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HomeMy WebLinkAboutRESOLUTIONS - 01051988 - IO.2 TO: BOARD OF. SUPERVISORS FROM: INTERNAL OPERATIONS COMMITTEE C=tr December 14, - 1987 Costa DATE: r / Preference in County contracts to Wl�l +•J SUBJECT: American-Made Products SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1. Amend the Board' s 1988 Legislative Program to include an item intended to sponsor legislation which specifically adopts the provision of the General `Agreement on Tariffs and Trade (GATT) as . law in California and provides "the same exception for governmental agencies provided for in GATT at the option of the individual government agency for contracts above $1 million. 2. Request the County Administrator to determine from the various trade associations in the County their views on such proposed legislation. 3 . Request the County Administrator to write to the members of this County' s legislative delegation asking whether this issue has ever been discussed and whether they would support such legislation. 4 . Remove this item as a referral to our Committee. BACKGROUND: Our Committee has been exploring various mechanisms for requiring that major county and state construction projects use American-made products. Examples of these include. the West County Justice Center and the new Martinez-Benicia Bridge. Congressman Miller's office has, provided us with court decisions from other. states indicating that it is possible to write a state statute that is Constitutional. Unfortunately, County Counsel has noted that a major California appellate decision ruled the giving of any preference to American-made products unconstitutional. County Counsel also notes, however, that this Bethlehem decision appears at odds with other previous appellate decisions. Because of this difference of opinion at the appellate level, County Counsel suggests not relying on the courts to rule in the County' s favor at this time. He suggests, instead, that the County pursue State legislation. CONTINUED ON ATTACHMENT: YES - SIGNATURE: _ RECOMMENDATION OF COUNTY ADMINISTRATOR X RECOMMENDATIONOF BOARD COMMITTEE X APPROVE OTHER SIGNATUREIS1: Lcy C. Fanden f1pp Tom.Tor_lakson ACTION OF BOARD ON January ry- 5• 700 APROVED AS RECca7AMENDED X OTHER X Also, DIRECTED the County Administrator to forward this report to CALTRANS and other State agencies that may be involved in large contracts; and REFERRED the issue. to the 1988 Internal Operations Committee.' VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE X UNANIMOUS (ABSENT AND CORRECT COPY OF AN ACTION TARN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. cc: County Administrator ATTESTED.Count Internal lOperations Counsel PHIL �BATCHELCLERK OF THE BOARD OF Internal Operations C.te SUPERVISORS AND COUNTY ADMINISTRATOR BYP4L[ ,DEPUTY M382/7-83 - } Page 2 . The controlling issue here is that the General Agreement on .. Tariffs and Trade (GATT) generally prohibits discriminating against the products of any of the contracting parties. Since the United States is a signatory to GATT and since GATT has the force of a treaty, it is difficult for state law to circumvent its provisions. However, GATT provides a specific exception for government when it provides: "The provisions of this Article shall not apply to the procurement by . governmental agencies of products purchased for governmental purposes and not for resale or use in the production of goods for sale. . . " Unfortunately, in the . Bethlehem decision the appellate court ignored this exception County Counsel, therefore, recommends that the Board ask the Legislature to enact a statute which follows the language of GATT and which specifically includes the language of the governmental exception.. This appears to be the mechanism which holds. the best possibility of allowing the county and the state to require that American-made products be used in governmental construction projects. We have,' therefore, recommended that the Board follow this course of action and sponsor such legislation. We also are asking that the County Administrator solicit input on this proposed legislation from industrial associations and trade groups in the County and to ask our legislative delegation for their support of such legislation. p r- COUNTY COUNSEL'S OFFICE CONTRA COSTA COUNTY Date: December 9 , 1987 MARTINEZ, CALIFORNIA To: Phil Batchelor , County Administrator Attn: Claude L. Van Marter , Assistant Administrator From: Victor J . Westman, County Counsel By: Paul Muniz, Deputy County Counsel kAJ Re: Preference in County Contracts to American-Made Prod ets SUMMARY: In response to your, memorandum of October 12 , 1987 , we advise that the County is more likely to achieve judicially- sanctioned authority to require the use and provision of domestically-produced and -manufactured goods and materials under County contracts if the Legislature enacts new statutory authority . for the County to do so. The new law should be drawn so as to conform more closely to the language of international agreements which permit governmental agencies of signatory countries to give such preferences to domestically-produced products . BACKGROUND: In its memorandum of August 24, 1987 , to the . Board' s Internal Operations Committee , this office advised that the Board was constitutionally barred from giving preferences to American-made products in its contracts for the construction of public works , and that an express Federal legislative grant of such power to the states would permit the California courts to find the giving of such preferences to be constitutional . In his memorandum of October 12 to this office , Mr . Van Marter asked that we review some court decisions of other states which were provided to us to determine their usefulness to the County and that we advise on the legislative or judicial action in California which would permit the County . to give preferences to domestic products in the letting of its contracts . 2UE2TION #1 : To what extent are the out-of-state court deci - sions applicable to California? ANSWER ii Is J1 : Because the unconstitutionality of the giving of iNr Nr YrM preferences was clearly established by the court of appeal in Bethlehem Steel Core v. Board�of�Comnissione�s (1969) 276 AYlY.1.1 Ni 16Y l..Yi Nf'�0 Ni Nilo W nG rN1 Ni.Y Cal .App. 2d 221 [80 Cal .Rptr . 800] �Beth.lehem , recourse to the rN.....«N.heNi court decisions of sister states will be unavailing in California courts . A California superior court is required to follow the decisions of all the appellate courts of the state; it is not the superior court ' s function to attempt to overrule the decisions of r Claude L. Van Marter -2- December 9 , 1987 a higher court , no matter how attractive a conflicting rule of law enunciated by another state' s courts appears . (Auto Eouity �Salesa Inc . v . Superiior�, Cour,�t (1962) 57 Cal . 2d 450, 455 [ 20 Cal .Rptr . 321 , 369 P. 2d 937 . In two of the cases the courts invalidated attempts by agen- cies to give preferences because the attempts conflicted with state laws requiring that contracts be awarded to the lowest bidder . (Texas Hihwav Com., v . Texas Assn. of�Steel lmeorteorsrjt. ( eX3a3 •( 54Institute rp7— M 2; American EjeervCountfErieApp. Dv. AD2231 [ 30 N.Y.S. 611r. �AlthfoaurghtCalifornia ed statutes do require , generally, that contracts be awarded to the "lowest responsible bidder" (see, e .g. , Pub. Contract Code , SS 20393 , 20405 , 20622 , 20783 ) , another state statute permitting local government agencies to give pre- ferences would be of equal dignity with the statutory " lowest responsible bidder" requirements . For example, in 1986 , the Legislature enacted Public Contact Code section 2000, which allows a local agency to require the lowest responsible bidder to comply with its goals relating to participation by minority business enterprises . In the court decisions , the actions of a state high- way commission and a county legislature were in conflict with governing statutes . In the third case , K.S.B. Technical�Sales�Corp. v . North JerseyjL etc----Aa Comte (1977 75 N.J. 272 [ 381 A. 2d 774] (K�S�B�) , the New Jersey Supreme Court held that certain preferences by govern- mental agencies were permitted under the General Agreement on Tariffs and Trade (Oct . 30, 1947, 61 Stats . , part 5, T. I .A.S. 1700) (GATT) , a multilateral agreement to which the United States is a party. New Jersey statutes required that , unless the appropriate public officer determined it to be inconsistent with the public interest , "only domestic materials . . . be acquired or used for any public work, " and that "[ elvery contract for the construction, alteration or repair of any public work . . . contain a provision that in the performance of the work the contractor and all subcontractors shall use only domestic materials in the perfor- mance of the work . . . . " (K-S.B.., 12ta, 381 A. 2d at p. 777 . ) Article III of part II of GATT provides that " [ t]he products of the territory of any contracting party imported into the terri - tory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws , regulations and requirements affecting their internal sale, offering for sale , purchase, transportation, distribution, or use. " (GATT, pt . II , art . III , S 2 . ) This provision, however, does not apply " to the procurement by governmental agencies of products purchased for governmental Claude L. Van Marter -3- December 9 , 1987 purposes and not for resale or in the production of goods for sale it (Id. , S 5 . ) (A copy of the applicable GATT provisions is attached.�tl The contracts in question were for the construction of a plant by a public agency for the purification of drinking water . The court held that because the collection and distribution of drinking water is not " the production of goods for sale, " GATT' s exception to its nondiscrimination provisions applied, and the contract provision was valid. (K�S�Baupra, 381 A.2d at p. 782 . ) The court further held that the New Jersey statutes were neither an impermissible intrusion by the state into the field of foreign affairs . nor an undue burden upon interstate commerce . (Id.z, 381 A.2d at pp. 782-784, 784-789 . ) While the New Jersey court ' s conclusions support the County' s goals , they do not define the state of the law in California. The California Court of Appeal used an approach similar to that of the New Jersey court in Baldwin-Lima-Hamilton Corp. v. Superior Court (1962 ) 208 Cal .App.2d�803�r25 Cal.Rptr. 7987 �BaldwYn , a case decided seven years before Bethlehem. In Baldwin San Francisco had published a contract proposal for equip- ment to be used in an electrical generating station. with the requirement that all materials , supplies and equipment covered by the contract proposal be manufactured in the United States . The court examined that requirement in light of the GATT provision which exempts from GATT' s anti -discrimination requirements " the procurement by governmental agencies of products purchased for governmental purposes and not for resale or use in the production of goods for sale. " (GATT, pt . II , art . III , S 5) . The court held that the GATT exemption did not apply because the equipment to be purchased was for use in the generation of electric power for resale. (Baldwin, supra, 208 Cal .App . 2d at p. 819 . ) The court held that tGATT provisions prohibiting discrimination against foreign goods "superseded" the contract proposal ' s provi - sions requiring products of domestic origin. (Id. at p. 820. ) In Bethlehem, the court of appeal did not acknowledge the express exemption for governmental agencies contained in GATT. The opinion only refers to Baldwin in a footnote which construes , incorrectly, we believe , one of Baldwin' s holdings . (Bethlehem, supra, 276 Cal .App. 2d 221 , 227 , fn. 9 .T We believe that Bethlehem' s holding is based on faulty reasoning, since it never discusses the exemption which GATT provides for governmental agen- cies . Nevertheless , Bethlehem constitutes the current law in California on this point , and its holding is binding on superior courts and the County. Claude L. Van Marter -4- December 9 , 1987 2UESTION J2 : What legislative or judicial steps could be �Yr.r#band as taken in California to permit the County to give preferences to domestically produced products in its contracts? ANSWER #2 : Judicial . Despite our belief that Bethlehem is erroneously reasoned, there is no legal way for the County to ask an appellate court to review its prior decision and to disapprove or modify it . Appellate decisions are rendered in the course of appeals from actual trial court judgments . Alternatively, we do not recommend that the County publish a contract proposal providing that only goods of domestic origin should be used and furnished thereunder , and thereby invite liti - gation. On appeal the County would be defending the constitu- tionality of the California Buy American Act (Gov. Code , S 4300 et seq. ) , which was expressly found to be unconstitutional in Bethlehem in 1969. While nobody can predict with certainty how a rwrwraaarn+.m court might rule in any case , we believe that the county would have a better chance of prevailing if its attempt to give pre- ference to domestic products were based on authority provided by new legislation, rather than on that provided by a now- unconstitutional law. Legislative. We believe that the County' s attempt to give preferences to domestic products in its contracts is most likely to withstand judicial scrutiny if that action is authorized by a new legislative grant of power to do so . Such legislation should follow the wording of the GATT provision quoted above , and it should contain findings which expressly declare that it is enacted under the authority of GATT. If there is a court challenge to a local agency' s attempt to give a preference under the new legislation, the appellate court which ultimately rules on its unconstitutionality will then be likely to address the issue of the GATT exception' s applicability, which issue was overlooked by the Bethlehem court . In that event a holding more like that in K.S.B. might be anticipated. PM: tb attach . 1 GENERAL AGREEMENT ON TARIFFS AND TRADE—OCT. 30, 1947 645 ,ng from ' indirectly to like products of national origin. Moreover, in cases in which ting party there is no substantial domestic production of like products of national origin, Ing in the ap- no contracting party shall apply new or increased internal taxes on the prod- the matter ucts of the territories of other contracting parties for the purpose of affording the latter agrees protection to the production of directly competitive or substitutable products first contracting which are not similarly taxed; and existing internal taxes of this kind shall ! because a court be subject to negotiation for their reduction or elimination. product involved I17he;products,of the'.territor' of any contracting party imported into ng party so as to the,territoryof`any otliei contracting.par y'shall lie"accorded treatment no two contracting -`less favourable.than that accorded to like products of.national origin in respect. ntially interested, hof,all.lawsi,iegulations:and regitirern6j,s-affecting their internal sale,offering a compensatory -for_sale,_purchase,.transportation,.distribution,onus.-`The provisions of this paragraph shall not prevent the application of°differential transportation Schedules relat- i charges which are based exclusively on the economic operation of the means Monetary Fund, of transport and not on the nationality of the product. iintained by such 3. In applying the principles of paragraph 2 of this Article to internal rency at the par quantitative regulations relating to the mixture, processing or use of prod - t the date of this ucts in specified amounts or proportions, the contracting parties shall observe comistently with the following provisions: Fund by more F (a) no regulations shall be made which, formally or in effect, require s and margins of that arty specified amount or proportion of the product in respect of which .on; such regulations are applied must be supplied from domestic sources; h adjustments parties such (b) no contracting party shall, formally or in effect, restrict the mixing, such adjustments processing or use of a product of which there is no substantial domestic n the appropriate production with a view to affording protection to the domestic production Bing taken of allof a directly competitive or substitutable product. ,-uch adjustments. ting party nota 4. The provisions of paragraph 3 of this Article shall not apply to: contracting party (a) any measure of internal quantitative control in,force in the territory :hange agreement of any contracting party on July 1, 1939 or April 10, 1947, at the option ? of that contracting party; Provided that any such measure which would be made an integral in conflict with the provisions of paragraph 3 of this Article shall not be 1 modified to the detriment of imports and shall be subject to negotiation for its limitation, liberalization or elimination; (b) any internal quantitative regulation relating to exposed cinemat- ograph films and meeting the requirements of Article IV. �. I ... k,/OW 5:'The provisions of this Article"shall not;apply" "the'proeurement by 4egulation ,governmental agencies of products purchased-_for. governmental purposes 'and not for resale or use in-the production,of,goods'for sale,'nor shall'they l or m internal taxes" 5 prevent the payment "to domestic producers only of subsidies provided for applied directly or under Article XVI, including payments to domestic producers derived from the proceeds of internal taxes' or charges and subsidies effected through t governmental purchases of domestic products.