legislation
Classification of Buy Domestic Laws
Buy American Laws and Tariffs
Other Restrictive Laws
Arguments For and Against Buy American
Laws
Organization of Paper
The California Buy American Act
II. BUY AMERICAN LEGISLATION................ 16
History of Buy American Legislation
The Federal Buy American Act
Supporters of Buy American Legislation
Arguments For and Against Buy American Laws
Multiplier Theory
Taxpayers’ Rights and the Real Cost
of Goods
Inferior Foreign Goods
National Defense
Other Arguments
Status of California Buy American Law
Legislation and Hearings
Present Status
Adherence
Appendix
ii
Chapter Page
III. THE BALDWIN-LIMA-HAMILTON CASE AND
Background of the Case
The GATT
History
Organization
Article I
Article II
Article HI
Other Significant Articles
The Case
Original Action
Appeal
Conclusion from the Case
Constitutionality of GATT
Challenge to Buy American Laws
The Participants
IV. DEPARTMENT OF WATER OF THE CITY
OF LOS ANGELES, AND THE BETHLEHEM
History of the Department
Water System
Power System
Current Activities
The Purchasing Division
Public Purchasing Principles
Procedures of the Formal Section
The Department and the Buy American Act
The Bethlehem Case
Background of the Case
The Injunction Decision
Arguments of the Case
Decision and Significance of the Case
V. DATA DEMONSTRATING GAINS FROM
FOREIGN PURCHASES . ............... . 74
Derivation of the Data
Organization of the Data
Table IV
Table V
Table VI
Table VII
Table VIII
GATT 42
STEEL CASE 54
iii
Chapter Page
VI. ANALYSIS OF THE DATA 102
Comparative Advantage
Hypothesis One
Hypothesis Two
Hypothesis Three
Hypothesis Four
Other Hypotheses
Analysis of the Data
Savings Achieved Through Foreign Purchases
Importance of Foreign Purchases
Domestic Monopolies
Analysis of the Commodities
Turbine Generators
Cable
Transformers
Circuit Breakers
Steel Pipe
Towers
Insulators
Other Commodities
Summary
The Vendor Countries
England
Japan
Switzerland
Sweden
France
Other Countries
Adherence to Federal Guide Lines
Future Foreign Purchases
Construction Projects
General Purchases
VII. OTHER OBSERVATIONS 128
VIII. SUMMARY AND CONCLUSIONS 139
BIBLIOGRAPHY
144
iv
LIST OF TABLES
Table Page
I. National and Local Preference
Legislation 6
II. For Repealing - For Retaining
Buy American Act........................ 34
III. Specification No. 9348 - Guyed Suspension
Towers - Recapitulation of Bids Received . 67
IV. Foreign Purchases - Department of Water
and Power, 1955-1966 .................... 79
V. Foreign Purchases - By Years........... 93
VI. Foreign Purchases by Commodity ...... 96
VII. Comparison - Foreign Purchases and Lowest
Domestic Bidders, 1955-1966.............. 98
VIII. Foreign Purchases By Country Of Origin . . 100
IX. Outstanding Savings ................... 108
X. Total Formal and Total Foreign Awards. . . 110
XI. Turbine Generators ..................... 114
XII. Domestic Awards as % of Total Power Cable
Contracts Awarded ...................... 116
| XIII. Steel Pipe (AMC and CML) . ........... 120
! XIV. Insulators......................... 123
XV. Asbestos Cement Water Pipe ......... 124
XVI. Copper Water Tubing ................... 125
"You are on the right road . .
. . have little consideration You
cheapness and plenty. ...
You desire to protect him (the producer)
from foreign competition and reserve
the national market for national
(emphasis added) industry
P. Bastiat
CHAPTER I
INTRODUCTION
I. THE PROBLEM
Economics is concerned with the efficient alloca
tion of scarce resources to satisfy the maximum of man's
insatiable wants.. The attainment of this goal is approach
ed through many economic devices. Primary among these is
specialization, allowing each individual to participate
in those economic activities which he does relatively
best. There are limits in the mobility of resources, and
knowledge of opportunities, which prevent completely
efficient allocation of the factors of production. For
the most part these are physical, spatial, and organiza
tional. In the area of international trade man has also
created certain statuatory barriers, discouraging the
economies of specialization.
Historically economists have been opposed to
artificial trade barriers. The rationale for this bias
is simple and obvious. If barriers are erected obstructing
free trade then individual countries must devote their
productive resources to ill-suited economic pursuits. In
the absence of such barriers resources in all countries
1
2
will toe free to specialize in those economic activities
which they perform relatively best. Thus, when trade
barriers are not present and free trade exists, more
plentiful and less expensive goods are available to all.
The rationale is unassailable. Unfortunately economic
organization and trade barriers existed prior to the above
rationale. Those individuals and groups whose interests
are best served by perpetuating trade barriers have often
been highly successful in thwarting the attacks of the
freetraders. Statuatory trade barriers have existed
throughout history and exist today in the forms of tariffs,
embargoes, licensing laws, quotas, et cetera. The purpose
of this paper is to examine one of these statuatory trade
barriers, "Buy American" legislation.
Statement of the problem. "Buy American" legisla
tion will be examined on a historical and legal basis.
Arguments for and against this legislation will be pre
sented. After a thorough investigation of two cases
effecting the enforcement of "Buy American" laws, empirical
data shall demonstrate the cost to the public of maintain
ing this legislation. The data will be used to test four
hypothesis derived from the Principle of Comparative
Advantage.
3
II. HISTORY AND SIGNIFICANCE OF PROBLEM
Background of Buy American^ legislation. Buy
American legislation is an outgrowth of the depression.
These laws limit or prohibit the purchase of foreign made
raw materials or manufactured products by governmental
agencies within the jurisdiction of the governmental body.
The United States was not unique in the passage of this
type of legislation. Many countries were attempting to
solve their domestic employment problems in the same
manner. Buy British, Buy German and other Buy Domestic
legislation and policies were prevalent during this period.
The existence of foreign Buy Domestic legislation was in
fact an argument used by Senator Hiram Johnson of Californ-
2
ia, in favor of the Federal Buy American Law. Nor was the
imposition of Buy Domestic legislation unique to national
governments, there were also passed "Buy Statep" "Buy
County, " and ’ ’ Buy City" legislations, much of it in con
flict with the Commerce clause of the Federal Constitution.
The eventual passage of these local mercantalistic laws
^■"Buy American" is common vernacular for those laws
and policies supporting United States' industry by limiting
purchase of foreign made goods. "Buy American" should
therefore be set off in quotation marks. Because of the
frequent use of this term throughout the paper the punctua
tion becomes redundant and shall be omitted henceforth.
2
United States Congress, 76th Congressional Records
Washingtons Government Printing Office, 1933), p . 3175.
4
was one of the arguments against the Buy American act of
3
Senator Costigan of Colorado.
Legislation restricting foreign purchases in this
manner was a new approach in the American protectionist
movement. Even in the high tariff periods, legislation
of the Buy American variety was not passed. It was not
until the economic trauma of the thirties that this
mercantalistic thinking appeared.
Buy American legislation was part of an ill-con
ceived and short-lived movement in a beggar-my-neighbor
attempt at solving the unemployment problems of the coun
try. During the years 1929-1939 twenty-six states and four
territories enacted laws limiting the purchase of foreign
4
and/or out-of-state goods within their borders. In all,
a total of thirty-three states have enacted legislation
restricting the purchase of non-domestic materials which
5
have not been challenged as to constitutionality.
Classification of Buy Domestic laws. There are
two types of Buy Domestic legislations (1) those which
prohibit the pruchase of all foreign or out-of-state goods
3Ibid., p. 3176
4
F. E. Melder, State Trade Walls, State Research
Bulletin, 1939.
5
Bethlehem-Steel Corp. vs Department of Water and
Power, City of Los Angeles and others. Calif. Sup. Ct.
No. 899, 1966. .
5
and (2) those which give preference to domestic goods
when either the prices of domestic or foreign goods are
equal or the gain to be realized by the foreign purchase
is less than a stipulated per cent or monetary differen
tial. The preference statutes are most prevalent.
Table I shows the years of enactment of Buy
Domestic legislation by the various state governments.
Column I lists those states with national preference
statements, while Column 2 lists those with local or state
preference clauses. Six states still have some form of
Buy American legislation. In matters of State Govern
mental Purchasing six states are restricted by statute
as to the purchase of foreign goods. Eight states do not
buy foreign-made goods as a matter of policy. . . .
TABLE I*
6
NATIONAL LOCAL
PREFERENCE PREFERENCE
LEGISLATION LEGISLATION
Federal - 1933 Colorado
—
1919
Pennsylvania - 1929 Montana
mm
1923
California - 1933 Iowa — 1927
New Jersey - 1934 Louisiana - 1928
Hawaii - 1941
Arizona - 1928
Massachusetts - 1958 Virginia - 1928
Oklahoma - 1959 Wisconsin
— 1929
Michigan - 1929
Wyoming - 1931
North Carolina 1931
Mississippi - 1932
Washington
- 1933
West Virginia - 1935
South Carolina - 1935
North Dakota
-
1935
Illinois
— 1935
Georgia
mm
1937
Maryland - 1939
Idaho
— 1939
Missouri
- 1939
New Mexico
- 1939
South Dakota
- 1939
Oregon. - 1939
Alaska
— 1949
Rhode Island
— 1950
Nevada
mm
1951
i* " '
Kansas
— 1953
Maine
—
1954
Texas
- 1957
Arkansas
- 1959
Minnesota
mm
1959
Florida - 1961
Alabama — 1961
*Derived from F. E. Melder. State Trade
Walls
State Research Bulletin. 1939
, and Henry A. Berliner,
"Ruv American Leaislation" Georcre Washington
Law Review,
32* 584-95, March, ^964.
7
Restrictions present in Buy American legislation
may be classified as follows:
1. Those laws and policies restricting import, sale,
or purchase of certain commodities of foreign origin.®
These statutes and directives usually pertain to
articles whose manufacture or production is indigen
ous to the are of governmental jurisdiction.
2. Those laws and policies attempting to maintain
national interests by restraining both private and
governmental purchases from certain countries. These
are often in response to international political
situations, e.g. those laws restricting sale or pur
chase of goods made by ^Fascist slave labor" or by
the "Communist menace".
3. Those laws restricting governmental purchase of
all foreign goods. These are of two types*
(a) Those laws which prohibit any purchase of
goods that are available from domestic sources,
e.g. California Buy American Act.
(b) Those laws allowing purchase of foreign goods
where the domestic price is unreasonable or the
purchase of foreign goods is in the national
interest, e.g. the Federal Buy American Act.
6
The City of San Francisco restricts all electronic
products that do not have American Underwriters Laborator
ies approval.
Berliner, op. cit. p. 603.
The City of Beatrice, Nebraska has a 1964 law im
posing a $50.00 fine for selling frozen beef processed
outside of U. S.
Harry L. Usher, "California Buy American" Act.
Stanford Law. Rev. Vol. 17, 1964, p. 123.
A Birmingham, Alabama law charges a $5,000.00
license fee to sell goods, produced in Communist countries.
News item in the New York Times, January 5, 1964,
Section I, p. 5.
8
Buy American laws and tariffs. Buy American legis
lation of Type 3-a above has the same effect as a com
pletely effective protective tariff. A tariff of this
variety wouldsearn no income as it would exclude complete
ly all imports through excessively high rates. Buy
American legislation of Type 3-b above is somewhat analo
gous to gains of trade available to those countries which
use tariffs as an instrument to force down the price of
goods which they purchase from other countries, thus realis
ing nearly all of the gains from trade. Legislation of
Types I and 2 are discriminatory towards certain groups
and work to redistribute income within the domestic
economy. Tariff^Sand Buy American legislation accomplish
the same goals* insulating domestic producers from
foreign competition, encouraging monopoly at the expense
of the consumer, and negating the possible gains to be
realized from free trade.
Other restrictive laws. Other legislation and
policies are present that are closely related to the Buy
American movement while not specifically prohibiting
purchase of foreign goods. Most prevalent of these at the
state and local governmental level are labeling laws.
Labeling laws need not discriminate against the good.
Gowns made in Paris, wools from Scotland, chocolate from
Holland are notable examples of labels that would
9
encourage rather than discourage the buyer? however in
1939 the label "Made in Germany," in 1947 "Made in Japan"
and today "Made in Russia, Poland Czechoslovakia," imputes
undesirable qualities to the goods and imparts consumer
reservations about purchasing the merchandise.
Labeling legislation goes far beyond simple label
ing of goods. South Carolina requires that stores that
sell any products made from Japanese cloth display a sign
in bold four inch high letters reading "JAPANESE TEXTILES
SOLD HERE".8 A Hawaiian law required any store selling
eggs of foreign origin to display a sign reading "WE SELL
Q
FOREIGN EGGS". A Washington law required that each and
every foreign egg sold within the state be stamped "FROM
(COUNTRY OF ORIGIN)". This increases the price of each
dozen eggs by slightly over one cent per dozen.As shall
be discussed later and as indicated in footnote 9 . above
much of this legislation is in direct conflict with the
General Agreement on Tariffs and Trades to which the
United States is contracting member.
8Berliner, Ojg. Cit., p. 600, citing South Carolina
Code Title 66, 1956.
^Declared unconstitutional as it was in direct
conflict with Article III, paragraphs 1 and 4 of Gatts
Hawaii Supreme Court 1957 Territory of Hawaii vs
Harry M. Y. Ho.
"^Berliner, Op. Cit. p. 601.
10
States are restricted by the United States con
stitution from levying tariffs, however there are several
examples where cities, counties and states have used
licensing fees, taxes and fines in lieu of tariffs.^
12
Where tested these laws have been held unconstitutional.
Arguments for and against Buy American laws. As
noted above there is considerable similarity in the effects
of Buy American legislation and tariffs. It should not
therefore be surprising to discover that in proposing and
supporting Buy American acts the same rationale and argu
ments are present as when the same or similar groups pro
pose and support tariffs. There are three basic arguments
in favor of Buy American legislation*
Base Theory. Economic base theory arguments, which
when used with multiplier theory establishes a re
lationship between imports and domestic employment.
These include monetary arguments, which equate
money with wealth.
Economic Crises. Economic crises arguments, which
simply put forward the argument that during depression
and recessions, beggar-my-neighbor policies should be
available to aid and accelerate economic recovery.
Infant Industry. Infant industry arguments, which may
be expanded to include the lack of anti-trust laws
abroad, putting American industries subject to such
legislation at a disadvantage.
11e.g. supra footnote 6.
12
e.g. Cleveland law charging $1,000 for license to
sell Communist-made goods held unconstitutional as Czecho
slovakia's member of Gatt.
11
These and other protectionist arguments will be
examined more closely in the next chapter when the Califor
nia Buy American act is examined. The counter arguments
to Buy American legislation in replies to, protectionists
ares
Optimum Efficiency. Free trade allows each country
to achieve optimum efficiency in economic activities
through the principle of comparative advantage, thus
each country will gain a share of a larger world
output. Protection of inefficient industries de
creases the total output of a country.
Export Industries. Solving frictional unemployment
through trade restrictions is a short run solution
and self defeating. Export industries and import
trade also provide employment. Trade is a two-way
street, eventually less importation leads to less
exportation.
Real Goal of Economy. Employment is not a goal in
itself. The purpose of the Economic System is the
production of goods and services to provide satis
faction of the wants of society.
Empirical Evidence. Protection of infant industries
to develop efficient industries has been shown
historically to be invalid. The principle may be
sound, however, once an infant industry, always an
infant industry, i.e. protection tends towards
permanence.
III. ORGANIZATION OF PAPER
It is of considerable interest to note that not one
article in an economic journal has been concerned with
Buy American legislation. The legal journals have dis
cussed decisions relative to this legislation, however,
their analysis is concerned with the legality of the
problem. Text books for courses in international Trade
12
and other books in the area of International Economics
often refer to the Federal Buy American act, but it is
usually disposed of in a few brief paragraphs. The purpose
of this paper is not to fill this void. Rather than analyz
ing in detail the economic results and the incidence of the
burden of Buy American legislation, the paper will deal
with a specific Buy American act? that of the State of
California.
The paper is divided into two sections. Chapters
I to and including IV provide a background for a thorough
understanding of Buy American legislation. Chapters I
and II discuss the history of the California and Federal
Buy American laws. The legislative rationale for the con
tinuing existence of these laws is demonstrated in argu
ments for and against this legislation. The enforceability
of and adherence to the laws is also presented.
Chapters III and IV discuss the legality and con
stitutionality of the California Buy American law. Chap
ter III discusses the Bildwin-Lima-Hamilton vs. the
Superior Court case and relates the legislation to the
General Agreement on Tariffs and Trade. Chapter IV dis
cusses the Bethlehem Steel Corporation et, al. vs. the
Department of Water and Power of the City of Los Angeles
et al., case and reflects on public purchasing procedures.
This chapter also provides an understanding of the organ
ization of the purchasing agency from which the data of
13
Chapters V, VI and VII is derived.
Chapters V, VI and VII present and analyze data
from the files of the Purchasing Division of the Depart
ment of Water and Power, City of Los Angeles. This data
is used to test claims of free trade advocates and demon
strate gains possible to public bodies by avoidance of Buy
American legislation. The economic research in this study
will be based on empirical evidence principally in the
form of accounting data. Inductive rationale will be
used to develop documented conclusions from this observed,
interpreted and analyzed data.
This organization is attempted so that the reader
may develop an understanding of Buy American legislation
from a legislative, legal, economic and applied viewpoint.
Bach chapter is intended to be organized as a separate
unit, thus all definitions and clarifications are included
therein.
The final chapter attempts a summary of the entire
paper. It presents some conjecture as to the future of
Buy American legislation and International Trade in the
light of recent developments in International diplomacy
and the data presented in the paper.
IV. THE CALIFORNIA BUY AMERICAN ACT
The California Buy American law is codified as
Sections 4300 to and including Section 4305 of the
14
California Governmental Codes. These Codes are presented
below in their entirety with the most significant sections
13
underlined for emphasis.
4300. Definitions. As used in this articles
(a) "United States" means the United States of
America, and includes any Territory or insular
possession of the United States.
(b) "Produced" includes mined and manufactured.
(c) "Materials" includes articles and supplies.
4301. Materials and products not within application
of article. This article does not apply to materials
which are of a class or kind which are not, or which
are manufactured from materials which are not, pro
duced in the United states, nor to key^driven
calculators manufactured in branch plants located
outside continental united states, but which plants
are wholly owned and operated by a corporation the
majority of whose stock is owned or controlled by an
American manufacturer whose principal manufacturing
centers and home offices are located in the United
States.
4302. Exclusion of sclentific&and medical instruments
from article. This article does not apply to medical
and surgical instruments, scientific equipment, micro
scopes, lenses, or instruments used for scientific
or medical purposes, including research.
4302.5. Exclusion of sewing machines from article.
The provisions of this article do not apply to the
purchase of sewing machines, regardless of the place
of their manufacture or the source of the materials
from which such machines were manufactured.
4303. Contracts to be let only on agreement to use
or supply materials produced or manufactured in
United States. The governing body of any political
subdivision, municipal corporation, or district, and
any publicofficer or person charged with the letting
of contracts'for (ll theconstruction” alteration, or
13
Excerpted from "Deerinqs*s California Codes;
Government Codes." San Francisco; Bancroft-Whitney
Company, 1958, pp. 89-92
15
repair of public works or (2) for the purchasing of
materials for public use, shall let such contracts
only to persons who agree to use or supply only
such unmanufa,ctured materials as Have been produced
in the United States, and only such manufactured ‘
materials as have been manufactured in the United
States, substantiallyall from materials produced in
the United Slates.
4303.5, Purchase of office machines or supplies
therefor. Any provision of this article to the con
trary notwithstanding, any such body or person may let
a contract for the purchase of office machines or
supplies therefor without regard to the place of their
manufacture or the source of the materials from
which such machines or supplies are manufactured,
except that such contracts or purchasesishall be sub
ject to the provisions of Section 4334.14
4304. Provision that only materials produced and
manufactured in United States shall be used. (Con
tract to contain provision.) Every contract for the
construction, alteration or repair of public works or
for the purchase of materials for public use shall
contain a provision thatonly unmanufactured materials
produced in the United States, and only manufactured
materials manufactured in the United States, sub
stantially all from materials produced in the United
States shall be used in the performance o f ' " " ' tide con-y^
tract.
(Noncomplying person not to be awarded con
tract). Any person who fails to comply with such
provision shall not be awarded any contract to which
this article applies for a period of three years from
the date of the violation.
4305. Posting name of noncomplying person with re
port of facts. The name of the person failing to
comply, together with a report of the facts con
stituting the violation, shall be posted by the
governing board or person who let the contract in at
least three public places in the county in which the
contract was made.
14Code 4334 refers to In-State purchasing preference
CHAPTER II
BUY AMERICAN LEGISLATION
I. HISTORY OF BUY AMERICAN LEGISLATION
The Buy American movement was a component of a
nationwide withdrawal from international affairs in the
early years of the depression. The nation and the un
employed were desperate. This desperation, coupled with
the feeling of helplessness in combating the economic
problems they faced, led to the attack of every possible
source of domestic unemployment. Foreign made goods which
were said to deprive domestic workers of jdbs, were one
of the whipping boys of the problem solvers. Of the states
passing Buy American legislation,^ California's and New
2
Jersey's were the most severe.
California, in fact, seemed to be the breeding
ground for such legislation. The California Buy American
act was written, introduced, passed and signed in two
weeks. It was introduced into the Senate of the
California Legislature on April 17, 1933, by Senator Deuel
1See Table I.
2
Henry A. Berliner, "Buy American Legislation]'
George Washington Law Review.. 32 $ 586.
of Chico County and signed into law by Governor Rolph on
3
May 3, 1933. The California Legislation preceded the
Federal legislation by nearly a year. It was the Senior
Senator of California, Hiram Johnson, who introduced and
4
championed the Federal Buy American Act.
The Federal Buy American act. The wording of the
Federal and California acts are nearly identical with one
5
notable exception. The California act prohibits purchase
of any and all foreign raw materials and manufactured
goods when goods from domestic sources are available. The
Federal act allows the purchase of foreign goods when the
6
procurement agencies involved determine that either*
1. The domestic price is unreasonable.
2. It is in the public interest to purchase the
foreign goods.
3. The domestic goods of sufficient quality and
quantity are available to meet the need.
The difference between the acts thus becomes considerable
due to the policy flexibility of the purchasing agencies
provided in the Federal act.
3
Final Calendar of California Legislature,
Sacramento, 1933, p. 411.
4United States Congress, 76th Congressional Record.
(Washington* Government Printing Office, 1S$3), pp. 3i^5,
3176.
5And the New Jersey Act.
647 Stat. 1520 (1933).
After the passage of the Federal act various de
partmental orders were issued establishing criterion for
the administration of l % : ; and 2 above. Typical of these
orders was a Treasury Department directive concerning
foreign purchases. When domestic prices exceeded the
foreign price by 25 per cent or more on purchases of over
$100.00 or 100 per cent on purchases of $100.00 or less,
then the domestic price was considered to be unreasonable
7
and purchase of the foreign goods in the national interest.
Generally throughout all governmental departments* the rule
was that the domestic price must exceed the foreign price
by a 25 per cent differential or more.
8
In 1954 the Randal1jCommission reviewed the
Federal Buy American act, along with other legislation re
garding our economic foreign policy, and made the follow-
9
ing recommendations regarding the Buy American acts
1. The President be given authority to exempt from
the provisions of this legislation, those countries
treating our products on an equal basis.
Percy W, Bidwell. The Invisible Tariff (New York*
Council on Foreign Relations, 1939), p. 259, citing Trea
sury Department Circular Letter No. 37 (June 20, 1934)
Treasury Department Procurement Division.
8
Clarence B. Randall, Chairman. Commission on
Foreign Economic Policy Report to the President and Con
gress' . (Washingtons Government Printing omce, 1954) •
9
Ibid., pp 45, 46.
Dav'id J. MacDonald, United steel Workers President,
stated the Buy American act and the Legislative provisions
of other Acts containing Buy American principle should be
repealed entirely. Ibid. p. 53.
19
2. Pending such action the President direct pro
curement agencies to consider foreign made materials
on substantially the same basis as domestic products.
The committee also recommended that tariffs be lowered and
the Executive branch of government be given greater dis
cretion in determining tariff rates. These proposals
invoked considerable criticism in the minority reports^
and in other responses from protectionist groups.
Despite many objections in 1954, President
Eisenhower, in response to the Randall Commission recom
mendations, reduced the preferential differential given
domestic firms under the Federal Buy American act to a
11
blanket 6 per cent. In response to the objections of the
protectionists, certain exceptions were made wherein the
procurement agency could award away from foreign firms and
prefer the domestic bidder at a price more than 6 per cent
higher than the low foreign bidder.
12
These exemptions ares
1. For reasons of national interest.
2. Promote production in areas of unemployment.
3. To assist small businesses.
“ ^Ibid., Senator Millikin, p. 82 and
"Daniel A. Reed and Richard M. Simpson, Committee
on Foreign Economic Policy Minority Report (Washington)
Government Printing Office, 1954), pp. 7, 8, 9.
1‘ LExec. Order No. 10582, 19 Fed. Reg. p. 8723, 1954,
20
4. To protect National security.
5. When the procurement official considers the
domestic price reasonable and in the public interest.
6. During depression, recession and/or periods of
excessive domestic unemployment the 6 per cent differ
ential may be doubled to 12 per cent.
The purpose of the executive order was to accomplish the
aims of the Randall Commission liberalizing trade. The
exceptions to the order, however, permitted procurement
agencies to continue as they would, according to the
attitudes of the purchasing officers.
Supporters of Buy American legislation. The sup-
porters of Buy American legislation are principally special
interest groups. The existence and the continuing afflu
ence and influence of these groups depend upon protection
from the more efficient and less parsimonious foreign com
petition. Manufacturers' associations and trade unions
jointly testify before committees reviewing Buy American
13
legislation. Today these interest groups are quite
narrow, in that nationally both the National Association
of Manufacturers and the American Federation of Labor -
Congress of Industrial Organizations - openly support
repeal of Buy American legislation.
13
e.g. State Assembly Committee on Ways and Means,
Sub-Committee on State Purchasing, Edited Transcript,
1964.
21
Locally and regionally, however, members of these organiza
tions plea for retaining and enforcing these acts,14 as
did the NAM and the Trade Unions in the 1930‘s.
II. ARGUMENTS FOR AND AGAINST BUY AMERICAN LEGISLATION
The arguments used in favor of passage of the state
and federal Buy American laws are the same as those used
by protectionists throughout history. These arguments,
similar to those facing Hume, Bastiat, Ricardo and others,
have gained some sophistication through the use of employ
ment multipliers, a la Keynes. They have been successful
in enlisting support to the Buy American cause as exempli
fied by the fact that the Federal statute passed, as part
of the Treasury and Post Office Appropriation Act of 1934,
15
with only four Senators arguing against it, and as pre
viously indicated there was little opposition to the
California bill which was railroaded through the California
legislature.
The arguments for Buy American act may be classi
fied into the three categories, that all protectionist
14Union sponsored slogan “Buy American Made Pro
ducts - the Job you Save may be your OwnM John H. Dent,
Cong. Rec. (1960), p. 17521.
"^Senators Blaine, Wise.,? Costigan, Colorado? King;
Utah, and Gore, Oklahoma. Supporting Senator Johnson's
arguments was Senator Vandenburg and others. 76th Cong.
Rec. (1933). op. cit.
arguments fit# (1) unreasonable and emotional; (2) ration
al, but based on incorrect premises; (3) rational and
based on solid premises, but not applicable to the pro
blems of international trade. Arguments of the first
category do not deserve consideration in a paper attempt
ing serious analysis, therefore only the rational argu
ments shall be presented below.
Multiplier theory. The first most widely accepted,
and without thorough analysis most convincing of the pro
tectionists' arguments is that of employment multiplier
theory. Since Lord Keynes' General Theory the multiplier
concept has been presented to every one taking a basic
course in Economics. Coupled with this, the fledgling
branch of the economic sciences, Urban and Regional Econom
ics, lends considerable support to the interaction of the
16
development of export base industries and economic growth.
It is therefore not surprising that this is foremost among
the rational arguments advanced for protective legislation.
A concise formulation of this argument proceeds as follows.
Allowing government agencies to purchase foreign
17
made goods causes domestic unemployment. The purchase of
16
Douglass C. North. 1 1 Location Theory and Regional
Economic Growth1 1 Journal of Political Economy, Vol. 63
(June, 1955)
17
e.g., "This country can ill afford the luxury of
government mandated unemployment and economic depression."
John H. Dent, op. cit. (1960) pp. 17528.___________________
23
foreign goods increases the imports. This means goods
that would have been purchased from domestic sources are
now purchased from foreign sources and thus displaces
those domestic workers from employment in producing the
goods purchased. It also decreases the income of the
economy of the state, (nation, county, city) by an amount
equal to the domestic price of the goods purchased from
the foreign source multiplied by the foreign trade multi
plier, as the purchase of imports, like savings are a
leakage from the income flow. The decreased income and
demand results in a decrease in investment through the
acceleration principle and thus causes even more unemploy
ment and loss of income. Therefore protection of the
domestic producers through Buy American legislation is in
the state (nation, county, city) interest.
This argument may be refuted empirically without
even turning to formal economic theory and even accepting
the validity of the hypothesis. Firstly the protection
given by the Federal Buy American act is too insignificant
to measure. Total imports are less than five per cent of
) Q
the gross national product. The Federal Government
purchases of goods and services in 1965 were $128.6
1 A
Statistical Abstract of the United States 1965.
U. S. Department of Commerce, Bureau of the Census, (Wash
ington Government Printing Office, 1966), pp. 324, 325.
24
19
billion. Without adjusting for the fact that the ser
vices purchased would most certainly be primarily of
domestic origin and assuming the same ratio of foreign
purchases as the entire economy, this means a rough esti-
20
mate of $6.43 billion of Governmental purchases of
foreign goods without Buy American legislation. This is
less than 0.94 per cent of the Gross National Product.
Thus the size of the multiplicand is negligible to the
National Income. At the state or local governmental
level the income increase realized to the region, state
or locality by excluding foreign purchases is even less,
since the domestic product may very well be manufactured
in a different part of the country, thus not entering the
local or regional multiplier. This legislation may in
fact decrease the income potential of the region, as a
higher price is paid for the domestic product, thus re
sulting in a larger leakage from the regional economy.
Rather unsophisticated variations of the above
multiplier argument were used in securing passage and
maintaining the existence of both the Federal and Cali
fornia Buy American laws. Considering the size of the
Federal and the California budgets at that time, the bene
fits to be realized through multiplier from excluding
19Ibid.
>n
5 per cent of $128.6 billion
25
governmental purchase of foreign made goods were certainly
minimal.
In addition the beggar-my-neighbor policy may ex
ult similar responses from trading partners, thus reducing
imports (exports of the first country) which according to
the rationale above further reduces income and employment.
This is of particular significance to states, regions and
localities, active in international trade, e.g. California
21
and Los Angeles in particular.
Taxpayers1 rights and real cost of goods. Another
argument put forward by the protectionists is that the
domestic firms should be protected as taxpayers deserve
consideration and preference. Even though the domestic
prices are higher than those quoted by the foreign firms,
the additional revenues lost to the governmental bodies
in the form of taxes often more than make up the apparent
savings of the foreign purchase. This argument is usually
coupled with other statements, e.g. since we are taxpayers
it is the government's duty to do what is right for us.
The taxes they list above are corporation, corporate in
come, personal income, property, sales, etc.
See for example the figures put forward before the
21
Los Angeles Customs District handled exports of
$958.7 million and imports of $1.38 billion in 1966.
Ernest A. Schonberger, "World Trade* L.A. dbs
Doing Well, But It Could Do Better," Los Angeles Times,
May 21, 1967, p. G-l. ..
26
California Legislative Committee evaluating bills proposed
by Assemblyman Petris abolishing the California Buy Ameri
can act. In presenting this argument the data was pre
faced with the statement "Purchase of Foreign Made Goods
22
is exporting someone's job." The example used was a
purchase by the State of California of foreign Turbines at
23
$3,2009000. The domestic price was $3,481,000. This
was $281,000 greater than the purchase price of the foreign
Turbines, an apparent savings of approximately 8 per cent.
Assuming the domestic profit to be 10 per cent, $348,100.
this would yield a corporate income tax of $181,012 when
taxed at 52 per cent. If the remainder, $167,088 were
paid out as dividends a 25 per cent tax rate would yield
another $41,772. in income revenues. Assuming labor and
salary costs to be 30 per cent of the domestic price
$1,144,300, these wages and salaries taxed at a 20 per cent
rate would yield an income tax of $208,860. If material
costs were also 30 per cent of the domestic prices and the
suppliers earned 10 per cent profit on these sales, this
profit taxed at 52 per cent would yield $54,304 on corporate:
revenues. If the remaining 30 per cent is allocated to
State Assembly Interim Committee on Ways and
Means, Op. Cit., pp. 40, 41.
22Data presented here from testimony of Bethlehem
Steel Corp., Ibid.
27
overhead costs and 10 per cent profit allowed on these then
at 52 per cent tax rate another $54,304 would be lost from
the tax coffers. Totaling the above tax revenues yield
a sum of $540,252. This means that taking tax revenues
into consideration,purchase of the domestic bidders Tur
bines would have benefited the Government by $259,252,
($3,200,000 less $3,481,000 less $540,254) rather than the
$281,000 savings shown above due to the purchase of the
foreign Turbines.
The example above is fraught with fallacy. Firstly
it assumes near maximum tax rates for all corporations and
does not allow for loopholes and deductions which the
economizing firms and individuals will utilize. Secondly
it fails to recognize the revenues realized by the govern
ment due to the importation of goods. The tariffs upon the
imported goods in this case would amount to approximately
24
$400,000. In addition foreign firms operating in the
United States incorporate under American laws and pay
taxes as do their American employees and employees en
gaged in transportation and other import-export industries.
In the above case let us assign the tax revenues realized
from the corporate fees and taxes and personal income
24Assuming a 12*5 per cent tariff rate, taken from
General Agreement on Trade Analysis of United States
Negotiation (Washington, D. C.t Department of State, 1962),
Table of Concessions Granted by United States, p. 66,
Tariff Para. 353.
28
25
taxes in this case at $25,000. Thirdly, the above is
definitely an argument applicable only to special limited
situations of unemployment, certainly not applicable to
the United States at the time of the particular case cited,
1962.
Accepting the tax figures in the protectionists
argument and subtracting the tariffs and taxes realized
from the foreign purchase the foreign bid is still low by
$165,748. This in effect invalidates this particular case
for the protectionist argument.
In addition to the above it should be noted that
the import of foreign made goods provides foreigners with
dollars which may very well be used to purchase goods manu
factured in the United States. The domestic industries
producing these export goods pay the same taxes as the
aforementioned domestic firm. This means that with free
trade and complete absence of tariffs it would still be to
the governments advantage to purchase the foreign turbines
when the foreign price is cheaper.
The more reasonable of the protectionist firms sug
gest that the Buy American act be modified so as to allow
foreign bids, but prefer domestic firms. This preference
would be achieved through evaluating the bids received
A modest figure considering salaries of Sales
engineers involved in an electric turbine project.
29
considering prices, and capitalizing taxes, economic inter
est and public interest relative to these prices. Firms
making such proposals are usually the firms participating
2 6
in both domestic and foreign markets.
Further testimony before the committee supports
the observations of the above paragraphs as to the benefits
27
to be received from export industries. In 1962 the U.S.-
Japan Trade Council consisted of 705 business firms resi
dent, to the United States. Of these 116 were incorporated
under California laws. In 1962 California was the leading
state in the nation in Foreign Trade. Some 800,000 Cali
fornians were engaged in employment directly connected with
International Trade. The California Buy American act is
to a large degree sustained by fear from California manu
facturers of competition from Japan as the geographical
location provides a more logical economic integration be
tween Japan and California than California and the Eastern
United States. This competition and exchange is favorable
to California, however, as in 1963 California had a favor
able balance of trade With Japan of $141 million, Californ
ia exporting $493 million to Japan and importing $352
2^e.g. Testimony of Westinghouse Electric Corp.
State Assembly Committee on Ways and Means, op.
cit.
77
Data presented here from testimony U.S.-Japanese
Trade Council, Ibid. pp. 18-21.
30
million from Japan.
Inferior foreign goods. Often it is said by pro
tectionists that foreign goods are poorly made and of in
ferior materials. This contention is extremely doubtful.
It may apply to certain foreign products, just as there is
a quality differential in certain domestic products. In
most free markets and societies a modified version of
"Caveat Emptor" is the rule, whether domestic or foreign
products are involved. There is in fact evidence that
foreign made goods are in certain classes and products
superior to the domestic due to historical technological
advantage.^®
Governmental bodies to which Buy American legis
lation pertains are in a special situation. Through
proper purchasing procedures in writing the criteria for
the materials in the specification for the goods, engineers
and procurement agencies approach perfect knowledge of the
technological characteristics of the goods to be purchased.
Therefore, the above argument alleging the inferiority of
foreign made goods is completely without relevance to the
problem at hand even if given credence.
National defense. Closely related to the conten
tion of inferior quality of foreign goods is the assertion
28
Ibid., testimony of Asst. Director of Water
Resources, p. 53.
31
that savings derived from the purchase of foreign made
goods are not true savings because of the unavailability
of parts for these foreign goods. This unavailability is
said to be magnified in times of war and in times of
national emergency in the foreign countries.
This argument appears to be accepted by a consen
sus of the economic profession. They reason that certain
industries must be subsidized in some manner so that they
may maintain sufficient capacity for periods of national
emergency, i.e. war. To protect the national interest then
requires the purchase of only or primarily domestically
made products.
This argument is empirically unsound. A war econ
omy is a hypej?£ull employment economy. When a national
economy is superheated then replacement parts are not
available for much of the domestically manufactured equip
ment because of the mobilization of resources for instru
ments of war. In the Public Utility industry, many pub-
lically owned agencies that have adhered to the Buy
American laws have been forced to purchase foreign made
goods because of the unavailability of domestically made
products since our involvement in Viet Nam. This fact is
demonstrated in the questionnaire at the close of this
chapter and in Chapter VI.
Other arguments. There are several other arguments
32
gut forth by protectionists supporting Buy American laws.
Some of these, e.g., keep the money and wealth at home,
are of type one, page .^2^ therefore will not be discussed.
Others, e.g., the Infant Industry argument, have been dis
cussed at considerable length in numerous books and papers
and are often extraneous to the protectionist pleas. Anti
dumping arguments for the Buy American laws imply un
economic behavior laws on the part of the foreigners?
these will not be dealt with here.
Often protectionists plea that foreign firms are
allowed to combine in a manner that would violate the
United States Anti-Trust Laws. Those who continue this cry
are ill-informed. The Treaty of Rome prohibits concerted
actions and agreements among firms operating within the
European Economic Community, containing those nations with
29
a history of cartels. Furthermore, many industrialized
nations, particularly in Europe have enacted Antitrust
Laws. It may be a decade before these laws become effec
tive instruments of antitrust policies but the fact that
European firms and plants are presently smaller than their
30
American counterparts further negates the validity of
29
Richard M. Burbaum, “Antitrust Regulation within
the European Economic Community,H Columbia Law Review, Vol.
61, March, 1961, p. 404.
30Jaques Hossiaux, “International Trade and Anti
trust Regulation, a European Viewpoint," Economia inter-
nazionale. Vol. XIV No. 3, August, 1966, pp. 445-446. ”
33
these pleas.
In addition to these considerations the United
States enacted the Webb-Pomerine Act in 1918 which exempted
U. S. firms from the provisions of the Sherman Anti Trust
Act when engaging in international trade. This act is
still in force, although some observers have noted that
it may be in conflict with the General Agreement on
Tariffs and Trade.
Supporters of Buy American laws do have valid
arguments. Principle among these is the proposition that
domestic producers have higher prices for certain com
ponents of production than the foreign competitors because
of artificially administered prices in the United States.
The validity of the observation however, does not justify
Buy American laws. Two wrongs do not make a right. Rather
than attempting to erect and maintain another trade bar
rier, the domestic manufacturers would better utilize their
energies in attempting to eliminate the price supports in
the domestic economy that diminish economic welfare. Thus,
though the existence of price supports may provide sound
rationale for continuing Buy American legislation, the
existence of these price supports may perpetuate two or
more inefficient producers and industries rather than one.
III. STATUS OP CALIFORNIA BUY AMERICAN LAW
Legislation and hearings. Since the 1933 passage
34
of California Buy American act, it lias been reviewed by the
legislative committee several times. In 1942 it was revised,
permitting the exclusion of certain items from its provi
sions. The most recent legislation regarding the act was
introduced by Assemblyman Petris of Oakland in 1963. As
sembly Bill 2424 would have abolished the Buy American Act.
Assembly Bill 2626 would have exempted Municipal Corporations'
and Governmental goods purchased for resale from the pro
visions of the Act. Both bills were defeated. In 1963,
however, the legislature passed a bill allowing purchase
of Turbine Generators manufactured in West Germany for the
Oroville Dam.3' 1 '
In 1964 aforementioned hearings of the Committee on
Ways and Means were held in Los Angeles and Sacramento re
garding Assemblyman Petris' bills. TABLE II below presents
a listing of some of the groups represented arguing for and
against the legislation.
TABLE II*
FOR REPEALING BUY FOR RETAINING BUY
AMERICAN ACT____ AMERICAN ACT_____
California Municipal California Manufacturers Assoc.
Utilities Ass'n. Western Concrete Reinforcing
U. S.-Japanese Trade Steel Institute
Council Bethlehem Steel Corporation
State Department of American Rubber Manufacturing Co.
Water Resources Tile Council of America
League of Women voters Ceramic Tile Mfgs. of California
AFL-CIO
31State Assembly Committee on Ways and Means.op.cit.
♦Derived from State Assembly Committee on Ways and
Means, "Hearings on Buy American Act", edited transcript,
1966.
35
It is of interest to note that of the groups sup
porting repeal of the Buy American act, the majority appear
to represent the taxpayers and the people, while those
favoring retention represent primarily special interest
groups. This would appear to substantiate the opinion of
the Solicitor General of the U. S. Department of Commerce
who stated regarding passage of the Federal Buy American
Act, "Buy American is in no sense a patriotic issue but an
32
economic one."
Present status. The constitutionality of the
California Buy American act is now seriously in question.
The 1962 Baldwin-Lima-Hamilton vs the City-County of San
Francisco case, legal opinions of the California Attorney
General, and more recently the litigation between the
Department of Water and Power of the City of Los Angeles
and Bethlehem Steel Corporation have cast serious doubts
as to the enforcibility of the act. Chapters III and IV
will examine this in greater detail.
Adherence. The appendix to this chapter shows a
result of a survey of the adherence to the Buy American
Law. The questionnaire was sent to twenty-five of the
largest Public Utilities. These Public Utilities were
primarily gas, light, or water, however also included
32New York Times, June 20, 1934, p. 16, Col. 3.
transportation and communications. Eight of the Utilities
were privately owned while the others were of municipal,
county, or regional government ownership. The replies
were arranged in such a manner as to be kept confidential
because of current litigation concerning the Buy American
act and to encourage the completion and return of the
questionnaire.
Thirteen replies were received. A broad spectrum
of opinion was exhibited. Considerable inconsistency was
evidenced in several of the replies. In fact to the
author's knowledge a Publicly owned utility returned their
questionnaire indicating they wergiparivately owned. This
Utility incidently does not purchase foreign-made goods.
Five replies were received from privately owned utilities
(including the mis-marked reply) and eight from publicly
owned utilities. Because of the incomple nature of the
Questionnaires returned a summated tabulation of the re
sults is not practicable. Therefore each reply will be
reproduced in its entirety.
Several observations, however, should be made re
garding the returned Questionnairs. Four of the Question
naires returned, two public and two private, indicated
they first purchased foreign goods in 1962 or later. This
would tend to lend veracity to the assertion made earlier
in this chapter that during times of national emergency,
i. e. war, or any period of hyper^employment, a country is
37
forced to go beyond its own borders to procure materials
necessary for the maintenance of the economy.
Two replies were received from private companies,
and three from public agencies, indicating they do not
purchase foreign goods, however, one of the publicly owned
utilities qualified this. Everyone replying was aware of
the Buy American act.
Only two of the replies indicated they felt foreign
goods inferior to domestic goods and they were the two
private companies who do not purchase foreign goods.
None of the Utilities purchasing foreign goods
replied that parts for foreign goods were more difficult
to obtain. Four replied that they felt the purchase of
foreign goods was harmful to the domestic economy. One
of these still purchased foreign goods and included an
excellent comment regarding foreign purchases.
In general the replies to the Questionnaire seem
to indicate that the purchasing agents of the large
Utilities in California are aware and responsible men.
Their replies, though somewhat inconsistent, may be inter
preted to indicate that they are attempting to act as
the economists "Economic Man", attempting to obtain the
greatest value at the least costs.
38
APPENDIX TO
CHAPTER II
39
QUESTIONNAIRE
YES NO
Ownership of Utility; Private Public____
1. Purchase of Foreign Made Goods# ___ __
a. Year Began _____
b. If not, because of Policy ___
c. Law ™____
2. Aware of California "Buy American" Act ___ __
3. Feel that "Buy American" Act is;
a. unconstitutional ___ __
b. Enforceable ___ __
d. Not applicable to your Utility ___ __
4. Feel that Purchase of Foreign Goods is;
a. In the Public Interest _____ _____
b. Harmful to the Domestic Economy ___ __
c. Allows your Utility to Save Money_______ ___ __
5. Feel that Compliance with the "Buy American" Act;
a. Is costly to the Public ___ __
b. Prevents Competition ___ __
c. Encourages Monopoly _____ ___
d. Prevents or would prevent your Utility
from acquiring quality and quantity of
goods desired _____ _____
6. First began purchasing Foreign Goods because;
a. Change in Internal Policy _____ ___
b. Attorney General’s Decision ___ __
c. Baldwin-Lima-Hamilton case ___ __
d. Domestic Supplies not available _____ _____
e. Other
7. Find that Foreign Goods in Relationship to Domestic
Goods s
a. Are equal in roost respects ___ __
b. Are inferior ___ __
c. Are superior____________________________ ___ __
d. Have more difficulty in securing parts ___ __
e. Supply better service ___ __
8. Do you allow a price differential margin before
purchasing Foreign Goods____________________ ___ __
a. How much %
9. Make a statement, if you wish, re "Buy American"
legislation and Foreign Purchases.
40
ANSWERS TO QUESTIONNAIRE
PUBLIC
1. a.
(1)
No
(2)
Yes
(3)
1956
(4)
1955
(5)
1962**
(6)
Yes
(7)
Yes
(8)
No***
b. Yes
mm
- Yes — * - - - . . . . .
c. —
—« «
— — — — — —
2. Yes Yes Yes - Yes Yes Yes -
3. a. No
—
Yes Yes
— —
No
—
b. Yes — No NO Yes - No Yes
c. No Yes Yes Yes - Yes Yes -
4. a. ? Yes Yes Yes No
— — -
b.
o
No No No Yes - - -
c. No Yes Yes Yes
-
Yes
- mm
5. a. No Yes No Yes NO Yes
— —
b. No NO Yes Yes NO
- — -
c. NO No Yes Yes No No — -
d. No No Yes Yes Yes — — —
6. a.
_
Yes
— — —
b. - — — NO -
-
- -
c.
- — - NO - - - —
d. - — Yes Yes
- — —
Q .
e. —
cs
— NO — — — -
7. a.
_
Yes Yes Yes No Yes Yes Yes
b. - No No No - - -
-
c.
—
No
—
No
- — — -
d. Yes* No No No - — - -
e. NO No Yes No — — — —
8. No No No No No No -
-
9.
mm mm — • • —
* "according to reports from other public agencies".
** "only when domestic source not available".
*** "except when domestic not available".
: 433
ANSWERS TO QUESTIONNAIRE
PRIVATE
1. a.
(1)
No
(2)
No
(3)
1965
(4)
Yes
(5)
1965
b. Yes Yes - - Yes
c. — No — - —
2. Yes Yes Yes Yes Yes
3.a ¥ No
_
b. U?Mo Yes
- —
Yes
c. No Yes Yes Yes Yes
4. a. No No Yes Yes
mm
b. Yes Yes — No Yes
c. NO No — Yes -
5. a. Yes No
—
Yes
b. No Yes
— -
Yes
c. No No
- Yes No
d. NO NO Yes Yes No
6. a. N/A
— — — —
b. — — mm
- -
c.
— — — — —
d. - - Yes - Yes
e. —
M B
—
mm
—
7. a. No NO Yes Yes Yes
b. Yes Yes - - —
c.
—
No
— - -
d. Yes Yes - No -
e. No No — -
mm
8. No No No No NO
9.
_ *
*t , Fair competition from whatever source serves to improve
product and service offered by the supplier. The term
foreign implies alienation and undesireability. The
term Buy American implies restriction and limitation
upon the buyer. Neither are appropriate to the basic
problem of procurement.M
6 ^
CHAPTER III
THE BALDWIN-LIMA-HAMILTON CASE AND GATT
I. BACKGROUND OF THE CASE
The California Buy American act remained law, and
was not challenged in the courts until 1962. The court
action invoking this challenge was Baldwin-Lima-Hamilton
vs Superior Court case.'*' In 1961 the City and County of
San Francisco called for bids to be submitted for the
furnishing of turbine generators for a municipally owned
power generating station. The specification contained a
"Place of Manufacture" clause, stating "All Materials ...
2
shall be manufactured in the United States . . . " Bald-
win-Lima-Hamilton Corp. and hereinafter referred to as
B-L-H and Allis Chalmers Manufacturing Company hereinafter
referred to as A-C responded to the advertisement. A-C
conformed to the requirements of the specifications includ
ing the Place of Manufacture clause. B-L-H submitted two
bids both conforming to the technical requirements of the
specifications. One bid however, was quoting on certain
parts of the turbine generators of foreign manufacture, i.e.
^208 Cal. App. 2d 803, 25 California Reporter 798,
Q-962).
2Ibid., p. 807.
43
parts were to be manufactured in Japan and Canada, thus not
complying with the Place of Manufacture clause. The
foreign bid of B-L-H was lower than A-C*s bid by some
$72,579, approximately 1.5 per cent of the B-L-H foreign
price. The domestic B-L-H bid was higher than the A-C bid.
The purchasing authority announced his intention to award
the contract to the low B-L-H bid on the opinion of the
City Attorney of the City of San Francisco that the manu
facture clause was invalidated. This opinion concluded
that Section 4303 of the California Code had been super
seded by the General Agreement on Tariffs and Trade, here-
3
inafter referred to as GATT. A-C then petitioned the
Superior Court for a mandate to prevent the City from
awarding the contract to B-L-H. The City of San Francisco
pleaded that the place of manufacture clause was invali
dated by GATT. As shall be discussed later, the Court held
that in this particular case the California Buy American
4
act was in conflict with the GATT.
3Patrick S. Hobur, "GATT, the California Buy Ameri
can Act and the Continuing Struggle Between Free Trade and
Protectionism,” California Law Review, Vol. 52 (May, 1964),
p. 337.
4Harry L. Usher, ’ ’California's Buy American Policy
Conflict with GATT and the Constitution," Stanford Law
Review, Vol. 17 (1964), p. 127.
44
II. THE GATT
History. In 1947 the International Trade Organiza
tion met in Havana, Cuba to reach an agreement for an
International Code of Conduct for international trade.
These rules were signed by 54 nations and comprise the
basis of what is today the GATT.5 GATT was adopted by 23
nations in Geneva in 1947. The agreement was revised in
1957 and presently includes 38 contracting members account
ing for more than 80 per cent of total world international
6
trade. The United States became a contracting member of
GATT through an action of President Truman by-passing the
Senate, using powers granted him under the Reciprocal Trade
Agreement Act bf 1934 and subsequent extensions of the pro
visions of this act. It has been contended that the Re
ciprocal Trade Agreement Act is unconstitutional in that
it violates Article I, Section 8 of the United states
Constitution, vesting the power and regulation of commerce
7
with foreign nations with Congress. Viewing the act in
the light of subsequent Supreme Court decisions however,
the delegation of authority to the President is justified.
Therefore, it is held that the United States participation
in GATT is legal.
5
Stephen Enke and Virgil Salera, International
Economics, (New Jerseys Prentice-Hall, Inc., 1957).
6Laurance A. Knapp, "The Buy American Act," Colum
bia Law Review, (March, 1961), Vol. 61 No. 3, p. 506.
7
Hobur, op. cit., p. 338.
In order to better understand the purported con
flict between GATT and the California Buy American act,
knowledge of the Articles of GATT involved is desirable.
8
Organization. GATT consists of four parts* Part
I, consisting of Articles I and II, contains the most
favored nation clause arid trade concessions. Part II,
consisting of Articles III to and including XXIII contain
the rules and trade regulations, generally constructed so
as to relax non-tariff barriers, thus prevent nullification
of tariff concessions and encourage international trade.
Part III, which consists of Articles XXIV to and including
Article XXXV, contains the rules for administration of the
regulations and agreements of the other sections. The
fourth part, the Annex, list addenda to the articles and
delineates exceptions and trade organizations referred to
in Parts I, II and III. Those articles relevant to the
purpose of this paper are briefly described below.
Article I. Article I sets forth the most favored
nation clause, the basic tenet of GATT. This type of
agreement has a long history in international trade and
g
commercial treaties extendinggback to the 17th Century.
8
All quotations in this section are taken directly
from the General Agreement on Tariffs and Trade, (Washing
ton, D. C.* U. S. Government Printing Office, 1958).
9
Gottfried von Haberler. The Theory of Internation
al Trade, (London* William Hodge & to., Ltd., i960,) “
p. 362.
46
As applied in GATT the clause states that*
" . . . any advantage favor, privilege or immunity
granted by any contracting party to any product
originating in any other country shall be accorded
immediately and unconditionally to like product
originating in . . . all other contracting parties."
This simply means that contracting nations may not accord
more favorable treatment to products of second nation than
is accorded to any third nation which is a contracting
member of GATT. The rest of the article then lists ex
ceptions to these rules and presents a no new preference
rule delineating free customs areas in which there is
allowed preferential treatments because of historical and
administrative ties.
Article II. Article II defines the maximum of
tariff rates that may be assessed member nations as pre
sented in a schedule annexed to the agreements. The
article continues■to list the types of fees that may be
attached to imported goods under GATT and establishes rules
for valuation and redress of grievances among contracting
members•
Article III. Article III, Paragraph I, declares
the responsibility of the exporting parties to adhere to
the "laws, regulations and requirements . . .of sale" of
the importing nation. Paragraphs II, IV and V of Article
III prohibit the discrimination of the importing nation
against imported productst Paragraph II, by means of
47
special internal taxes and fees, not applied to like domes
tic products? Paragraph IV, by treatment no less favorable
than that accorded "like domestic" products relative to
laws effecting their "sale . . . purchase, transportation,
distribution or use"? Paragraph V, by "quantitive regula
tion" regarding mixture or use of specified proportions
requiring "directly or indirectly" that a certain per cent
or amount of a product must be supplied from domestic
sources. Article III, Paragraph VIII states that the pro
visions of this article shall not apply to procurement of
governmental agencies" not with a view to commercial resale
or with a view to use in the production of goods for com
mercial sale." It is this article to which the Court ad
dressed itself in determining the decision in the B-L-H
case.
Other significan articles. Article VI recognizes
the possibility of dumping and provides for the levying of
an anti-dumping duty by contracting nations. Article VIII
stipulates that fees exclusive of import duties and taxes
under Article III shall be approximate to the costs of
services rendered and the administration of these fees be
kept as simple as possible. Article IX is concerned with
Marks of Origin and states that regarding marking require
ments "no less favorable treatment" shall be accorded to
products of a member nation or nations than that accorded
"like products of any third country" and that arrangements
should be made between countries as to the use of trade
names and application of marking of products. Article XVI
limits subsidies to domestic industries and export
industries.
Article XXI permits a nation to take "any action"
which it considers necessary for national security. The
United States has been a party in the one action arising
under this article when, in 1949, Czechoslovakia complained
that the U. S. was violating the Most Favored Nation clause
in restricting the resale of "strategic" materials to that
country. The U. S. defended its position with Article XXI
and the Contracting Members rejected the declaration of
the Czechoslovakia delegation."^
III. THE CASE11
Original action. The bids for the equipment first
opened on August 7, 1961. A-C was the clearly low bidder,
however, took certain material exceptions to the specifica
tions. The specifications were therefore readvertized and
opened on December 4, 1961. The bids received were those
indicated on page 3-1 above.
After evaluating the bids, the Purchasing Agent,
10Knapp, op. cit., p. 544
^Unless otherwise noted all quotations in the
following section are derived from 208 Cal. App. 2d 803,
op. cit., reporting the B-L-H case.________________________
49
acting for the City-County of San Francisco, awarded the
B-L-H (foreign bid) as "the lowest and best responsible
bidder." A-C filed a Petition for Writ of Mandate and In
junctive Relief to prevent the completion of the contract.
A-C pleaded that in awarding the contract to B-L-H violated
the place of manufacture clause. The superior court held
that the place of manufacture clause of the specifications
was in direct violation of the supremacy clause of the
federal constitution. Thus the specifications were illegal
in that the terms and conditions of the constitution were
not a clear call for bids appraising prospective bidders
of the terms of the specifications so as "to promote free
open honest competitive bidding on equal terms." The
court then held that no award could be made under these
Illegal specifications either to B-L-H or A-C.
Appeal. B-L-H then appealed the decisions. The
Appellate Court in upholding the Superior Court's decision
ruled that the call for Bids was in fact in conflict with
the Supreme law of the land.
The Court's rationale was that the United States
is a signor to the GATT. The GATT then assumed the status
of a treaty. Treaties are the supreme law of the land.
Under GATT the products of Canada (signor 1947) and Japan
(signor 1955) shall not be treated less favorably than like
12
domestic products. It is true that Article III,
1 -
Supra page 3-5, GATT, Article III, Paragraph 4.
50
Paragraph VII exempts governmental bodies from this provi
sion, however, this exemption does not apply when the goods
to be purchased are to be used in the production of goods
for sale or resale. In the case at hand the equipment is
to be used in the production of electricity. Electricity
is a commodity that may be “manufactured, transported and
sold." In fact, the electricity to be geheratedfis to be
sold to the citizens of San Francisco.
Because the place of manufacture clause violates
this treaty the Superior Court was correct in holding that
the specifications were illegal and invalid. The City and
County of San Francisco is required by law to provide for
fair competitive bidding in the procurement of materials
and services and to award these contracts to the lowest
and best responsive bidder. The presence of the place of
manufacture clause precludes fair competitive bidding.
IV. CONCLUSIONS FROM THE CASE
Constitutionality of GATT. There is some argu
ment whether in fact GATT has the status of a treaty under
law. The GATT has never been formally ratified by the
13
Senate. This delegation of authority by Congress to the
executive branch, however, has become periodically renewed,
as evidenced by the Trade Expansion Act of 1962 and other
13Huber, op. cit.. p. 337
51
currently pending legislation. The constitutionality of
the delegation of this authority has been accepted by the
courts on the grounds that it meets the standards of con
gressional authority considered permissible, and that the
nature of the Presidents powers in international affairs
allow a broader delegation of congressional authority.
it is further contended that the nature of international
trade and treaties and the rapidity of modern communication
necessitate this broader delegation of this Senatorial
power.
Challenge to Buy American laws. If it is accepted
that the GATT does in fact have full status and authority
of a treaty then many or most of the national preference
laws in this country and abroad are illegal. Under the
GATT there can legally be no preferential treatment of
domestic goods except where the national security is in
volved or for purely governmental purposes, paragraph
VII of Article III of GATT in fact present certain inter
esting questions relative to international trade. Just
which governmental services, especially in our capitalistic
free economy, are in fact not for resale or for the pro
duction of goods for resale? This question however, is
not to be dealt with here.
The importance of the B-L-H case is considerable.
14Huber, op. cit.. p. 337.
52
It represents the first serious challenge of a national
15
preference statute. The decision reinforces the suprem
acy of the Commerce' Power of the Federal Government and
further, it recognizes the status of GATT as a treaty.
This decision has been used as an argument for repeal of
the California Buy American act, but to date has been un
successful.
The participants. As to the parties involved in
the case, all were losers. A-C who initiated the original
action was out considerable expense and still did not re
ceive the contract. Aliithe case did was to create
possible uncomfortable relationships between the City-
County of San Francisco and A-C.
B-L-H also was not awarded the contract, however
they did now possess a decision permitting them to use
foreign made materials in certain products* It is of in
terest to note that B-L-H had been involved in a similar
16
action in the 1958 Greers Ferry case. In this case how
ever, B-L-H assumed the role of the protectionist, compet
ing with a British firm for award of Hydraulic Turbines to
15
It is thought that no previous challenge to these
laws had not been pursued because of the "stigma attached
to siding with a foreign power."
Usher, op. cit.. p. 119.
16
Henry A. Berliner, "Buy American Legislation,'?
George Washington Law Review, Vol. 32 (March, 1964), pp.
445-446.
5$
be used in a Federal project. The British firm submitted
the lowest bid, however the decision was first that B-L-H
be given the award as the low domestic bidder because of
National Defense Considerations, in accordance with Presi
dent Eisenhower's Order of 1956. The British government,
however brought diplomatic pressure to bear and President
Eisenhower reversed the decision of the procurement agency.
It is ironic that B-L-H has been on the losing side on
both sides of the International Trade argument.
The City-County of San Francisco was the big
loser. Despite which Generator they bought, their expenses
had been increased considerably. Not only was there con
siderable legal expenses involved, but also the project
had been delayed by over two years due to the litigation.
CHAPTER IV
DEPARTMENT OF WATER AND POWER OF THE CITY OF
LOS ANGELES AND THE BETHLEHEM STEEL CASE
Following the B-L-H decision many public agencies
throughout the State of California reviewed their purchas
ing policies as regarding foreign made goods.^ This
decision, however, was considered by some to be somewhat
ambiguous as to the conflict between Buy American legisla
tion and GATT and as to the areas of application of this
conflict. In 1966-67 the Buy American law was again test
ed in the Bethlehem Steel Corporation et al. vs the De
partment of Water and Power of the City of Los Angeles,
et al. case.
Before discussing the case it is important to
understand the principles of public purchasing and the
nature of the Utility, the Department of Water and Power,
and its Purchasing Division in particular. This under
standing will serve two functions. It will provide a
greater insight into the case to be presented and the B-L-H
case just presented and it will provide a background for
thsssd^ta to be presented and analyzed in the chapters which
follow.
■^See Appendix Chapter II, pp. 38-41
— ,
55
I. HISTORY OF THE DEPARTMENT
The data to be used in testing the possible costs
Buy American act and protective legislation in general, is
from the files of the Department of Water and Power of the
City of Los Angeles hereinafter referred to as the Depart
ment. The City owns the Department which operates, how
ever, as a separate entity. The Department is separated
into two operating divisions. Water and Power, as well as
other peripheral divisions, e.g. Public Relations, Person
nel and Purchasing. The Department has been in continuous
operation, under a variety of names and organizational
arrangements since the City of Los Angeles purchased the
Los Angeles City Water Company, a privately owned corpora-
2
tion in 1902. Since that time the Department has grown to
its present status as a giant among publicly owned utilities
under the able leadership of a number of Engineers and
Managers, from William Mulholland, the first Superintendent
of the Water Works System of the City of Los Angeles to
Edgar L. Kanouse, the present Chief Engineer and General
Manager of the Department of Water and Power.
Water System. In 1906 the city began action which
secured the water rights and necessary rights of way for
2
1965 Water and Power Facts, Department of Water
and Power, City of Los Angeles 1966, p. 11.
56
providing the citizens of Los Angeles a water supply from
3
the Owens Valley. Today the City receives its water sup
ply from as far away as Mono Lake, some 337 miles along
the Owens River Aqueduct, fully owned and maintained by
the Department. The Water System consists of 100 impound
ing and distribution reservoirs, 6,555 miles of distribu
tion pipe and serves some 607,316 service connections,
which transported better than 2,133,389,600 cubic feet of
4
water to the citizens of Los Angeles in 1966.
Power system. Though the city had previously owned
power facilities the history of power operations of the
Department of Water and Power could be said to begin
March 25, 1911 when E. F. Scattergood was appointed Chief
Electrical Engineer of the Department of Public Service.
The electric production and distribution system of the
Department has grown throughout the years. It was origin
ally begun as an adjunct to the Los Angeles Aqueduct to
provide power for Pumping Stations and other operations.
Today the revenues and assets of the Power system far ex-
5
ceed those of Water.
The Department has historically been a pioneer in
3Ibid.
4Ibid. , p. 73
^Board 0f water and Power Commissioners, 64th Annual
Report. Water and Power, 1964-65, City of Los Angeles, 1^65,
pp. 22-25.
57
the use of new methods of producing and transmitting elec
tricity as exemplified in the development of Steam Plants,
participation in the Boulder and other Colorado River
projects, and in current activity with Nuclear Turbine
Generation Stations and the Pacific Intertie System.
The Power system operates 4 Steam Generating Plants
in the Los Angeles area and 7 Hydro-Electric Plants along
the Owens Aqueduct as well as participating in the manage
ment of Hoover Power Plant, receiving 17 per cent of the
energy generated at Hoover which was less than 7 per cent
of the total energy the Department received or generated in
g
1966. The customers of the Department were supplied with
more than 11.4 billion kwh in 1966 from 133 Distributing
Stations along better than 7,000 miles of transmission and
7
distribution lines.
Finances of department. The Department is self
sustaining and contributes an annual surplus to the City
Treasury. In the Fiscal Year 1965-66 the Department paid
$9,929,688 to the reserve fund of the City on assets valued
at $1,343,197,282 and a citizens equity of $784,959,721.®
&
Water and Power Facts, op. cit., pp. 87-89
7Ibid., pp. 83, 94.
8
Annual Report. Department of Water and Power,
1965-66.
58
9
Current activities. The Department is currently
engaged in or upon the verge of several large construction
programs, unless further legal action ensues, construction
of a Nuclear Turbine Generating facility at Malibu will be
gin late this year? other Nuclear Generating Plants are
planned, one at Bolsa Island is being constructed jointly
with the Southern California Edison Company as is a Steam
plant in the Mojave Desert. The Department is presently
building pumps and aqueducts to receive water from the
State of California Feather River Project? a new aqueduct
is being built for the Owens River Aqueduct system which
has served the City so well for many years? and the Depart
ment is constructing, in conjunction with Southern Califor
nia Edison Company and the Cities of Burbank, Glendale and
Pasadena, the Pacific Intertie System bringing power from
Bonneville Dam, through Oregon, Nevada and into Southern
California. All the Departments' activities are paid for
by current funds or bond issues. The taxpayer contributes
no direct funds to the Department construction programs or
operations except through his utility bill.10
II. THE PURCHASING DIVISION
A vast and growing system must maintain a considerable
^Some critics of the Department feel that the pre
sent construction programs represent over-capacity for even
optimistic estimates of future needs.
10Annual Report, op. cit.
59
staff for purchasing operations. The Department purchasing
activities are transacted by the Purchasing Division, which
handles all purchasing and procurement operations for both
systems. Purchasing is divided into two sections, formal
and informal. Informal purchases are in amounts of less
than $5,000 and are authorized by the Purchasing Agent.
For purchases exceeding $5,000 the endorsement of the Board
of Water and Power Commissioners is required.^
Public purchasing principles. All purchasing and
procurement activities are directed towards the same goal-
obtaining the highest quality materials and services needed
at the best possible prices. This is best done through
centralized purchasing operations that allow for the econo
mies to be realized through; standardization of similar
items to be purchased throughout the organization? con
solidation of orders and scheduling procedures that permit
savings of quantity orders from soft markets, and inventory
and warehousing operations that discourage duplication of
orders and over-stocking.
Public Purchasing procedures are a somewhat special
case. Public agencies must follow certain rules to protect
the public interest. These rules usually prohibit bargain
ing by the purchasing agency with individual sellers. As
a rule in Public Purchasing competitive bidding prevails
•^CLty of Los Angeles, City Charter, 1963 Rev., p. 264.
6 C j
and the low bidder receives the award. It is thus incum
bent upon the public purchasing agencies to develop speci
fications for each purchase, so that the type and quality
of goods purchased is the type and quality desired. This
is not to say that the specifications should be written
around certain brands, but rather that the specifications
explicitly include the requirements of the material to be
purchased. Well written specifications then allow all
qualified products to be offered and the competitive bid
ding system allows the Agency to receive the best possible
price.
Procedures of the formal section. The Departments*
purchasing procedures follow the above rules. All pur
chases are initiated by the using division or system. After
the receipt of the requisition, a specification is written
by the engineers and edited by the Purchasing Division
detailing the technical requirements of the goods or ser
vices desired. These goods and services are either for a
specific purpose, "hand-to-mouth” contracts, e.g. construct
ion of building or cable for a certain transmission line?
or for the furnishing of a specific good or service for a
period of time, 1 1 price-and-time" contracts, e.g. aluminum
wire and cable for one year or nuts and bolts for one year.
Included in each specification is a request for a bidder's
bond or certified check guaranteeing performance of the
61
contract and an affidavit of noncollusion attesting to the
fact that*
The corporation who makes the accompanying proposal,
deposes and sayss that such proposal is genuine,
and not sham or collusive, the bidder has not direct
ly or indirectly induced or solicited any other bidder
to put in a sham bid, or any other person, firm or
corporation to refrain from bidding, and that the
bidder has not in any manner sought by collusion to
secure for itself an advantage over any other bidder.1^
These documents are required before the bid is considered
responsive.13
Specifications are divided into seven sections.
Section A consists of the Notice Inviting Proposals and
the above two documents.
Section B consists of the Proposal wherein the
bidder fills in his prices, delivery schedule, brand or
manufacturer of materials offered and location of manu
facture. In addition the Proposal Schedule often requests
test results of materials, packaging and delivery data
and/or dimensions or weight of materials and where appli
cable, options to purchase additional quantities or parts,
and price escalation clauses. Section B sometimes includes
a data tabulation section or a statement of experience.
Section C is usually a single page section listing
Standard Specification, Departmental Drawings or other
12
Affidavit of Non-Collusion, City of Los Angeles
Form 1803.
13
City Charter, Op. cit., p. 265.
62
Documents to be made part©of the Specifications.
Sections D and E are what is referred to as "the
Boilerplate." Section D details the instructions for the
preparation of the proposal by the bidder and delineates
the bidder's responsibility for presenting the bid. Sec
tion E defines the terms used in the specifications and
provides information as to the General Condition common
to all of the Department's contracts.
Section F consists of the Detailed Specification
for the material or services to be purchased. The section
is usually divided into t w ® or more parts and contains not
only the technical and engineering data necessary for pre
paration of the proposal by the bidder, but also the de
livery requirements, payment schedules, certain legal
provisions and, in price and time contracts, both the
estimated amounts to be ordered for determining lowest
bidder and the guaranteed amounts to be purchased. The
last section consists of the Departmental drawings®or
Standard Specifications common to various Specifications.
After the Specification is prepared it is adver
tised for bids in the Los Angeles Daily Journal, the local
paper of record, and notices of the bids sent to regular
bidders. The sealed bids are then publicly opened and the
proposal schedule read at 2*00 P.M. of the stipulated open
ing date. After the bids have been opened they are eval
uated by the purchasing Division and the engineers of the
63
using division. The recommendation for award is then made
upon the basis the the "lowest and best regular responsible
bidder furnishing satisfactory security of its performance?
The award recommendations and contracts are then reviewed
by the Legal Division and Management of the System involved
prior to being placed on the Agenda before the Board of
Commissioners of the Water and Power in their public meet
ing. The Board examines the documents involved in the
award of the contract, including the evaluation of the
bids and recommendation of award and acts upon the con
tract by a vote. Discussion by interested pasties is
solicited before the Board acts. Once the Board has
acted the contract is considered binding.
The Department and the Buy American act, in 1955
the City Attorney's office reviewed the City Charter and
the State of California Buy American act. It was decided
that the phrase in the City Charter "lowest and best re
sponsible bidder" superceded the Buy American act and pre
cluded the City and the Department from complying there
with. Therefore in 1955 the Department purchased Power
Circuit Breakers from Brown-Boveri Corporation, made in
Switzerland. The savings resulting from this initial pur
chase was $106,397, which was more than 71 per cent of the
purchase price.
14Ibid, p. 266.
64
This decision was not legally challenged, the City
Attorney's opinion held. The legal rationale was that the
State granted the City its charter prior to the passage of
the Buy American act and the phrase "low ... responsible
bidder" did not exclude foreign bidders or condition it
self upon the State law. Also the furnishing of electric
power and water is a municipal affair, thus the Buy Ameri
can act does not apply as the charter grants to the city
municipal functions.
There was some reluctance among certain of the
engineers in the Department to purchase foreign goods. The
engineers, who may exclude firms through the writing of the
technical data in the specifications, felt that some of the
foreign firms could not perform as well as the old line,
American manufacturers. Though an anti-foreign attitude
still exists in a few engineers, the study revealed only
one case, after the foreign vendors became established,
that might indicate a foreign product was ruled out for
prejudicial reasons, the award going to a higher domestic
bidder. This attitude is certainly not part of the
Purchasing Division policy, constantly searching for the
best quality product at the most reasonable cost.
III. THE BETHLEHEM CASE15
Background of the case. As indicated above, the
15Unless otherwise noted all facts and figures in
this section are derived from briefs and papers of the case.
65
Department, since 1955, has awarded contracts on a basis of
"lowest ... best ... responsible bidder," irrespective
of country of origin of the goods to be purchased. In 1966
this policy was challenged in the Bethlehem Steel Corpora
tion vs. Department of Water and Power, et al. case. In
a simultaneous action the Department was sued by Triangle
Steel and Supply Company, however, as the Triangle case
involved a considerably smaller sum and was subordinated
to the Bethlehem case it shall only be mentioned here and
emphasis shall be upon the Bethlehem case.
On October 4, 1966 the Department advertised a call
for bids on Specifications No. 9348 for Guyed Suspension
Tosers for the Sylmar-Oregon HVDC Transmission Line. The
bids were to be returned for public opening at 2s©0 p.m.,
November 18, 1966.16
Seven bids were received for Steel Towers? three
quoting prices for towers of Japanese manufacture; two
quoting prices for towers of Japanese manufacture; two
quoting prices for towers of Italian manufacture; one quot
ing prices for towers of Canadian manufacture; and one,
Bethlehem, quoting prices for towers to be manufactured in
the United States. In addition two bids were received under
an alternate Item for Aluminum Towers, both of United States
manufacture.
The recapitulation of Bids below lists the bids
received and the country of manufacture. The "best" and
• ^ 6Pept ."“ Files Spec. No.9348 awarded Dec. 23, 1966.
66
“lowest" evaluated bid was that of Marubeni-Iida (America),
Inc. (Plan B). (Plan A) was lower, however, did not comply
with the Specifications. This bid was $953,023 less than
the Bethlehem price, a savings of approximately 62 per cent
of the award price. The bid of Bethlehem Steel Corporation
was the second highest bid under Item I for Steel Towers.
Five acceptable bids, all foreign, offered prices below
that of this domestic bidder.
Both bids on the alternate item were above all bids
on the steel towers, Table 3.
On December 7, 1966 Bethlehem brought action
against the Department seeking an injunction against the
Department's awarding the contract to Marubeni-Iida on the
grounds that ttieaDepartment was violating the California Buy
American law. The claimant stated in the injunctive action
that Bethlehem was in fact the lowest responsive bidder in
that Marubeni-Iida and all other bidders plan to use
materials manufactured outside the United States.
The Injunction decision. The Department Specifica
tions are subject to award during a specified number of
days. Specification No. 9348 was to be awarded within 45
calendar days from the opening date. This meant that the
Specifications must be awarded on or before December 29,
1966. Monday, January 3, 1967 was the last possible award
day and the Board meets normally on Tuesdays and Thursdays.
TABLE III
SPECIFICATION NO. 934817
GUYED SUSPENSION TOWERS
RECAPITULATION OF BIDS RECEIVED
....... ...... —i
67
Item I (STEEL)
Country or
Bidder Price Manufacture
i
1. Marubeni (America), Inc.
(Plan A) $1,439,613 Japan
(Plan B) 1,546,488 Japan
2. SocietH Anonima
Electtrificazione, S.p.A. 1,790,418 Italy
3. Mitsui & Co. (U.S.A.), Inc. 1,856,083 Japan
4. Officine Vittorio
Ceccoli, S.p.A. 1,867,264 Italy
5. Nichimen Co., Inc.
2,153,299 Japan
6. Bethlehem Steel Corp. 2,499,511 U . S .A.
7. Dynamic Industries, Inc. 2,808,468 Canada
8.
Alternate Item
Reynold Metals Co.
I (ALUMINUM)
$3,649,967 U.S.A.
9. Anchor Metals Division,
Electronic Specialty Co. 4,291,298 U.S.A.
17Ibid.
68
The Department, apprehensive that Bethlehem’s injunctive
action might result in similar circumstances as heset the
City-County of San Francisco in the B-L-H case, pleaded
that the Court expedite the case as swift|y as possible.
The Court acceded, Judge Loring delivering his de
cision on December 23, 1966. The decision was delivered
orally, an unusual procedure in a case of this nature. The
Court found against the plaintiff, stating that if Bethle
hem1 s position "was legally sound," "adequate remedy at law
for damages" was readily available. This was not in itself
a victory over the protectionists by the exponents of free
trade, for as we shall see further action followed. How
ever, the Court continued with several opinions and re
marks in the decision which were of note.
Judge Loring ventured the opinion that the case is
controlled by the B-L-H case and no significant legal dif
ferences between the two cases were apparent. The Judge
further opined that he was pursuaded that the logic in the
B-L-H case was "reasonable and sound," and that he too
would consider the California Buy American law in conflict
with GATT, wherein resale of Electric Power is involved,
thus unconstitutional.
In reaching this conclusion he drew an interesting
parallel. Suppose all of the nineteen million people of
the State of California entered into a conspiracy or agree
ment not to purchase foreign made goods. It is extremely
69
doubtful that the United States Supreme Court would reach
any but the following decision in deciding such a case.
The Court would rule such a conspiracy or agreement an "un
due burden and restraint on foreign commerce" thus in
violation of the Commerce Clauses of the United States Con
stitution. When this reasoning is projected into the pre
sent case it is difficult to see wherein the State, or any
public agency when acting as an individual consumer or as
a representative of the people is substantially different
from the above example.
In deciding in favor of the Department and referr
ing Bethlehem to take further action to recover damages,
if damages in fact existed, the Court made note of the
financial positions of the parties involved. Should the
injunction be granted Bethlehem, a bond would then be re
quired to be posted by the plaintiff (Bethlehem) throughout
the period of the case. What would be the sum of this bond?
Bethlehem's bid was $2,499,511. The loss to the defendants,
i.e. approximately 10 to 20 million customers of the public
and private power companies involved, would be 'Astronomical"
and Judge Loring expressed doubt "if the entire steel in
dustry would have the financial capacity to post a bond
that could adequately protect the defendants." Bethlehem's
damages, i.e. potential profits, at the most optimistic
would be $824,838; 33 per cent of $2,499,511.
With the possible loss to the defendant so great anc
70
the loss to the plaintiff relatively small, and with action
for damages readily available to the plaintiff it would be
inequitable to issue a preliminary injunction.
With the injunctive action defeated the Board of
Commissioners of the Department awarded the contract to
Marubeni-Iida on the same day as the decision, December 23,
1966. The next week Bethlehem began its action for damages.
Arguments of the case. After some legal manuever-
ing, the details of which are not relevant to this study,
Bethlehem Steel Corporation presented a claim for damages
to the Board of Commissioners of the Department in the
sum of $258,000 on January 9, 1967. This figure was pre
sented as a reasonable estimate of profits to be expected
had this firm received the award under Specifications
No. 9348. The figure represents approximately 10.5 per
cent of the Bethlehem bid. The Board rejected the claim.
Bethlehem then returned to the Courts pursuing an
action for damages. The case proceeded with the usual
legal infighting. As mentioned above, much of this is ex
traneous to the problem being investigated. Therefore
rather than write a full and detailed brief of the remain
der of the case only the principal and significant argu
ments shall be briefly presented below.
The plaintiffs first attempted to overcome the
opinion of the B-L-H case. They contended that the
71
Department was required by California Government Codes 4300
through 4305, the Buy American Acts, to reject all foreign
bids and award their contracts to the "lowest and best reg
ular responsible bidder ..." supplying domestic products,
The plaintiff continued that no "international agreement
to which the United States, Canada, Italy and Japan are
parties" supersedes or overrides the provisions of these
codes. The status of GATT as a treaty was questioned, as
was the expertise of the California Attorney General in
delivering opinions on matters of international law.
Bethlehem contended that even if the GATT is acceded to
possess the powers and status of a treaty, the clause in
IQ
Part I, Article I of GATT stating that this agreement
shall be applied "to the fullest extent not inconsistent
with existing legislation," exempts the Buy American Act
from pre-emption by the GATT. In addition the GATT was
never intended to apply to state and local governments.
The plaintiffs after attempting to overcome the
B-L-H decision then attempted to separate the two cases.
The B-L-H case concerned Turbine Generators, creating elec
tricity for resale, thus the Court held the Buy American
statute in this case in conflict with GATT. The Towers are
to be used in the "transport" of electricity from one
governmental facility to another. The goods purchased are
18
General Agreement on Tariffs and Trade,U. S. Gov
ernment Pringing Office, 1958.
72
therefore not for the production of goods for resale, thus
not in conflict with the GATT.
The Department replied to these arguments and pre
sented arguments of their own. The Department replied that
the case was at all fours with the B-L-H case, therefore
the B-L-H decision dictated the results of this case. The
Department further declared that the inconsistency between
GATT and the Buy American act established in the B-L-H case
was valid and applicable. In addition the Buy American laws
are inconsistent with and superseded by treaties of Friend
ship, Commerce and Navigation between Japan and the United
States.
The Department introduced two new arguments. First
ly, they stated that the Department is a Department of a
Chartered City, and exempt from the Buy American act under
the California Constitution. Secondly, the Act is not en
forceable, even if applicable, as it results in a gift of
public funds to the plaintiff, which is also in conflict
with the California Constitution.
Both parties discussed the proposition that the
Department was not the only participant in this project,
but was associated with Southern California Edison Company
and several municipally owned power utilities. Bethlehem
contended that this in no way changed the applicability of
the Buy American act, while the Department asserted that it
provided still another exception to the enforceability of
— ,
11
the Act in this particular case.
Decision and significance of case. The Department
moved for a dismissal and summary judgment. The Court
granted this on June 2, 1967. Unfortunately a summary dis
missal provides no opinion to which future litigation may
refer. The Department's victory however, will perhaps dis
courage further action by protectionist groups from attempt
ing legal action enforcing adherence to the Buy American
laws. The decision in the injunctive action fjrthermore
provided much content favorable to the free trade cause,
though holding no legal status, except perhaps to support
the opinions of the B-D-H case.
It is of interest to note two facts relevant to the
above cases (1) Until the purchase of foreign towers the
Department had purchased towers from no other firm except
Bethlehem for at least 20 years. (2) The next tower bid.
Specification No. 9458, was awarded to Bethlehem as the
lowest bidder quoting on domestic towers. Two bids were
received quoting on foreign made towers, one Italian and
19
one Japanese.
■^Department Files, Spec. No. 9548 awarded 4/13/67
CHAPTER V
DATA DEMONSTRATING GAINS FROM FOREIGN PURCHASES
I. DERIVATION OF THE DATA
The first four chapters have dealt with Buy
American legislation. Buy American legislation is but one
of many protectionist devices. This and the following
chapters will present and analyze data that demonstrate
gains made possible through the avoidance of protectionist
devices, in this case the State of California Buy American
Act.
The data presented, unless otherwise indicated, is
derived directly from the files of the Department of Water
and Power of the City of Los Angesl&s. The author, an em
ployee of the Purchasing Division of the Department,
originally abstracted the data, for testimony before the
California Assembly Committee on Ways and Means and for
the Department's defense in the Bethlehem Steel Case. The
data as presented is a further refinement and presentation
of these studies.
The data as presented here differs substantially
from the rough data of the Department's studies. This is
for two basic reasons. Firstly, an adherence to the Federal
definition of foreign made goods, i.e. a good is of foreign
_____________________________ 74___________________________
75
manufacture when 50 per cent or more of the value of the
good is the result of foreign processing and materials, has
been attempted. Secondly, a greater number of foreign
awards with no domestic bidders was listed in the rough
studies. This is due to the fact that in many specifica
tions both original and alternate items were considered,
therefore bidders were quoting on goods with slightly dif
ferent technical characteristics. In order to clearly
demonstrate and test the gains from trade, engineer's cost
evaluations and the author's experience have been invoked
to monetize the differences between these bids. This was
necessary in few of the specifications presented.
II. ORGANIZATIONS-OF THE DATA
All other charts presented are derived from the
data presented in Table IV. Tables IV to and including
Table VIII are presented at the end of this chapter. The
Tables shall be described in the section below. An analysis
of these Tables shall follow in the ensuing two chapters.
These chapters shall utilize the data to test the validity,
from this empirical evidence, of the claims of both the
free trade advocates and the protectionists.
Table IV. Table IV lists all of the Department's
formal purchases of goods known to be of foreign origin
since the City Attorney's opinion in 1955^ through
^Supra, Chapter 4, pp. 57-64.
76
December 31, 1966. The purchases are arranged in chrono
logical order and divided into years. The organization of
Table IV is as follows. Column one is the Specification
number. Column two is the date the contract was awarded by
the Board of Commissions of the Department.
Column three is a brief description of the material
purchased. For reasons of space and brevity, different
sizes and varieties of similar materials have been included
under broad classifications, i.e. 7.2 kilovolt and 69 kilo
volt Circuit Breakers are not differentiated as to voltage
and many sizes of cable, insulators and transformers are
included under these headings. Different specifications
also call for varying quantities or deliveries. It is thus
not possible to get a fair comparison of prices offered of
different specifications without knowing the particulars.
Column four is the total amount of the award to the
firm offering foreign material. The award amount does not
consider any value added to the foreign goods by domestic
processing, except for the aforementioned adherence to the
Federal definition of foreign goods. The award amount in
cludes any possible purchases of parts, often included in
the awards. In the Price-and-Time Contracts, the award
amount is an approximation based on the Department's es
timates. This estimate is usually the maximum possible
expenditures under the contract without further Board
approval. Since 1961 nearly all Price-and-Time Specifications
77
are three numbered.
Column five lists the percentage of the purchase
price saved by purchasing foreign goods. This percentage
is calculated by substracting the pruchase price (column
four) from the lowest domestic bid (column seven) and
dividing the remainder by the subtrahend (column four).
Column seven lists the amounts of the lowest com
parable domestic bids. This data was the most subjective
in its preparation. In addition to the aforementioned
interpolation of engineering cost estimates, other problems
arose in preparing these figures. Complete data were not
available prior to 1960, but the figures used were pre
pared from a previous Department report on foreign purchases
and from using the other sources available. Specifications
often contain a clause reading "all Items and Sub-items
shall be awarded as a single contract." Where this clause
was present and the use of the prices of more than one
domestic firm resulted in a lower domestic bid, these prices
were used.
Where "NONE" is shown indicates that no domestic
bid was received when it was mandatory that bidders submit
bids on all items and cost calculations were not possible
without complete bids. When foreign bidders offered options
for renewal of contracts or purchase of additional items
and the Department exercised this option while no domestic
bidder offered such an option, the domestic bid was assumed
78
to have granted the option. The domestic price was then
computed with the difference in percentage of prices being
used to determine the price of the domestic option.
Where an asterisk is shown beside the domestic bid,
one or more identical domestic bids were received on one or
more identical domestic bids were received on one or more
items involved in the contract. When this occurs a report
is sent to the Department of Justtiee and the California
Attorney General on the appropriate forms recording the
event.
The Department's contracts sometimes have Change
Orders issued subsequent to their Award. Change Orders are
changes in the Contract agreed to by both parties, the
Department and the Contractor. These changes may or may
not result in a variance in the contract price. Change
Orders seldom account for more than 2 per cent of the Con
tract total. Since Change Orders both increase and de
crease Contract totals and are common to Contracts awarded
for the purchase of goods of both foreign and domestic
manufacture, we shall assume them offsetting.
A comparison of awards to the foreign firms and the
domestic bids shows the total foreign awards higher. This
is because of the awards made where no domestic bids were
received. If we subtract the $14,000,000 for the Converter
Station, the total domestic awards is considerably less
than the domestic bids for fewer goods.
TABLE IV
FOREIGN PURCHASES - DEPARTMENT OF WATER AND POWER, 1955-1966
SPEC.
NO.
DATE
OF
AWARD MATERIAL
AWARD
AMOUNT
COUNTRY
OF
MANUFACTURE
PER
CENT
LOWEST
DOMESTIC
BID
8683
4 4- 7 - 5 5
Power Circuit Breakers $ 147,740. Switzerland 71.1 $ 253,137.
8705 4-28-55 Potential Transformers 59,007. England 7.5 63,425.
8833 • > • 6 —21-55 Lead Covered Cable 20,502. England 17.5 24,102.
8845 7- 5-55 Lead Covered Cable 157,416. England 10.3 173,682.
9026 1-10-56 Lead Covered Cable 33,338. England 1 0 . 2 36,751.*
8966 1-17-56 Potential Transformers 8,460. Germany 105.5 17,388.
9214-RI 1-15-57 Voltage Regulating
Transformers 567,065. Austria 55.2 880,650.
9406 2- 5-57 Lead Covered Cable 6,981. England 27.8 8,922.
9441 3- 7-57 Lead Covered Cable 92,663. England 13,0 104,834.*
9470 3- 7-57 Steel Pipe 53,098. England
■ mm
NONE
9485 4-23-57 Lead Covered Cable 287,830. England 26.9 365,461.*
9591 7-23-57 Lead Covered Cable 195,320. England 26.1 246,354.*
9591 7-23-57 Lead Covered Cable 80,640. England 2 1 . 6 98,060.*
9644 9-19-57 Cable 24,411. England 8 . 6 26,521.
9674 10i29-57 Lead Covered Cable 158,056. England 1.5 160,561.*
9674 10-29-57 Lead Covered Cable 111,531. England 40.2 156,468.*
9686 10-29-57 Lead Covered Cable 11,630. England
49.3 17,365.*
-vj
to
TABLE IV (continued)
SPEC.
NO.
date
OP
AWARD MATERIAL
COUNTRY
AWARD OF PER
AMOUNT MANUFACTURE CENT
LOWEST
DOMESTIC
BID
9753 2-4-58 Lead Covered Cable $ 70,350. England 45.6 $ 102,446.*
9616 3-4-58 Power Circuit Breakers 209,010. Switzerland 5.2 2 2 0,0 0 0.
9826 5-6-58 Lead Covered Cable 39,695. England 50.1 59,616.*
9792 5-6-58 Potential Transformers 25,300. Germany 46.7 37,140.*
9894 7-8-58 Lead Covered Cable 22,728. England 70.2 38,702.*
9926 9-16-58 Lead Covered Cable 34,596. England 37.6 47,616.*
7012 1-6-59 Lead Covered Cable 38,756. England 49.1 57,797.*
7012 1-6-59 Lead Covered Cable 28,560. England 43.8 4419071?*
7012 1-6-59 Lead Covered Cable 14,732. Sweden 51.2 2 2, 2 8 1.*
9995 2-24-59 Turbine Generator,
Haynes 1 & 2 9,274,769. Switzerland 69.2 15,689,664.
7005 2-26-59 Power Circuit Breakers 79,245. France 28.2 102,080.
7024 3-19-59 Power Transformers 34,296. England 17.3 40,200.
7044 3-26-59 Dynamic Balancing Machine 9,700. Germany 45.8 14,144.
7077 4-23-59 Lead Covered Cable 85,166. England 35.4 115,375.*
7041 4-28-59 Power Transformers 30,816. Germany 1 0 0 . 0 61,638.,
7141 7-28-59 Lead Covered Cable 9,281. Sweden 93.6 17,967.*
7164 7-30-59 Dead End Insulators 9,500. Japan 5.3 9,999.
7175 10-6-59 Lead Covered Cable 118,309. England 2 2 . 8 145,276.*
7198 10-27-59 Oil Circuit Breakers 275,273. England 130.7 635,076.*
7202 10-29-59 Lead Covered Cable 26,858. Sweden 73.2 46,508.*
7202 10-29-59 Lead Covered Cable 80,724. England 56.5 126,300.*
7202 10-29-59 Lead Covered Cable 69,860. England 48.6 103,780.*
7206 11-3-59 Power Transformers 153,781. England 13.4 174,400.
7239 11-5-59 Dead End Insulators 19,000. Japan 3.7 19,712.*
CO
o
TABLE IV (continued)
SPEC.
NO.
DATE
OF
AWARD MATERIAL
AWARD
AMOUNT
COUNTRY
OF
MANUFACTURE
PER
CENT
LOWEST
DOMESTIC
BID
7218 1-28-60 Power Circuit Breakers $ 541,840. England 83.0 $ 990,375.*
7342 4-21-60 Lead Covered Cable 66,330. England 54.5 102,480.*
7349 6-16-60 Condenser Cleaning System 89,000.*^Germany - NONE
7338 7-21-60 Oil Purification Units 27,258. Japan
—
NONE
7414 7-28-60 Lead Covered Cable 59,064. England 59.7 94,302.*
7414 7-28-60 Lead Covered Cable 38,397. Sweden 40.8 54,085.*
7480 9-22-60 Dead End Insulators 14,400 Japan 5.5 15,200.*
7482 9-27-60 Lead Covered Cable 22,536. Germany 36.8 30,840.*
7511 11-15-60 Lead covered Cable 82,984. England 31.7 109,285.*
7511 11-15-60 Lead Covered Cable £83,775. England 34.6 112,769.*
7511 11-15-60 Lead Covered Cable 25,200. England 33.4 33,624.*
7516 12-13-60 Potential Transformers 5,965. Germany 85.1 11,040.*
7573 2-16-61 Copper Water Tubing 105,920. Canada NONE
7577 2-16-61 Lead Covered Cable 81,073 England 17.8 95,474.*
7577 2-16-61 Lead Covered Cable 66,750 Sweden 27.4 85,012.*
7577 2-16-61 Lead Covered Cable 102,150 England 15.1 117,625.*
7577 2-16-61 Lead Covered Cable 41,300 England 8 . 2 44,702.*
7609 3-16-61 Lead Covered Cable 160,737 Japan 28.3 206,198.*
612 3-16-61 Dead-End Insulators 34,800 Japan 50.3 36,550.
7601 3-16-61 Steel Pipe (CML & AMC) 33,248 Japan 0.9 33,550.
7595 3-30-61 Power Transformers 124,522 Canada 8.5 135,103.
7645 5-11-61 Lead Covered Cable 13,992. England 37.0 19,176.*
7645 5-11-61 Lead Covered Cable 132,701 Japan 25.3 166,239.*
7666 6-8-61 Asbestos Cement Water Pipe
79,000. Belgium 1 2 . 1 88,540.,
c o
H
TABLE IV (continued)
DATE COMPANY LOWEST
SPEC. OF AWARD OF PER DOMESTIC
NO. AWARD MATERIAL AMOUNT MANUFACTURE CENT BID
7693 6-29-61 Lead Covered Cable
$
26,796. England 28.2 $ 34,364.
7693 6-29-61 Lead Covered Cable 148,716. England 30.3 193,836*
7693 6-29»61 Lead Covered Cable 111,900. England 28.7 143,970.
7672 6-29-61 Lead Covered Cable 143,136. England 3.9 148,727.*
7672 6-29-61 Lead Covered Cable 40,822. Japan 29.4 52,806.*
641 7-11-61 Suspension Insulators 44,100 Japan 19.2 52,560.
7535 7-18-61 Turbine Generators 8,792,675. Switzerland 17.0 10,283,500.
7664 8-29-61 Voltage Regulating
Transformers 89,175. Canada 51.3 134,950.
7792 10-26-61 Copper Water Tubing 74,352. Canada 12.4 83,570.
7776 11-28-61 Potential Transformers 17,260. Germany 127.1 39,204.
7736 12-21-61 Load Tap Transformers 565,999. Japan 20.4 681,180.
7736 12-21-61 Load Tap Transformers 581,410. England 14.2 663,900.
7739 12-28-61 Power Transformers 310,743. Canada 5.3 327,240.
7861 1-16-62 Lead-Covered Cable 169,918. Japan 23.8 210,429.*
7898 2-15-62 Copper Water Tubing 112,542. Canada 0.5 113,054.
691 2-20-62 Dead-End Insulators 33,000. Japan 14.5 37,800.
7871 3-22-62 Power Transformers 555,573. Japan 3.1 572,738.
7918 4-5-62 Lead-Covered Cable 293,739. Japan 36.0 399,474.*
7918 4-5-62 Lead-Covered Cable 43,627. Japan 0.7 43,929.*
7937 4-6-62 Lead Covered Cable 3,432. Japan 32.9 4,560.
7937 4-6-62 Lead Covered Cable 13,430. Japan 71.4 23.014.
7907 4-19-62 Asbestos Cement Water Pipe 100,480. Japan 3.2 103,720.
7948 4-26-62 Steel Pipe (L&C)
147,380. Japan 7.4 158,256.
699 4-26-62 Distribution Insulators 29,404. Japan 2 2 . 0 35,887.*
7973 6-14-62 Steel Pipe (CML &AMC) 241,987 japan
N 0 N E . 9
to
TABLE IV (continued)
SPEC.
NO.
DATE
OF
AWARD MATERIAL
AWARD
AMOUNT
COMPANY
OF
MANUFACTURE
PER
CENT
LOWEST
DOMESTIC
BID
8003 6-26-62 Copper Wire & Cable $ 32,128, Japan 3.9 $ 33,371*
7954 7-6-62 Power Circuit Breakers 202,325 England 32.7 268,533
7954 7-5-62 Power Circuit Breakers 22,328 Japan 94.5 43,439
721 7-26-62 Suspension Insulators 39,600 Japan 32.7 52,560*
7989 8-7-62 Power Circuit Breakers 178,809 Japan 92.9 345,100
733 8-21-62 Lead-Covered Cable 152,466 Japan 35.5 206,667*
733 8-21-62 Lead-Covered Cable 276,893 Japan 38.0 381,980*
733 8-21-62 Lead-Covered Cable 35,340 England 50.1 50,160*
734 9-4-62 Insulators, Pins & Clamps 8,472 Japan 31.9 11,176*
8105 11-27-62 Oil Circuit Breakers 36,259 Japan 45.0 52,561
8132 12-20-62 Steel Pipe (CML & AMC) 82,460 Japan 16.7 96,222
8161 1-10-63 Asbestos Cement Water Pipe 66,050 Belgium 2 2 . 1 80,650
8151 2—7—63 Potential Transformers 13,950 Germany 28.9 17,982*
8181 2-21-63 Lead Covered Cable 321,355 Japan 3.6 332,973*
8181 2-21-63 Lead Covered Cable 36,925 Japan 46.7 54,151*
792 2-21-63 Dead-End Insulators 27,720 Japan 7.1 29,700
8180 3-7-63 Engine Lathe 15,985 Germany 9.6 17,523
8171 4-23-63 Power Circuit Breakers 118,984 Japan 15.2 137,082
8260 4-25-63 Potheads 18,360 Japan 71.9 >3**5606
8188 4-30-63 Pipe Type Cable 658,631 Japan 5.3 693,696*
818 5-14-63 Distribution Insulators 18,883 Japan 13.7 21,461*
8286 6-4-63 Cast Iron Water Works
Fittings 4,581 Japan 7.0 4,900
8232 6-11-63 Indoor Potential Transf. 1 0 , 2 0 0 Germany 53.9 15,696*
8263 6-18-63 Steel Pipe (CML & AMC) 6 8,997 Japan 31.8 90,925
TABLE IV (continued)
SPEC.
NO.
DATE
OF
AWARD MATERIAL
AWARD
AMOUNT
COUNTRY
OF
MANUFACTURE
PER
CENT
LOWEST
DOMESTIC
BID
3263 6-18-63 Steel Pipe (CML & AMC) $ 83,380 Japan
mm
NONE
8263 6-18-63 Steel Pipe (CML & AMC) 45,720 japan - NONE
8324 6-25-63 Lead-Covered Cable 8,341 Japan 25.2 10,444
8353 7-11-63 Steel Pipe (CML & AMC) 228,492 Japan
— NONE
8357 7-23-63 Asbestos Cement Water Pipe 62,550 Belgium 55.6 97,350
851 7-30-63 Suspension Insulators 22,050 Japan 16.5 25,700*
848 8-20-63 Lead Covered Cable 303,687 Japan 15.6 350,975*
848 8-20-63 Lead Covered Cable 48,034 Japan 36.3 65,450*
865 9-19-63 Insulators, Pins & Clamps 39,038 japan 35.3 52,831*
8343 9-19-63 Oil Circuit Breakers 64,033 England 41.4 89^135
8400 10-24-63 Lead Covered Cable 215,862 Japan 9.2 235,657*
8400 10-24-63 Lead Covered Cable 120,234 Japan 1 1 . 0 133,496*
8400 10-24-63 Lead Covered Cable 47,346 Japan 40.4 66,480*
8410 10-29-63 Asbestos Cement Water Pipe 114,153 Japan - NONE
8407 12—3—63 Oil Circuit Breakers 36,359 Japan 74.4 59,766
8506 2-4-64 Asbestos Cement Water Pipe 22,900 Belgium 2.7 46,120
8444 2-4-64 Oil Circuit Breakers 28,696 Japan 18.2 33,920
8518 2-13-64 Steel Pipe (CML & AMC) 7,300 japan a MO DOMESTIC BIDS
8518 2-13-64 Steel Pipe (OIL & AMC) 72,080 Japan NO DOMESTIC BIDS
8483 2-25-64 Cast Iron Water Works
Fittings 4,400 Japan 12.5 4,950
908 2-27-64 Dead-End Insulators 25,500 Japan 27.3 32,470
8397 3-5-64 Circuit Breakers 283,257 Japan 1 1 . 1 314,712
8523 3-19-64 Lead Covered cable 27,482 Japan 8 . 2 29,730*
oo
TABLE IV (continued)
DATE COUNTRY LOWEST
SPEC. OF AWARD OF PER DOMESTIC
NO. AWARD MATERIAL AMOUNT MANUFACTURE CENT BID.
927 4-7-64 Lead Covered Cable 136,965 Japan 9.7 150,222*
927 4-7-64 Lead Covered Cable 316,050 Japan 1 2 . 8 356,511*
927 4-7-64 Lead Covered Cable 70^600 Japan 43.9 101,574*
933 4-9-64 Distribution Insulators 20,508, Japan 16.3 23,859
8480 4-21-64 Power Transformers 1,119,982 Sweden 6 . 1 188,000
8510 4-23-64 Power Circuit Breakers 338,121 Japan 25.3 423,600*
8525 4-23-64 Turbine-Generator Parts 56,874 Switzerland — NONE
8539 4-23-64 Lead-Covered Cable 11,592 Japan
—
NONE
8404 4-24-64 Testing Transformers 357,0818 France 61.0 575,000
8565 5-7-64 Asbestos Cement Water Pipe 4,450 Japan - NO DOMESTIC BIDS
8561 6-23-64 Steel Pipe (CML & AMC) 310,344 Japan
- NO DOMESTIC BIDS
8561 6-23-64 Steel Pipe (CML & AMC) 110,325 Japan - NO DOMESTIC BIDS
8574 7-2-64 Oil Circuit Breakers 168,831 Japan 9.5 184,920*
961 7-9-64 Suspension Insulators 33,050 Japan 16.6 38,550
8618 8-13-64 Oil Circuit Breakers 317,598 Japan - NONE
967 8-13-64 Copper Cable 346,652 Japan 8 . 6 376,619
968 8-18-64 Lead Covered Cable 203,857 Japan 27.3 259,586*
968 8-18-64 Lead Covered Cable 89,340 Japan 26.0 112,553*
968 8-18-64 Lead Covered Cable 278,715 Finland 54.5 430,718*
969 8-27-64 Steel Guy Strand 43,331 Japan 6.5 46,155
980
9-1-64 Insulators, Pins & Clamps 100,919 Japan 24.8 125,970*
8573 9-3-64 Load Tap Transformers 1,226,066 France 24.6 1,528,208
8642 9-15-64 Power Circuit Breakers 5,200 Japan - NONE
8672 10-15-64 Oil Circuit Breakers 8,114 Japan 26.5 10,264
130 12-22-64 Files and Rasps 5,000 England NO DOMESTIC BIDS
CD
in
TABLE IV (continued)
SPEC.
NO.
DATE
OP
AWARD MATERIAL
AWARD
AMOUNT
COUNTRY
OF
MANUFACTURE
PER
CENT
LOWEST
DOMESTIC
BID
8761 12-24-64 Suspension Insulators $ 136,651 Japa$ 33.7 $ 182,700
8712 12-31-64 Power Circuit Breakers 261,234 japan 33.0 347,400
8814 1-12-65 Asbestos Cement Water Pipe 39,400 Belgium 7.4 42,300
8742 2-9-65 Potential Transformers 19,030 Germany 91.3 26,400
143 2-18-65 Dead End Insulators 28,600 Japan 38.5 39,600
8853 3-4-65 Steel Pipe (AMC & CML)
81,400 Japan
« * »
NONE
8759 3-16-65 36-Inch Butterfly Valves 30,186 Canada 0 . 1 30,205
166 4-15-65 Distribution Insulators 20,569 Japan 54.0 31,080
159 4-20-65 Lead-Covered Cable 380,582 Japan 7.5 409,220*
159 4-20-65 Lead-Covered Cable 329,208 Japan 8 . 2 356,254*
159 4-20-65 Lead-Covered Cable 128,909 Japan 3.4 133,324*
159 4-20-65 Lead-Covered Cable 73,296 Finland 8 . 6 79,628*
8894 6-22-65 Power Circuit Breakers
348,949 Japan 24.7 435,038
8952 7-20-65 Bare Copper Cable
25,160 Japan 17.5
29,560
194 7-20-65 Suspension Insulators
38,196 Japan 43.7 54,873
8965 7-27-65 Steel Bars, Channels &
Plates
22,762 Japan 15.6 26,318
181 8-10-65 Countersinks and Twist
Drills
15,526 Australia 7.7 16,726
8873-RI 8-10-65 High Voltage Test
Sets
16,070 Switzerland 8.3 17,400
186 8-12-65 Malleable Iron Pipe
Fittings
12,680 Japan
0 . 1 12,746
2 0 2 8-12-65 P.V.C. Insulated Copper
Cable 845,654 japan 1 . 8 861,051
TABLE IV (continued)
SPEC.
NO.
DATE
OF
AWARD MATERIAL
AWARD
AMOUNT
COUNTRY
OF
MANUFACTURE
PER
CENT
LOWEST
DOMESTIC
BID
203 8-12-65 Underground Cable $ 89,839 Japan 13.9 $ 102,381
203 8-12-65 Underground Cable 639,963 Finland 26.7 810,682
8958 9-7-65 Insulators & Line Hdwe. 7,348 Japan 37.2 10,081
2 2 1 9-10-65 Steel Guy Strand 29,487 Japan 9.0 32,140
9002 9-14-65 Steel Pipe 91,367 Japan - NONE
8955 9-28-65 Oil Circuit Breakers 150,793 Japan 40.8 212,307
9005 9-21-65 Steel Pipe,(AMC & CML) 383,192 Japan
- NONE
9005 9-21-65 Steel Pipe,(AMC & CML) 260,900 Japan - NONE
227 10-14-65 Intermed. Gr. Rein
forcing Steel 158,389 Japan 7.8 170,802
9047 10-21-65 Porcelain Syspension Insu. 22,850 Japan 30.8 35,175
230-RI 10-28-65 Insu., Pins and Clamps 116,884 Japan - NONE
8957 11-4-65 Air Blast circ. Breakers 270,301 Japan 76.4 476,920
247 11-16-65 Bayonet Type Disconnect
Switches 57,420 Japan - NONE
9042 11-16-65 Telephone Cable 132,718 Japan 6 . 2 140,921
9026 11-18-65 Potential Transformers 8,700 Germany 28.7 1 1,2 0 0*
9084 12-9-65 P.V.C. Drop Copper Cable 14,942 Japan 68.5 25,174
9080 12-21-65 Cast Iron Water Works
Fittings
7,713 Japan 5.7 8,156
9058 12-28-65 Power Circuit Breakers 36,800 Japan 14.7 42,194
9137 1-13-66 Steel Pipe (AMC & CML) 20,600 Japan
—
NONE
9112 2-3-66 Steel Pipe 668,971 Japan - NONE
9112 2-3-66 Steel Pipe 73,785 Japan 52.0 112,125
9069 2-3-66 Fig. 8 Telephone Cable 9,700 Japan 10.5 10,721
00
TABLE IV (continued)
DATE COUNTRY LOWEST
SPEC. OF AWARD OF PER DOMESTIC
NO. AWARD MATERIAL AMOUNT MANUFACTURE CENT BID
9061 2-23-66 Oil Circuit Breakers $ 129,525 Japan $ NONE
9061 2-23-66 Oil Circuit Breakers 8,916 England NONE
9117 2-24-66 Horizontal Balancing Mchn. 19,686 Germany - NONE
282 2-24-66 Dead End Insulators 18,500 Japan 29.7 24,000
9057 3-10-66 Parts - Turbine Generator 27,357 Switzerland - NONE
281 3-15-66 Copper & Aluminum Wire
& Cable 53,533 Japan 2.3 54,747
9155-RI 3-24-66 Porcelain Suspension
Insulators 19,500 Japan 71.8 33,500
288 4-14-66 & Lead Covered Cable 415,911 Japan 4.1 432,800*
288 4-14-66 Lead Covered Cable 26,390 japan 4.2 27,500*
8863 4-14-66 Hi-Voltage Conv. Station 14,000,000+ Sweden - NONE
307 4—28—66 Distribution Insulators 17,634 Japan 11.5 24,800
307 4-28-66 Distribution Insulators 7,350 Japan 40.6 NONE
301 4-28-66 Susp. & Hi-Volt. Insul. 65,244 japan 77.0 111,519
301 4-28-66 Susp. & Hi-Volt. Insul. 157,800 Japan - NONE
9127, 6-2 - 6 6
Post Type Insulators 124,906 Japan - NONE
9174 6-9-66 Power Circuit Breakers 52,105 Japan 3.93 72,600
9210 6-1 0 - 6 6 Oil Circuit Breakers 382,847 Japan 11.5
426,742
311 6-23-66 Rubber Insulated Cable 46,727 Japan 4.4 48,781
289 6-23-66 Distribution & Power
Transformers 159,080 Japan 17.3 186,678
+Estimated share of $32,000,000 contract awarded to General Electric Co.,
an American Corp. and ASEA, a Swedish Corp. as a joint venture.
oo
CO
TABLE IV (continued)
DATE COUNTRY LOWEST
SPEC. OF AWARD OF PER DOMESTIC
NO. AWARD MATERIAL AMOUNT MANUFACTURE CENT BID
9220 7-19-66 Power Circuit Breakers $ 725,424 Japan
15.7 $ 839,550
361 7-26-66 Steel Guy Strand 20,246 Japan 0 . 1 20,428
347 7-28-66 Twist Drills and Counter
sinks 15,897 Japan 9.9 17,472
351 8-2 - 6 6 Underground Cable 19,080 Japan 2 . 8 19,610
334 8—4—66 Transformers 21,494 Japan 44.7 31,110
316 8-1 1 - 6 6 Transformers 61,460 Japan 2 1 . 1 74,440*
9299 8-1 1 - 6 6 Lead Covered Cable 39,000 Japan 7.3 41,850*
359 8-18-66 PVC Insulated Cable 823,728 Japan 19.5 984,975
392 9-27-66 Intermed. Gr. Reinf. Stl. 173,094 japan 3.8 179,635
9302 9-27-66 Telephone Cable 75,135 Japan 48.7 111,692
9302 9-27-66 Telephone Cable 99,583 Japan 43.7 143,141
9273 10-13-66 Free Standing Towers 1,169,151 Japan 56.6 1,830,368
9273 10-13-66 Free Standing Towers 6,051 Japan - NONE
9321 1 0-2 0 - 6 6 Copper Wire and Cable 9,028 Japan 14.0 10,290
9321 1 0-2 0 - 6 6 Copper Wire and Cable 17,681 Japan 17.5 20,781
9321 1 0-2 0 - 6 6 Copper Wire and Cable 48,593 Japan 51.0 73,700
9351 10-27-66 Structural Steel 14,717 Japan 9.3 16,088
9264 10-27-66 Regulating Transformers 173,000 France 1 2 . 0 193,800
9334 1 1-2 2 - 6 6 Storage Batteries 13,354 Japan 47.3 19,676
9330 11-29-66 Power Transformers 578,115 Sweden 38.0 798,014
9307 1 2-1 - 6 6 Circuit Breakers 264,396 Japan - NONE
9307 1 2-1 - 6 6 Circuit Breakers 38,070 Germany 28.6 48,944
9285 1 2-6 - 6 6 Power Transformers 933,632 England 16.9 1,091,346
9285 1 2-6 - 6 6 Power Transformers 982,865 France 20.4 1,183,065
00
VO
TABLE IV (continued)
SPEC.
NO.
DATE
OF
AWARD MATERIAL
AWARD
AMOUNT
COUNTRY
OF
MANUFACTURE
PER
CENT
LOWEST
DOMESTIC
BID
9287 1 2-6 - 6 6 Autotransformers $ 832,210 Sweden 50.5 $1,252,672
9419 1 2-8 - 6 6 Electronic Measuring
Device 8,044 Sweden
-
NONE
9400 12-13-66 Suspension Insulators 46,872 Japan 75.0 82,026*
419 12-15-66 Files ana Rasps 5,617 England 12.7 £6, 331
9348 1 2-2 2 - 6 6 Guyed Suspension Towers 1,546,488 Japan 61.6 2,499,511
9408 12-29-66 Polyethylene Cable 33,805 japan 18.1 39,914
GRAND TOTAL $ 6 8 ,202,150 $66,753,642
AVERAGE SAVINGS PER FOREIGN AWARD 32.2%
"end"
vO
*
o
91
As Table IV demonstrates, the Department's pur
chases of foreign goods grew gradually. This is primarily
because bids offering foreign goods were not tendered the
Department. The lack of tenders was probably due to lack
of previous purchases of foreign goods which resulted in a
lack of knowledge by the foreign suppliers of the Depart
ment as a potential market. Carrying this rationale another,
step, a possible reason for lack of previous purchases of
foreign goods could very well have been the Buy American
act. Thus without the initial purchases of Swiss circuit
Breakers and English Transformers and Cable the Depart
ment might still be limited to its few regular domestic
suppliers, and the City of Los Angeles would surely be
without considerable revenues realized by the Department's
savings over these several years.
Table V. Table V, Foreign Purchases by Years, lists
the purchases of foreign goods according to years and half
years. Column one lists the years. Each year is divided
into the first and second halves and the total. This was
done to facilitate comparison of the data with other data
divided into either calendar or fiscal years.
Column five lists the summations of the domestic
bids received for the goods purchased from the foreign
sources in Column three. This Column is derived from
Table IV, Column seven.
92
It is of interest to note that in only 5 of the
halves and three of the years listed does Column two ex
ceed Column five. This means that in those years where
Column five is greater than Column two that the Depart
ment has received a bonus of at least Column four due to
the purchase of foreign goods. The goods supplied in
Column four would not have been offered in the absence of
foreign suppliers. In addition had the Buy American law
been adhered to, the price of the goods purchased in Col
umn three would have cost the Department the figure in
Column five. This figure always exceeds Column three and
in most fases Column two. Thus in all cases some of the
goods have been received in a sense free. The taxpayers
of Los Angeles, presently complaining of high property
taxes should well appreciate these savings made possible
by avoidance of the Buy American act. ...
TABLE V
FOREIGN PURCHASES BY YEARS
93
TOTAL
FOREIGN
WITH
DOMESTIC
FOREIGN
WITHOUT LOWEST
DOMESTIC DOMESTIC
YEAR FOREIGN BIDS BIDS BIDS
1955(1) $ 227,249 $ 227,249 $ $ 340,664
( 2 ) 157,416 157,416 - 173,682
Total 384,665 384,665 - 514,346
1956(1) 41,798 41,798
—
54,139
( 2 ) _
— - -
mm
Total 41,798 41,798 — 54,139
1957(1) 1,007,637 954,539 53,098 1,359,867
(2 ) 581,588 581,588
- 705,329
Total 1,589,225 1,536,127 53,098 2,065,196
1958(1) 344,355 344,355
_
419,202
( 2 ) _ 57,324 57,324 - 86,318
Total 401,679 401,679 - 505,520
1959(1) 9,596,040 9,596,040
—
16,144,250
<2> _
762,586 762,586 - 1,279,018
Total 10,358,626 10,358,626 - 17,423,268
1960(1) 697,170 608,170 89,000 1,092,855
( 2 ) 359,579 332,321 27,258 461,145
Total 1,056,749 940,491 116,258 1,554,000
1961(1) 1,447,563 1,341,643 105,920 1,601,872
(2 ) 10,475,714 10,475,714 - 12,226,104
Total 11,923,277 11,817,357 105,920 13,867,976
1962(1) 1,776,640 1,534,653 241,987
1,736,232
(2 ) 1,034,952 1,034,952 — 1,508,398
Total 2,811,592 2,569,605 241,987 3,244,630
1963(1) 1,518,062 1,388,962 129,100 1, 538*J743
( 2 ) 1,307,369 964,724 342,645 1,184,706
Total 2,825,431 2,323,686 471,745
2,723,449
94
TABLE V (continued)
FOREIGN PURCHASES BY YEARS
YEAR
TOTAL
FOREIGN
FOREIGN
WITH
DOMESTIC
BIDS
FOREIGN
WITHOUT
DOMESTIC
BIDS ,
LOWEST
DOMESTIC
BIDS.
1964(1)
( 2)
$ 3,347,
3,224,
507
558
$ 2,773,542
2,896,760
$ 572,965
327.798
$ 3,280,668
3, 643, 642
Total 6,571,065 5,670,302 900,763 6,924,310
1965(1)
( 2 )
1,480,
3,455,
129
764
1,398,729
2,545,891
81,400
909,873
11-583, 049
3,096,817
Total 4,935,893 3,944,620 991,273 4,679,866
1966(1)
( 2 )
16,506,
8,795,
249
901
1,340,956
8,517.410
15,165,293
278,491
1,566,513
11,630,429
Total 25,302,150 9,858,366 15,443,784 13,196,942
Grand
Total $68,202,150 $49,877,322 $18,324,828 $66,753,642
95
Table VI. Table VI lists the foreign purchases
according to major commodity headings. These commodity
groupings are not necessarily homogeneous classifications.
They are rather a grouping of similar items with a variety
of size, technical, and operational differences. These
listings are, however, apropos as they arewraanufactured
and supplied by the same firms and their similarities are
sufficient for the purposes of the tabulation.
Column One lists the commodity headings. They are
listed in order of total dollar value of the foreign pur
chases. One exception to this is the High Voltage Con
verter Station. This, as indicated in a footnote to Table
IV, is an estimated share of a Swedish firm, ASEA, in a
joint venture with the General Electric Company.
Column two lists the foreign awards for each head
ing where domestic bids were received. Column three, the
foreign awards for each heading where no domestic bids
were received. Column four lists the total foreign awards
under each commodity heading, the sum of Columns two and
three. All three columns were derived from Table IV,
Column four. . . .
96
TABLE VI
FOREIGN PURCHASES BY COMMODITY
1955-1956
AWARDS
WITH
DOMESTIC
PRODUCT BIDDERS
AWARDS
WITHOUT
DOMESTIC
BIDDERS
TOTAL
FOREIGN
AWARDS
1 . Turbine
Generators $18,067,444
$
$18,067,444
2 . Cable 11,585,901 11,592 11,597,493
3. Transformers 9,626,307 - 9,626,307
4. Circuit Breakers 5,005,747 725,635 5,731,382
5. Steel Pipe 405,870 2,721,691 3,065,026
6 . Towers 2,721,691 6,051 2,721,691
7. Insulators 941,908 407,050 1,348,958
8 . Asbestos Cement
Water Pipe 392,380 118,603 510,983
9. Misc. Steel Prod. 368,962 - 368,962
1 0. Telephone Cable 317,136 - 317,136
1 1. Copper Water Tubing 186,894 105,920 292,814
1 2. Cleaning & Testing
Equipment 16,070 124,302 140,372
13. Steel Guy Strand 93,064 - 98,722
14. Parts, Generators - 84,231 84,231
15. Tools and Machinery 53,025 5,000 58,025
16. Balancing Machines 9,700 19,868 29,568
17. Cast Iron Pipe Ftgs. 29,374 - 29,374
18. Hi-Voltage Converter
Station
« •
14,000,000 14,000,000
19. Other 61,900 57,420 119.320
Grand Total $49,877,322 $18,324,828 $68,202,150
97
Table VII. Table VII uses the same commodity head
ings as Table VI. Column one lists these headings. Col
umn two is the same as Column two of Table VI. Column
three lists the lowest domestic bids received for the
awards made in Column Two. Column four lists the savings
made possible by the foreign purchases. The savings are
computed by subtracting Column two from Column three.
The figures and commodities of Table VI and Table
VII will be analyzed in detail in the following chapter.
98
TABLE VII
COMPARISON
FOREIGN PURCHASES AND LOWEST DOMESTIC BIDDERS
1955- 1966
FOREIGN
AWARDS
WITH LOWEST
DOMESTIC DOMESTIC
PRODUCT BIDDERS BIDDERS SAVINGS
1.
Turbine Genera^***
tors $18,067,444 $25,973,164 $ 7,905,720
2. Cable 11,585,901 13,873,847 2,287,946
3. Transformers 9,626,307 12,013,807 2,387,500
4. Circuit Breakers 5,005,747 7,065,396 2,059,649
5. Steel Pipe 405,870 491,077 85,2.07
6. Towers 2,715,640 4,329,879 1,614,239
7. Insulators 941,908 1,251,339 309,431
8 . Asbestos Cement
Water Pipe 392,380 458,680 66,300
9. Miscellaneous Steel
Products 368,962 392,843 23,881
1 0. Telephone Cable 317,136 406,475 89,339
1 1. Copper Water Tubing 186,894 196,624 9,730
1 2. Cleaning & Testing
Equipment 16,070 17,400 1,330
13. Steel Guy Strand 93,064 98,722 5,658
14. Parts, Generators - - -
15. Tools and Machinery 53,025 58,052 5,027
1 6. Balancing Machines 9,700 14,144 4,444
17. Cast Iron Pipe
Fittings 29,374 30,752 1,378
18. Hi-Voltage Con
verter Station
— —
19. Other
61,900 81,441 19,541
Grand Total $49,877,322 $66,753,642 $16,876,320
99
Table VIII, The Department has purchased goods
manufactured in 12 foreign countries. Table VIII presents
a tabulation of these purchases. Column one lists the
countries alphabetically. Column two lists the years the
Department first purchased goods from these countries.
Column three lists the total contracts awarded to these
countries in the years 1956 to and including 1966. Column
four lists the monetary total of these contracts.
The countries listed does not necessarily represent
all the countries from which the Department has received
bids, the listing represents only those countries that have
been successful bidders.
England dominated the early foreign purchases of
the Department. Japan, however, with its geographical
advantage has dominated the Department's foreign purchases
receiving better than 58.5 per cent of the contracts awarded
and 34.3 per cent of the total monetary value of the awards.
100
TABLE VIII
FOREIGN PURCHASES BY COUNTRY OF ORIGIN
COUNTRY
YEAR
OF FIRST
PURCHASE
1955-1966
NO. OF
CONTRACTS
TOTAL
AWARDS
ORDER OF
IMPORTANCE
Australia 1965 1 $ 15,526 1 1
Austria 1957 1 567,065 8
Belgium 1961 5 291,900 1 0
Canada 1961 7 847,440 7
England 1955 49 5,709,046 4
Finland 1963 4 997,505 6
France 1959 5 2,818,327 5
Germany
(Fed. Rep.) 1958 15 334,840 9
Italy 1967 - - 1 2
Japan 1959 147 21,401,637 1
Sweden 1959 1 0 16,694,369 3
Switzerland 1955 7 18,524,495 2
Grand Total 251 $68,202,150
101
In the 11 years the Department has been purchasing
foreign goods the taxpayers of the City of Los Angeles have
been saved nearly $17 million. This is approximately 25
per cent of the domestic prices offered on these goods.
In concluding this chapter it is of importance to
note that the data does not in fact represent free trade.
All of the foreign supplies to the Department are members
of GATT, thus enjoy the same tariff rates. These rates
2
range from 8 per cent to 50 per cent ad valorem. The
tariffs are included in the prices shown.
General Agreement on Tariffs and Trade« Schedules
of the United states of America, (Washington, D. C.«
Government Printing Office, 1962).
CHAPTER VI
ANALYSIS OF THE DATA
I. COMPARATIVE ADVANTAGE
Free trade advocates and most economists throughout
the years have considered one axiom as doctrine. This is
the Principle of Comparative Advantage. Comparative Advan
tage provides the basis for the free trade case. There are
some economists who do not accept this doctrine as valid.
The fact however that the Principle of Comparative Advan
tage is presented as dogma in a majority of Principles of
Economics texts would indicate that a consensus of the
Economic profession accepts this tenet as valid. A pre
sentation of the history and development of this principle
in detail is beyond the limits of this study. The conclu
sion of the Principle of Comparative Advantage is that undez
free market conditions, both nationally and internationally,
the factors of production will tend to be occupied in those
economic activities which they perform relatively best. The
activities are dictated by demand for the products of these
activities, but this is implicit in the above.
Using the data presented in Chapter V, hypotheses
maytbe developed to test this principle. The data does not
provide information as to the deployment of the factors of
102
103
production. Prices, however, are the result of the costs
and the productivity of these factors. Thus the introduc
tion of international trade in markets where little or
none had previously existed should be reflected by reactions
in the market prices.
Hypothesis One. With the entrance of foreign com
petitors into the market the price level should drop. This
would be true whether the market was previously purely
competitive or monopolistic. The market supply curve is
the siim of the supply curves of the individual suppliers.
Thus the introduction of more suppliers shifts the supply
curve down and to the right and the intersection of the
demand and the supply curve is at a greater quantity and
lower price. This lower price will eliminate the less
efficient producers from the market. These factors re
leased from their somewhat inefficient employment may then
find employment in those activities they perform relatively
best.
The trade then should result in lower prices for
the good imported and in lower prices for other goods due
to the reallocation of productive resources. The. data may
test the first of these results. Hypotheses number one is
that the introduction of foreign purchases should result in
a decrease in the prices paid for that good. Prices will
slowly rise thereafter, however will stabilize below the
pre-foreign trade level, (ceteris paribus).
104
Hypothesis Two. Closely related to this hypothesis
is hypothesis two. If the market price is lowered and the
less efficient domestic producers eliminated from the
market, only the efficient domestic producers will remain.
The market price, however, is now lower because they face
efficient competition. These domestic producers will then
specialize in their best economic endeavors.
Thus hypothesis two states that after trade is
established certain goods may be supplied primarily by
foreign manufacturers, while certain other goods will be
supplied by both foreign and domestic manufacturers, or
by only domestic manufacturers. This is again a restatement
of the Principle of Comparative Advantage? that when re
sources are immobile between countries and trade occurs,
with the absence of trade barriers, countries specialize in
the activities for which the available resources are rela
tively best suited. It further implies possible gains
from economies of scale.
Hypothesis Three. Any trade barrier increases the
possibility of monopoly. Where monopoly markets are pre
sent, economic profit is usually not far behind. If this
is true then domestic monopolistic producers may lower
their prices to meet lower foreign prices and still earn
profits. This of course assumes the existence of relatively
efficient domestic producers and that the existence of the
industry has not been due solely to protection.
105
Hypothesis number three is that protection encour
ages monopoly and monopoly profits. Therefore after the
establishment of foreign competition domestic prices,
whether successful bids or not, should fall.
Hypothesis Four. This clearly suggests another
hypothesis. In our economy monopolies and oligopolies are
subject to the Antitrust legislation when they act in re
straint of trade. There are also certain behavioral pat
terns representative of these market structures. Hypo
thesis number four states that there should be some corre
lation between savings of purchases of foreign goods and
evidence of monopolistic behavior of domestic firms.
Other Hypotheses. There are other free trade tenets
that the data cannot adequately test, which deserve mention
here. The introduction of free trade should result in in
creased technological innovation. This is due to the
increase in competition and to the exchange of ideas. Free
trade should result in a greater variety of products. Not
only because of the diversified sources, but also because
individual producers attempt to obtain product differentia
tion, thus consumer loyalty and monopoly power.
International trade increases the economic welfare
of all the participating countries. True, there may be
short run displacements of certain sectors and elements
within the economy benefiting from protection. All
106
members of the economy, however, may enjoy a higher level
of satisfaction at the same level of income when trade
occurs.
II. ANALYSIS OF THE DATA
Savings achieved through foreign purchases. Table
IV clearly demonstrates the savings possible to business
enterprises, whether public or private, from purchasing
foreign goods. During the period tabulated the Department
saved $16,876,320. This savings, however, does not illus
trate the complete savings. The $4,324,828 (not including
the Converter Station) in foreign goods purchased where no
domestic bids were received demonstrates even greater sav
ings. If there had been domestic bidders on these goods,
assuming the average 32.2 per cent savings ration, this
would have resulted in another $1,383,845 savings.
The fact that there were no domestic bidders means
one of two things. Either domestic firms did not manufac
ture goods of this type or they could not manufacture goods
of this type at prices competitive with the foreign goods.
In both cases it is probable that the cost to the Depart
ment from either purchasing an alternate item or a high
priced domestic product would result in more than a 32.2
per cent increase in prices.
The savings where there were domestic bidders vary
from as little as O J L per cent to as high as 130.7 per cent
107
of the purchase price. As shall he detailed below, the
first three purchases of a foreign item or the introduction
of a new country into the market often results in consider
able savings.
Protectionists might claim that this savings was
due to foreign firms submitting bids lower than their costs
in order to become established in the market. The data
cannot discredit or substantiate this assertion. It would
appear, however, to assume irrational or uneconomic be
havior by foreign firms when applied to public purchasing.
The fact that public agencies must award to the "best ...
lowest ... bidder" holds the market open to all qualified
producers. In addition, when firms first enter new markets,
they may very well submit prices slightly above anticipated!
costs due to the uncertainty of the risks involved in a new
enterprise.
The relatively large savings often due to early
purchase of a particular material or from a country often
decreases in subsequent purchases. This is due not only to
the fact that the foreign prices increase, but also to a
decrease in domestic prices to meet the foreign competition.
Table IX presents a tabulation of specifications of
Table IV that represented outstanding savings to the
Department^" The tabulation shows the percentage savings
^■Outstanding savings has been arbitrarily defined
as 55 per cent or more of the purchase price.
108
TABLE IX
OUTSTANDING SAVINGS
ORDER OF
PURCHASE
Spec.
No. Year Material
Cent
Savings
Mater
ial
Coun
try
8683 1955 Circuit Breakers 71.1 1 1
8966 1956 Potential Transformers 105.5 1 1
9214R1 1957 Voltage Reg. Trsfrs. 55.2 1 1
9894 1958 Lead Covered Cable 70.2 15 17
999S 1959 Turbine Generator 69.2 1 3
7041 1959 Power Transformers 1 0 0 . 0 2 2
7141 1959 Lead Covered Cable 93.6 2 0 1
7198 1959 Oil Circuit Breakers 130.7 1 23
7202 1959 Lead Covered Cable 73.2 2 2 2
7202 1959 Lead Covered Cable 56.5 23 24
7218 1960 Power Circuit Breakers 83.0 4 27
7414 1960 Lead Covered Cable 59.7 30 31
7516 1960 Potential Transformers 85.1 2 4
7776 1961 Potential Transformers 127.1 3 6
7954 1962 Power Circuit Breakers 94.5 5 24
8357 1963 Asbestos Cement Pipe 55.6 3 3
8407 1963 Oil Circuit Breakers 64.4 4 46
8404 1964 Testing Transformers 61.0 1 2
9084 1965 PVC Drop Copper Cable 68.5 3 103
8742 1965 Potential Transformers 91.3 6 1 0
9273 1966 Towers 56.6 1 138
9155RI 1966 Porcelain Susp. Insul. 71.8 1 1 1 2
301 1966 Suspension Insulators 77.0 8 117
9400 1966 Suspension Insulators 75.0 9 145
9348 1966 Towers 61.6 2 146
land the order of purchase shown both as to material and as I
to country. The data reveal a relatively high incidence ;
I
i of outstanding savings on the first few purchases of cer- 1
tain items and in the earlier years of the data when many
new firms were entering the market.
The above discussion and the data in Table IX
i
I would tend to support hypothesis one.
j
j It also reveals that certain items, e.g. Potential
i ;
Transformers and Suspension Insulators maintain a con-
■sistently high percentage savings. !
i
The importance of foreign purchases. As Table V
demonstrates, the volume of foreign purchases increased
rather slowly at first. If the major purchases of the
I
Turbine Generators and the Converter Station are not in
cluded in the totals, this increase becomes quite even and
i
J regular. Table X compares the total formal purchases of
1 1
j the Department with the foreign purchases. These totals i
are also shown without the three major purchases. The
data shown is by fiscal years, July 1 to June 30. The
total purchases of 1961-1962 through 1963-64 were increased
considerably by the Department's construction of its new
; building. j
Table X also demonstrates the increasing importance
i [
of foreign suppliers to the Department. Foreign formal i
!
purchases now represent over l/9th of the total monetary
110
TABLE X
TOTAL FORMAL AND TOTAL FOREIGN AWARDS
TOTAL FORMAL** ______FOREIGN______
No. of No. of
Fiscal
Period
Value
of Awards
Con
tracts
Value
of Awards
Con-
trac
1955-56 $42,824,607^ 412 $ 199,214 3
1956-57 50,815,328# 436 1,007,637 5
1957-58 35,648,558# 420 925,943 1 0
1958-59
Without Turbine
35,932,005 324 9,653,364 1 1
Generator 26,671,195 323 392,564 1 0
1959-60 34,499,916 370 1,459,756 1 2
1960-61 36,071,885 414 1,807,142 26
1961-62
Without Turbine
75,448,646 463 12,252,354 2 1
Generator 66,651,216 462 3,454,924 2 0
1962-63 86,197,063 463 2,553,014 26
1963-64 100,817,972 419 4,654,876 33
1964-65 42,049,539 499 4,704,687 26
1965-66
Without Converter
78,120,574 491 19,962,013 46
Station 46,120,574 490 5,962,013 45
♦Hand-to-mouth contracts only.
♦♦Sources Purchasing Division, Department of Water
and Power, City of Los Angeles, Annual Reports 1955-56 to
and including 1965-66, mimeographed.
1X1
value of the total formal contracts awarded. As shall he
demonstrated below, foreign suppliers are the primary
source for certain materials and are important competitors
and alternative sources for others.
A perusal of Table IV reveals the fact that once a
commodity is purchased from foreign sources it is repeated
ly purchased, in fact, often seems to dominate the foreign
purchases for a period thereafter. This observation and
the above discussion appear to lend credance to hypothesis
two.
Domestic monopolies. The asterisks beside Column
seven of Table IV indicate duplicate domestic prices were
received on one or more items manufactured by more than one
domestic producer. Duplicate prices may not prove overt
collusion and violation of antitrust laws, however, they are
indicative of oligopolistic industries and possible col
lusive behavior. This is substantiated in that both the
United States Department of Justice and the California
Attorney General request that Public Agencies notify them
whenever duplicate bids are received.
The asterisks are most prevalent in the early bids.
As foreign competition increases, thus decreasing the
monopoly power present in these industries, the number of
duplicate bids received on these items decreases. This
would seem to support hypothesis four.
112
Adding further to the validity of hypothesis four
is the history of antitrust actions in and out of court
by the Department. Because many of these actions are
still in litigation or being settled out of court, the
particulars of these cases are privileged. Investigations
of these records indicate that the Department has been
involved in antitrust actions concerning materials in at
least eight of the first seventeen commodity catagories
found in Tables VI and VII. Additional studies have been
made on materials in two of the other catagories, however
insufficient evidence was disclosed to pursue antitrust
actions.
III. ANALYSIS OF THE COMMODITIES
Analysis of the individual commodities listed in
Tables VI and VII further illustrate the gains to be
realized by purchasing foreign goods and supports the four
hypotheses.
Turbine Generators. Perhaps none of the data
presented illustrates the gains of international trade as
dramatically as does the Department’s purchases of Turbine
Generators. Turbine Generators are large and expensive
machinery and each unit, though similar in construction, is
unique. The evaluation of bids for Turbine Generators is
not determined by price alone, for the technical data must
113
be capitalized to determine the ultimate cost to the
Department. In the data shown, however, the prices listed
are the bid prices. The capitalized costs were however
similar to these ratios.
The Department first received a bid on Turbine
Generators of foreign manufacture in 1959.
Table XI lists the Department's purchases of large
Turbine Generators, 1959 to 1966. The first purchase re
sulted in substantial savings to the Department. The
purchase price was less than 60 per cent of the low domes
tic bid. The next purchase of a Turbine Generator, in
1961 was from the same Swiss firm. However the domestic
price had decreased considerably over $5 million, while
the foreign price had decreased only approximately $.5
million. The next purchase of a Turbine Generator by the
Department was awarded to a domestic firm as the lowest
bidder. Foreign bids were received. As this thesis is
being written the Department has again opened bids for a
Turbine Generator. Two Englidafirms are vying for the
award at prices approximately 33 per cent, $ 6 to $7 million
better than the two domestic bidders.
This example lends considerable credance to hypo
theses one and three. ...
114
TABLE XI
TURBINE GENERATORS
Saving
Spec. Date of Foreign Domestic Per
No. Award Award Price Difference Cent
9995 2-24-59 $9,274,769. $15,689,664. $6,428,844. 69.2
7535 7-18-61 8,792,675. 10,283,500. 1,490,825. 17.0
8179 3-13-63 Awarded to Domestic Bidder
1X5
Cable. Protectionists often make the assertion
that once foreign firms are established in a market it is
impossible for the domestic firms to get business and earn
profits. They might use Department's purchases of cable to
support this claim.
The Department purchases many different sizes and
types of wire, cable and conductor. The majority of these
purchases however are of relatively heavy voltage, 34.5 KV
or better, and are usually insulated with polyvinyl-
chloride or rubber, or are lead covered. The cable itself
is both aluminum and copper, and is of stranded, corded
and solid construction.
Cable was one of the first goods purchased from
the foreign suppliers. The Department has purchased cable
from four countries. England dominated the early foreign
purchases. Since 1962 japan has been the Department's
prime foreign source of these materials. Cable accounts for
approximately 17 per cent of the Department's foreign
purchases.
There has only been one purchase of foreign cable
where no domestic bid was received. During the past t&ree
years however metal shortages and the procurement problems
due to the war effort have made domestic sources increas
ingly scarce.
Section one of Table XII lists the domestic share
of the Department's cable purchases from 1956 through 1966.
116
TABLE XII
DOMESTIC AWARDS AS % OF
TOTAL POWER CABLE CONTRACTS AWARDED
i
Moving Average
Yearly Cumulative
2 Year 3 Year
Year %
M i -
% Year % Year
%
1956 97 1956 97 1956-57 70 1956-58 67
1957 49 1956*57 91 1957-58 50 1957-59 54
1958 52 1956-58 67 1958-59 60 1958-60 48
1959 63 1956-59 6 6 1959-60 48 1959-61 34
1960 2 2 1956-60 60 1960-61 18 1960-62 17
1961 16 1956-61 50 1961-62 16 1961-63 27
1962 16 1956-62 44 1962-63 31 1962-64 24
1963 40 1956-63 43 1963-64 27 1963-65 17
1964 06 1956-64 39 1964—65 06 1964-66 27
1965 05 1956-65 32? 1965-66 31
1966 53 1956-66 36
117
Section two lists the data on a cununulative basis. Sec
tion three shows the data as a two and three year moving
average.
The sample is too small for a clear trend to be
established, however it appears that foreign suppliers
will maintain from 65 to 90 per cent of the Department's
cable purchases.
During the eleven years the Department has saved
$2,287,946 by purchasing foreign made cable. This is
approximately 2 0 per cent of the value of the total foreigi
cable purchased, adding further support to Hypothesis one.
Transformers. Transformers are one of the more
competitive of the materials listed. Throughout the
study domestic bids were received on all transformer speci
fications awarded foreign firms.
These are numerous types, sizes and capacity
transformers, therefore a detailed comparison of savings
or of purchases is not possible. There are at least
eight major domestic suppliers of transformers.
The Department has purchased transformers made in
seven countries as well as receiving bids for transformers
made in three other countries.
As with Turbine Generators technical evaluation
has as much influence on the purchasing decision as does
price. Transformers account for approximately 14 per cent
118
of the Department * s foreign purchases and have resulted
in $2,387,500 savings. During the last three years domes
tic sources have often been unable or unwilling to supply
transformers within the required delivery time or to quote
firm prices. The importance of the foreign suppliers of
transformers thus has been considerable.
Circuit Breakers. Circuit Breakers share several
of the above characteristics of transformers. They are
considerably differentiated technically and difficult to
analyze for this reason. Also, they are a relatively
competitive item and until 1966 only two purchases were
made where no domestic bids were received. The percent
age savings on the purchase of foreign Circuit Breakers
was above average better than 40 per cent of the amount
of the foreign awards with domestic bidders.
Both Circuit Breakers and Transformers demonstrate
the Principle Comparative Advantage clearly. Japan,
Germany, England, Sweden and the United States seem to
dominate the Department's purchases of certain of these
goods. Thus inspection of the Department's purchases of
Circuit Breakers and Transformers support Hypothesis two.
Steel pipe. The united States steel industry has
long been successful in maintaining tariffs. One of their
chief arguments is high domestic labor costs. Because of
the protective tariffs, the steel industry earns monopoly
119
profits. When steel labor sees these monopoly profits
they demand their share in wage increases, thus reenforc
ing the steel producers' pleas for tariffs.
Depsite U. S. tariffs, foreign steel manufacturers
can successfully compete in domestic markets. The Depart
ment has purchased only foreign made pipe in certain sizes
since 1962. Domestic bidders have not bid on these sizes
since 1963. The Department has purchased $2,721,691 of
Steel Pipe where no domestic bids have been received.
Furthermore much of the pipe has been purchased in smaller
quantities on an informal basis and thus is not included
in the computations. The Steel Pipe purchased by the
Department is primarily for the Water System and is As
phalt -Mas tic-Coated and Cement-Mortar-Lined. This pro
cessing is usually done in the United States, however, is
included in the prices shown in the data, as it represents
less than 50 per cent of the cost of the pipe.
Table XIII shows the differences in prices per
foot of four sizes of pipe prior to the introductidn of
foreign competition, with foreign competition and after
domestic firms have abandoned the market.
The Department's pipe purchases may be divided
into two sections. Those where only domestic bids are
received, sizes 4*§ inches to 12-3/4 inches; and where both
domestic and foreign bids are received and the domestic
bidder usually receives the award, sizes over 12-3/4
120
TABLE XIII
STEEL PIPE (AMC and CML)
ODt 43s" 6-5/8" 8-5/8
» 1 2-3A
Wall
Thicknesst 0.219" 0.250 2.77 0.3125
DOMESTIC PRICES
PRIOR TO FOREIGN
BIDDING*
( PRICES PER LINEAR FOOT )
DATE
&
SPEC.
NO.
2/11/60
7303
No
Record $2 . 6 8 $3 . 8 6 $6.09
FIRST FOREIGN BIDS
AND AWARDS* (Under
lines indicate awards).
3/16/61
7601
Foreign*
Domestic*
$1.7752
$1,718
$2.4563
$2,365
$3.3038
$3.3487
$4.9154
$4.566
4/26/62
7948
Foreign $1.5736 $2.2527 $3.0581 $5.1648
Domestic
$1.7096 $2,367 $3,171 None
EXAMPLES OF
FOREIGN BIDS
AWARDS WITH
ONLY*
6/23/64
8561
FSreign*
9005
9/21/65
Foreign*
2/3/66
9112
Foreign
Domestic
$1.3666
$1.4461
$ “
$1.9377
$1.9812
$1.9489
$2.6416
$2.6911
$2.5979
$3. 65
$ -
3.4992
121
inches. This clearly demonstrates the validity of hypo
thesis three.
Towers. The history of the Department's tower pur
chases is discussed in Chapter IV. Until 1965, the De
partment had only purchased towers from the Bethlehem
Steel Corporation for at least twenty years. Bids had been
received during this time from Canadian firms, however,
Bethlehem's bids were consistently lower.
Since the award of Specifications 9273 and 9348 to
Japanese firms, the Department has purchased towers from
Bethlehem Steel Corporation? an Italian firm has received
an award, and it appears that a recently opened Specifica
tion will be awarded to another Japanese firm.
Towers represent the highest percentage savings of
any materials listed, nearly 60 per cent of the purchase
price. This savings is on two purchases.
The tower purchases present evidence which adds
credance to all four hypotheses* Hypothesis one, as demon
strated by the $1,614,239 savings? Hypotheses two and
three, as demonstrated by the subsequent award to Bethlehem
with two foreign competitors bidding? Hypothesis four due
to the history of previous Department purchases.
Insulators. Insulators, as Circuit Breakers and
Transformers differ considerably as to technical character
istics. They are more easily classified however, it is
122
possible thus to compare the bids on these items. Prolonged
delivery and escalation clauses have recently become com
mon facets of domestic bids on these items. This is
demonstrated in Table XIV.
Table XIV shows the purchases of foreign made Dead
End (D.E.) Post Type (Post) and Suspension (Susp.) Insula
tors from 1961 forward. It does not include purchases of
Distribution or other types of Insulators and Line Hardware.
During the period shown several awards were made for pro
ducts of domestic manufacture. The prices of these awards
were often tendered by more than one domestic bidder.
The data displayed in this Table further illus
trated the importance of foreign supplies to non-defense
industries in times of war and during full employment. It
also demonstrates a consistent decrease in foreign prices
and considerable savings, approximately 32 per cent overall
thus reinforcing Hypothesis one. ...
Other Commodities. A detailed investigation of the
remaining materials yields similar conclusions and becomes
repetitive. Tables XV and XVI demonstrate a two cases
where the awards alternate between domestic and foreign
bidders. The prices demonstrate the expected gains from
competition. . . .
TABLE XIV
INSULATORS
TYPE OF
INSULATOR
SPEC.
NO.
DELIVERY
DOMESTIC
ESCALATION
% CHANGE
FROM
PREVIOUS
PURCHASE
SAVINGS
A % OF
PURCHASE
PRICE
AS
YEAR FOREIGN DOMESTIC
Susp. 9400 1966 As spec. 18 months Yes 3% lower 75%
Post 9127R1 1966 No Domes. Bids as spec. 15 to 27% lower -
Susp. 301 1966 As Spec. Incomplete Bid Yes 0 to 1 0% higher 77%
Dead End 282 1966 As Spec. As Spec. Yes 29% higher 30%
Susp. 9155R1 1966 150 Days 2 Years Yes 15% less 73%
Susp. 9047 1965 150 Days 455 days Yes - 55%
Susp. 194 1965 As Spec. As Spec. No. 5% Less 43%
Dead End 143 1965 As Spec. As Spec. No. N/A
38%
Susp. 8761 1964 As Spec. As Spec. No N/A 34%
Susp. 961 1964 As Spec. As Spec. No 1% Less 17%
Dead End 908 1964 As Spec. As Spec. NO 2% Less 27%
Susp. 851 1963 As Spec. As Spec. No N/A 7%
Dead End 792 1963 As Spec. As Spec. No 7% Less 6%
Susp. 721 1962 As Spec. As Spec. Yes N/A
1 2%
Dead End 691 1962 As Spec. As Spec. NO 5% Less 1 2%
Susp. 641 1961 As Spec. As Spec.
No N/A
24%
Dead End 612 1961 As Spec. As Spec. No N/A
8%
H
to
124
TABLE XV
ASBESTOS CEMENT WATER PIPE
SPEC.
NO. YEAR AWARDED TO*
% CHANGE FROM
PREVIOUS PURCHASE PRICE
7455 1960 No Foreign Bidders
—
7539 No Foreign Bidders -
7666 1961 Foreign 18% lower
7907 1962 Domestic and Foreign Between 3 and 19% Lower
8161 1963 Foreign Between h % and 17% Lower
8351 Domestic 10% Lower
8413 Domestic 25% Lower
8506 1964 Foreign Between 3 and 12% Lower
8565 Domestic Between 0 and 1%% Lower
8719 Domestic 1% Lower
8814A 1965 Foreign and Domestic I5g% Lower and Identical
8890 Domestic 5% Lower
241 Domestic Between 6 and 11% Higher
125
TABLE XVI
COPPER WATER TUBING
DATE
OF
AWARD
SPEC.
NO. AWARDED
% CHANGE FROM
PREVIOUS CONTRACT
5/26/60 7400 Domestic (6 equally
low Bidders)
2/16/61 7573 Foreign 14 to 24% Less
10/26/61 7792 Foreign
Domestic
4 to 7% greater
12% Greater
2/15/62 7898 Foreign Foreign to Foreign, 2
to 3% Less
Domestic to Foreign,
19% Less
10/11/62 8074 Domestic From 1 to 6% Less
8/8/63 8347 Domestic 11% Greater
2/18/64 912 Domestic 1% Greater
12/14/65 258 Domestic 9% Greater
It is important to keep inamind the fact that
these prices decreased overall during the period shown
despite inflationary pressures in the economy.
IV. SUMMARY
126
This chapter has presented four hypotheses* (1)
That the introduction of foreign goods into a previously
protected market should reduce prices? (2) That after the
introduction of foreign trade certain goods will be sup
plied primarily by foreign sources, some by domestic
sources and some by both? (3) That after the introduction
of this trade domestic prices will fall? (4) That evi
dence of monopoly will be disclosed in the previously
protected industries.
The data has demonstrated cases where each of these
hypothesis rang true. These hypotheses, though generally
accepted by economists are not proved by this empirical
data. The purpose of this exercise is only to test their
validity in this particular situation.
The possible gains to be realized to domestic
utilities, privately or publicly owned, by utilizing all
possible sources of supply is the important result of this
study. These gains realized by the Department were made
possible by the avoidance of the Buy American Act. Other
utilities may realize similar savings, and thus serve their
customers better and with less costs. Buy American legis
lation serves to redistribute income to special interest
groups at the expense of the taxpayer and the consumer.
The interests of the entire economy are best served by free
trade as demonstrated in the savings exhibited in the data
presented in these two chapters.
CHAPTER VII
OTHER OBSERVATIONS
I. THE VENDOR COUNTRIES
The last two chapters have discussed data illus
trating the gains to be realized from avoiding protective
legislation, e.g. the Buy American Act. The analysis has
discussed the savings of the Department due to foreign
purchases, the foreign share of the Department's purchases,
and the individual commodity classifications. This section
shall investigate the sources from which the purchases were
made.
To this date, the Department has purchased mater
ials from twelve countries, from eleven during the period
investigated. In addition, the Department has received
bids for materials manufactured in Holland and representa
tives of Mexican firms have recently requested copies of
specifications.
No bids have been received from Communist nations.
The Department's policy concerning the purchase of goods
manufactured in these countries has not been determined.
In light of the legal opinions and court decisions dis
cussed in this paper it is difficult to see how the Depart
ment could but accept bids from these countries, unless
perhaps because they were not members of GATT.
128
129
All the countries from which the Department has
purchased goods are members of GATT. Japan and England
have been the principle suppliers to the Department, how
ever the monetary value of the purchases from both Sweden
and Switzerland exceed that of England.
In investigating the bids received and the prices
charged for various items, it would not be difficult to
find some correlation with economic conditions in these
countries. This however, is beyond the breadth of this
study.
England. England was the principle foreign sup
plier of the Department during the years immediately fol
lowing the decision to purchase foreign goods. Cable was
the dominant commodity purchased during these early years.
In addition England has supplied the Department with Trans
formers, Circuit Breakers, Tools and Pipe.
$5,709,046 in contracts have been awarded for goods
of English manufacture. The average savings per contract
from these goods is 31.6 per cent, just under the average.
Only three purchases have been made where no domestic
bids were received.
England did not receive awards from the Department
from September 1963 to December 1964 and since 1962, have
only received six awards. Towards the end of 1966 and in
early 1967, however, English firms have been submitting a
number of competitive bids on electrical equipment and it
130
appears that England shall return to its role as a major
supplier to the Department.
japan. The largest supplier in number of contracts
and in the monetary value of these contracts is Japan.
Five Japanese trade companies are the Department's sources
for these goods. Each Company carries a diversified line.
Usually the Japanese firms are in competition not only with
Domestic firms and firms of other foreign countries, but
also with each other.
Japan did not receive an award from the Department
until 1959. By 1961 Japan was the primary source of foreign
goods. In fact, in that year only three contracts were
awarded for foreign goods not made in Japan. In recent
years, though other countries have re-entered the market,
Japan has continued its dominance.
Japan is a natural trading partner with California*
With the Pacific Ocean joining the two, Japan enjoys a
locational and transportation advantage over European firms
and even some East Coast domestic firms. Japan has become
a highly industrialized nation in recent years and produces
a wide variety of products. During the past ten years
Japan has had an average growth rate of approximately 10
per cent, and is now the fifth ranking free-world indus
trial economy.1 This growth of the importance of Japan in
world trade and as a trading partner with the United States
"" ^-John A. Marino, "Japan's Tradings Companies." Boston
Univ. Business Rev., Vol. 11. No.3. (Spring, 1965), p.l.
131
is analogous to Japan's importance as a supplier to the
Department•
U. S. - Japanese trade verifies the free trader's
assertion that trade is a two-way street. Japan is second
only to Canada, and is the fastest growing of the United
States export markets. The United States is Japan's most
important customer, receiving approximately 25 per cent
2
of Japan's exports annually. This trade is important to
the California economy. Supporters of the Buy American
legislation should bear this in mind when declaring the
benefits to the economy from excluding "cheap" Japanese
goods.
The first purchases of Japanese made materials re
sulted in relatively small savings. As the Japanese firms
familiarity with the Department grew, these savings in
creased. The average savings per contract from the pur
chase of Japanese goods in 26.3 per cent. The total savings
from Japanese purchases is 21 per cent. This has resulted
in a total savings to the Department of $3,713,259.
Switzerland. Swiss firms have received $18,524,495
from the Department. This gives them an extremely high
dollar average per contract. The distortion is due to the
two Turbine Generators purchased from a Swiss firm for a
total of $18,067,444. Without these two purchases,
2Ibid., p. 2, 3.
132
Switzerland would be a relatively minor supplier to the
Department falling between Austria and Germany in total
monetary value of awards.
Switzerland was the first foreign country from
which the Department purchased goods in 1955. Since that
award, Swiss firms bidding primarily through local agents,
have been regular bidders. They have received but seven
awards.
Sweden. As with the Swiss, Sweden's high value of
average purchase is high due to an outstanding purchase,
the High-Voltage Converter Station. Without including this
award, Sweden would still be a major supplier to the De
partment in monetary value of awards, $2,694,369? though
these awards would be only nine in number.
The primary product purchased from Sweden has been
Transformers.
France. France has received $2,818,327 in awards
from the Department on just five contracts. Four of these
awards have been for Transformers.
French firms have not been particularly active
bidders until late 1966. Since this time several French
exporting and manufacturing companies have been submitting
bids on an increasing variety of materials. The French
bids, although not usually low, have been consistently
competitive.
133
Other countries. With the exception of Canada, the
other countries have demonstrated behavior illustrative of
the Principle of Comparative Advantage. These countries
have been rather specialized in the materials that they
have successfully offered the Department.
Finland has received awards only for cable. All
awards to Belgium have been for Asbestos Cement Water Pipe.
Germany, true to their popular caricature, have
supplied the Department with tools and intricate machinery.
German firms have also been the Department's primary for
eign source for Potential Transformers usually at a savings
approaching 100 per cent of the purchase price.
Canada has been a quite active bidder. The homo-
geneityoof the United States and Canadian economies allows
Canadian firms no particular advantage. Cross-country
transportation costs in addition to tariffs appear to pre
clude Canadians from offering competitive prices. Canada
has been most successful in offering copper products.
II. ADHERENCE TO THE FEDERAL GUIDE LINES
As mentioned in Chapter II, in 1954 President
Eisenhower established a guide line for allowing domestic
firms a 6 per cent differential in awarding Federal con-
tracts. The testimony of the representative of the
3
Supra, p. 18 .
134
Westinghouse Electric Corporation before the Committee on
Ways and Means of the California Assembly pleaded the State
of California and governmental bodies under its juris
diction be subject to such a law or ruling.
Chapter IV notes that such preferential treatment
was in violation of the California Constitution. Allowing
a price differential is tantamount to a gift to domestic
firms and as such a violation of California Constitution.
In Chapter III it is shown that where goods are intended
for resale, such laws are in conflict with GATT.5
Assuming such a preferential price differential
were legal and the Department had adhered to this differen
tial, what would have been the result? Observing the
average savings per award of 32.2 per cent, it would appear
that few contracts would have been denied foreign bidders
and awarded the domestic firms.
The total foreign awards would be decreased by
$4,455,070, a total of twenty-six contracts. This amounts
to approximately 6.5 per cent of the monetary total value
of the foreign awards, and 9 per cent of the foreign awards
where domestic bids were received. It decreases the amount
Dissavings by $152,229, approximately 3.4 per cent of the
decrease in total foreign awards.
The decrease in savings and tariff revenues lost
^Supra, p. 29.
5
Supra, pp. 47, 49.
135
amount to a gift by the taxpayers to the domestic firms.
This, however, is not the most serious repercussions of a
6 per cent preference. Scanning Table IV, there are many
cases where early contracts to firms of a country entering
the market result ini less than 6 per cent savings, e.g.
Japan, 1959-60. if a country does not secure these early
I
awards, it may not submit future bids. Thus the combina
tion of tariffs and preferential treatment to domestic
firms will reinforce each other in excluding foreign pro
ducts from the market.
III. FUTURE FOREIGN PURCHASES
Construction projects. Chapter IV lists several
construction projects which are presently being built or
being planned in the immediate future by the Department.
The taxpayers of Los Angeles and Southern California will
realize considerable savings due to the Department's
purchasing policies.
The construction of these projects will be handled
by domestic contractors. The materials used in these? pro
jects, whether purchased from domestic or foreign sources,
will be less costly to the Department because of the
possibility of foreign competition. If the foreign prices
are less expensive than domestic prices, then the Depart
ment realizes gains, as demonstrated in this study. If
domestic bidders are to receive the award, then they must
136
be aware of foreign bidders providing additional competi
tion, therefore offer the lowest price possible considering
their costs.
Already the Department has begun two of these pro
jects. The Pacific Intertie High Voltage Direct Current
i
System brings electricity across three states. The second
Los Angeles Aqueduct replaces the old aqueduct bringing
water from the Owens Valley. Already the Department has
purchased products of foreign manufacture in the construc
tion of these projects.
Specifications No. 9351 awarded October 27, 1966,
is Structural Steel for the Los Angeles Aqueduct. The
nature of the construction and materials used in this pro
ject will not necessitate the use of many imported pro
ducts.
The HDVC Pacific Intertie will and is using consid
erable materials of foreign manufacture. The towers
purchased in the Bethlehem Steel case were for this trans
mission line. As of June 1, 1967, four contracts for a
total of $2,693,144 have been awarded for materials of
foreign manufacture. The savings realized by the Depart
ment through these purchases is $1,163,039. One purchase
of $378,254 has been awarded where no domestic bids were
received.
General purchases. In light of recent developments
137
it appears that foreign purchases will increase as a share
of total purchases of the Department.
The Vietnam war is beginning to effect the United
States economy. In certain areas Federal priorities have
been established making it impossible for domestic firms
to make firm commitments for delivery of goods containing
certain materials.6 In addition, the domestic firms usually
manufacturing goods, purchased by the Department, are also
manufacturing materials for the war, e.g. Westinghouse,
General Electric, Allis-Chalmers, Alcoa, et cetera. As
the plants of these firms approach capacity the incentive
for these firms to solicit the Department's business de
creases. This is especially true in that many of the pro
ducts the Department purchases require special engineering
and tooling.
The Kennedy Round of Negotiations of the GATT con
cluded in May of 1967 agreeing on considerable tariff re
ductions.7 When these reductions take effect the foreign
suppliers can become more competitive in those products
they are now supplying the Department and perhaps they may
supply new materials, e.g. chemicals, where previously
high tariffs had made import costs prohibitive.
6Letters accompanying bids received by the
Department
7Los Angeles Times, May 22, 1967
138
It appears that with or without Vietnam# the United
8
States' economy is going to remain near full employment.
This will mean inflationary pressures will continue in the
economy and production costs will remain relatively high.
Because of these circumstances it appears that an
increase in foreign purchases is in the Department's and
the taxpayer-customer's best interests.
8William Bowen# "The United States Economy Enters
a New Era"# Fortune# Vol. LXXV# No. 3# (March# 1967).
CHAPTER VIII
SUMMARY AND CONCLUSION
The purpose of this study has been to examine a
barrier to international trade, the Buy American Act. This
legislation was examined on a historical and legal basis
and then data was introduced to demonstrate the advantages
of avoiding such legislation and to test the tenets of
free trade.
Buy American legislation was a desperation measure
of the depression. As with much legislation, which serves
to protect special interest groups to the detriment of the
society as a whole, it has attained permanence through the
continued vigilance of these special interest groups and
others persuaded by their arguments. These arguments when
examined prove to be vulnerable to rationale thought and
empirical evidence.
In many states and in federal procurement activities
Buy American legislation is still law. Of these laws the
California Act is the most severe, prohibiting the pur
chase of Foreign-made goods by public bodies are available.
The California Act has been challenged as to con
stitutionality. The Baldwin-Lima-Hamilton case established
the conflict between the Buy American Act and the General
139
140
Agreement on Tariffs and Trade when the material to be
purchased is to be used in the production of goods for re
sale. This case established the right of public owned
utilities to purchase foreign made goods.
Public purchasing principles, to which most munici
palities and public owned utilities must or do conform,
require that purchases be made from the "best ... lowest
. . . responsive bidder." The prohibition of Foreign made
materials from these markets violates the most basic rule
of procurement. If the Buy American Act is adhered to,
this principle must be violated. This violation results
in paying higher prices for materials purchased. Thus in
come is being redistributed from the taxpayers to those
who receive these higher prices.
The Department of Water and Power would not adhere
to the Buy American Act. The Department felt that the law
was not applicable to its operations in that: (1) The City
Charter required it to purchase from the "lowest ... re
sponsive bidder"? (2) The Buy American Act is in conflict
with GATT? (3) Awarding contracts to a higher domestic
bidder results in a gift of public funds? (4) The deci
sion of the B-L-H case dictates non-compliance. The
Department was sued by Bethlehem Steel Corporation, first
in an injunctive action to force compliance with the Buy
American Act, and then to recover damages resulting from
the Department's failure to comply.
141
The court dismissed both actions, reinforcing the
B-L-H decision. The Department is thus free to continue
purchasing foreign made materials.
The Department first purchased foreign made mater
ials in 1955. Since that time to December 31, 1966, the
Department has purchased $68,202,150 of foreign goods from
twelve countries. This has resulted in a savings to the
taxpayers of over $16,876,320.
These purchases, though the prices include tariffs,
demonstrate the validity of the Principle of Comparative
advantage and the gains to be realized through free trade.
The data demonstrated savings through foreign purchases?
lowering the domestic prices? elimination of inefficient
producers and specialization by efficient producers? and
evidence of the elimination of monopoly power when foreign
trade is introduced into a previously protected market.
It appears that the Department will increase its
present consumption of foreign products, both absolutely
and as a share of total purchases. This assumes continuing
full employment in the United States and lowering of trade
barriers through GATT and other international organizations,,
Conclusions. From the data, information and ration
ale presented in this study there can be no conclusion but
that the Buy American legislation should be repealed. The
protectionists present outwardly convincing and emotionally
142
appealing arguments. Politicians are especially vulnerable
to these arguments and the pressures exerted by the pro
tectionists forces. If reason is to prevail and the best
interests of the economy served, then rational and con
vincing counter-arguments must be presented. Hopefully
these arguments will enlighten the law-makers and enable
them to overcome the protections pressures.
This study has been principally concerned with
public utilities. The gains to be realized by purchasing
goods of foreign origin^are possible to all types of
enterprise, governmental and private. The court decisions
that have been discussed are somewhat parochial in that
they only establish the right of public agencies to
purchase foreign goods when these goods are to be resold
or used in the production of goods for resale. Govern
mental bodies performing purely public service functions
and partially or completely divorced from the price system
also purchase goods and services. It is unfair to the
taxpayer to maintain legislation which requires these
agencies to purchase materials at prides above those which
could be realized from foreign purchases. Property tax
payers throughout California have been in near revolt
during recent years. Maintenance of high cost government
due partially to adherence to the Buy American Act only
aggravates this situation.
The data presented in this study demonstrated the
143
gains possible through purchase of foreign goods. The use
of this data was extremely limited. The data could be
developed and used to further test the results of protec
tive legislation. Comparing like data from a public
utility that refuses to purchase foreign made materials
would provide more complete price comparisons.
A more detailed study into the place of manufacture
of the domestic goods offered could provide interesting
data for municipal and regional multiplier studies. These
studies could test the validity of the protectionists and
free trade arguments presented in Chapter II.
BIBLIOGRAPHY
144
BIBLIOGRAPHY
Books
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UNPUBLISHED MATERIALS AND PUBLICATIONS OF THE
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151
NEWSPAPERS
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New York Times, June 20, 1934, p. 16.

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Asset Metadata

Creator Parry, David Lane (author)

Core Title The "Buy American" Act and the gains from avoiding protective legislation

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, General,OAI-PMH Harvest,Political Science, public administration

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Morgner, Aurelius (committee chair), Bilas, Richard A. (committee member), Phillips, E. Bryant (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-459355

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Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

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