The japanese government, while still in the thick of the imported car dispute, dispatched its consul general from Atlanta last March to talk with a high-ranking American official about another trade problem.
The discussions weren't with the president or a member of his cabinet but with Virginia Gov. John N. Dalton, who was about to sign politically popular legislation intended to keep state projects from using steel from Japan and other foreign countries.
The State Department even entered the dispute, explaining in a letter that the legislation could create tensions among European and Japanese trading partners who already had complained about the bill, violate the spirit of the new Multilateral Trade Negotiations agreement and trample on federal authority to regulate foreign policy and commerce.
But a fight between states' rights and federal might rarely frightens Virginians, so the legislation was signed into law on March 20.
Dalton isn't the only governor upsetting the Japanese, European and U.S. governments. He and Maryland Gov. Harry Hughes are merely the latest in a list of governors who have signed laws that threaten to restrict $133 billion in procurement by state and local governments nationwide.
While public attention has focused on national protectionist efforts in the Japanese automobile and European steel disputes, one by one states have taken upon themselves the responsibility of protecting their own industries.
So far, restrictive procurement laws have been passed in 36 states, ranging from prohibitions against the purchase of any foreign-made products for state projects to allowances for American firms in state procurement bidding. This year, 18 such bills have been introduced in 11 state legislatures, with eight of them designed to protect local steel mills, according to recent State Department figures. The District of Columbia and 28 states have laws giving preference in state projects to domestic steel makers.
For example, Maryland legislators, dissatisfied with the extent of their 3-year-old Buy American steel law, this year passed a law to extend the preference to include machinery made from steel.
The laws have beem prompted by the emergence of protectionist sentiment over automobile and steel imports, the renewal of states' rights rhetoric by the New Right and, most of all, unemployment and subsequent revenue loss from declining industries in their states.
"The Japanese see it as a protectionist symbol," said a Virginia government spokesman. "They have more interest in protecting their trade routes."
State Department and U.S. trade officials claim the Buy America legislation jeopardizes their agreements with foreign countries and that control of foreign commerce is a federal, not a state, function. A major threat of the legislation, the State Department official said, is retaliation from trading partners.
"There's always the threat of retaliation," the official said. "I don't know it it's empty threats or not." The official added, "It comes up in high-level meetings very frequently."
An impetus for the recent complaints from foreign governments was the Multilateral Trade Negotiations government procurement code, which became effective in January.
"Code parties have agreed not to discriminate against foreign suppliers in a major portion of their federal government procurement," a letter from the State Department to Dalton said. "The code opens up an estimated $20.5 billion annually in heretofore closed government procurement markets overseas and should be of substantial benefit to Virginia with its . . . interests in export manufacturing and shipping."
The State Department letter included a note from the Delegation of the Commission of the European Community stating that "application of Buy American legislation on the state level creates an adverse climate for extension of the scope of the Government Procurement Code in the near future."
States, however, aren't bound by the code; only the federal government is.
The State Department also warned that Buy American laws are open to constitutional challenges. But so far no one has volunteered to file a case.
"What we would like is a court case to get the problem solved one way or another," a State Department official said. "The Japanese don't want a high profile. If a case is brought, the Justice Department would be willing to file a [friend-of-the-court] brief," probably against the states.
The states counter that the U.S. government has practiced Buy American preferences in government procurement since 1933, giving domestic bidders on most government contracts a 6 percent price preference, 12 percent for small businesses and 50 percent on Defense Department contracts. But the Trade Agreements Act of 1979 gives the president, starting this year, the authority to waive Buy American preferences for many government purchases.
In addition, some states claim they are protecting industries in their states because U.S. trade negotiators failed to make foreign markets more open to their products. For example, when Dalton visited Japan in April he was questioned by Japanese government officials about the Buy American legislation he had just signed. His retort, according to a state spokesman, was that as a beef and cattle farmer in Virginia, he was prohibited by Japanese trade barriers from selling his beef there.
The Virginia law grants a 10 percent preference to American-made steel in all public works projects exceeding $50,000.
Three years ago former Maryland governor Blair Lee signed a bill giving American firms a 20 percent preference on bids for steel contracts and a 30 percent differential if the domestic firm is located in an area with a surplus of labor.
Last month, Maryland Gov. Hughes signed a law extending the steel preference to some steel machinery. The state's largest private employer is the ailing Bethlehem Steel plant at Sparrows Point, which has a large financial impact on Baltimore, Baltimore County and the entire state.
"There's a history of protectionist feeling in the steel industry," said an aide to Hughes. "This is one way of getting the state legislature to do something for the home industry. But nowhere in this law does it say steel has to be bought from Bethelem Steel."
What's behind the big push for steel protection by states isn't just the financially strapped condition of many of the nation's steel companies, but a major 13-year lobbying effort by the American Iron and Steel Institute.
"Steel is the single most important commodity in public works projects, 17 cents of every dollar," said Bruce Davis of the American Iron and Steel Institute. "We noted that every world trading partner required that national goods be included in their public works projects."
In addition, state Buy American laws stimulate employment and tax revenues, Davis said. He added that federal, state and local governments purchase 14 million tons of steel annually in a country that consumes 100 million tons a year. Davis said perhaps 16 percent of the total U.S. market in steel has been captured by foreign suppliers.
Dalton was lobbied by the major coal-producing states to sign the legislation because the coal industry is close tied to the fate of the steel industry. "He simply felt that he would be best serving the needs of Virginia by signing" the legislation, the state spokesman said.
All of Davis' efforts, however, haven't been so successful lately. A law in Delaware has been hotly contested in the state legislature, and Gov. Pierre S. DuPont IV has threatened to veto it. New York Gov. Hugh Carey in March vetoed a steel Buy American bill, and similar legislation in Iowa and Washington has died.
Still being considered, according to State Department statistics compiled last month, are steel bills in California and Oregon, Buy American auto legislation in Missouri and general Buy American proposals in Florida and Missouri.
But Davis said he will continue to lobby until the remaining 21 states without Buy America laws come into his fold. And if protectionist sentiment continues, he may succeed.