Defense Bill Could Provide Amazon With $53 Billion Government Procurement Market

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    An online portal procurement provision in the National Defense Authorization Act (NDAA) of FY 2018 could likely secure Amazon significant government purchasing power, further — and unfairly — bolstering Amazon’s burgeoning monopoly, according to a letter from the American Booksellers Association to leading lawmakers. ABA is urging Senate and House leadership to remove the provision before the bill is signed by the president.

    “A significant reason for Amazon’s growth is because of its lobbying efforts to garner tax subsidies and incentives from government and because, for far too long, states allowed Amazon to shirk its responsibility to collect and remit sales tax — giving it an advantage over Main Street retailers,” ABA Director of Public Policy and Advocacy David Grogan stressed in the letter, which was sent to U.S. Senators John McCain (R-AZ) and Jack Reed (D-RI), chairman and ranking member of the Senate Armed Services Committee, respectively; Senators Mitch McConnell (R-KY) and Chuck Schumer (D-NY), majority and minority leaders of the Senate, respectively; Representative Mac Thornberry (R-TX, chairman of the House Armed Services Committee); Speaker Paul Ryan (R-WI); House Majority Leader Kevin McCarthy (R-CA); and House Minority Leader Nancy Pelosi (D-CA).

    The letter further points out that “Amazon has secured at least $1.1 billion in public incentives to fund its rapid expansion, according to data compiled by Good Jobs First, a national policy resource center for grassroots groups and public officials. Its lobbying efforts to insert Section 846 into NDAA is yet another of its attempts to gain an unfair advantage over its smaller competitors.”

    Section 846 looks to send federal procurement of commercial off-the-shelf items, a $53 billion market, to e-commerce portals. The Section initially stipulated online marketplaces, but after a number of experts criticized the provision as the “Amazon amendment,” language in the provision was changed just this past week during the House-Senate conference committee. Most notably, online marketplaces were changed to e-commerce portals. Also added is that the only requirements for qualified portals are that they are “widely used in the private sector” and offer typical features of e-commerce sites, such as updated selection, reviews, and customer service, as reported by the Intercept.

    But as the Intercept points out, “critics still see the program as tailor-made for Amazon to dominate.” For one, Amazon is responsible for almost half of all e-commerce sales and government officials are as “likely to lean on Amazon as any other consumer, especially because of the array of third-party sellers supplying at least a semblance of competition in one site.” And ironically, even if government officials use smaller sellers, many of them use Amazon’s platform, so the online giant will benefit from those sales as well since it gets a fee from smaller sellers using its platform.

    “This amendment looks like it will crown Amazon as an official gatekeeper to government procurement,” Lina Khan of the Open Markets Institute told the Intercept. “Government spending that was previously dispersed across hundreds of distinct companies will now instead all be channeled through one company, with Amazon collecting a tax.”

    In ABA’s letter to legislators, Grogan concluded: “Time and again, our Main Street bookstore members hear lawmakers declare their support for small businesses, stressing they are the engines of our economy. Unfortunately, all too often these same small businesses have seen their elected officials fail to take the actions necessary to back up their words.”

    As of press time, the House passed the National Defense Authorization Act.

    The letter can be read in full below.


     

    The Honorable John McCain
    Chairman
    United States Senate Committee on Armed Services
    Russell Senate Building, Room 228
    Washington, DC 20510

    The Honorable Jack Reed
    Ranking Member
    United States Senate Committee on Armed Services
    Russell Senate Building, Room 228
    Washington, DC 20510

    The Honorable Mac Thornberry
    Chairman
    U.S. House of Representatives Committee on Armed Services
    2216 Rayburn House Office Building
    Washington, DC 20515

    The Honorable Adam Smith
    Ranking Member
    U.S. House of Representatives Committee on Armed Services
    2216 Rayburn House Office Building
    Washington, DC 20515

    The Honorable Paul Ryan
    Speaker of the House
    H-232 The Capitol
    Washington, DC 20515

    The Honorable Kevin McCarthy
    House Majority Leader
    2421 Rayburn House Office Building
    Washington, DC 20515

    The Honorable Nancy Pelosi
    House Minority Leader
    233 Cannon House Office Building
    Washington, DC 20515

     

    Dear Chairman McCain, Ranking Member Reed, Chairman Thornberry, Ranking Member Smith, Speaker Ryan, House Majority Leader McCarthy, and House Minority Leader Pelosi:

    On behalf of our independent bookseller members across the country, the American Booksellers Association is writing to strongly urge you to remove Section 846 (Section 801 prior to the Conference Committee edits) from the National Defense Authorization Act (NDAA). Section 846, if enacted, would effectively hand significant government purchasing power to Amazon and a few other large corporate retailers at the expense of small businesses, states, and communities nationwide.

    The government should not be in the business of picking favorites among competing businesses — but should allow the free market to decide winners and losers. Section 846 would firmly put the government’s thumb on the scale in favor of Amazon. We strongly request that the provision be removed from NDAA.

    Section 846 would establish a “program to procure commercial products through commercial e-commerce portals for purposes of enhancing competition, expediting procurement, enabling market research, and ensuring reasonable pricing of commercial products.” This would include multiple contracts with multiple commercial e-commerce portal providers, it further states, with the objective of enabling government-wide use of such portals.

    There is no question that, as currently written, the provision will end up benefiting Amazon unfairly and above all other retailers, since Amazon is the leading e-commerce portal. Legal expert Lina Khan of the Open Markets Institute noted that the “amendment looks like it will crown Amazon as an official gatekeeper to government procurement. Government spending that was previously dispersed across hundreds of distinct companies will now instead all be channeled through one company, with Amazon collecting a tax.”

    And while the provision states that using online portals can satisfy small business purchasing requirements, since Amazon charges third-party sellers for use of its platform, it nonetheless means a significant portion of what small business earn from government-spending will benefit Amazon’s bottom line, as noted by the Intercept.

    As such, Section 846 would negatively impact communities and state economies — and the health of the book industry — by further bolstering Amazon’s troubling increasing dominance in the U.S. economy. Rather than producing a national net gain, Amazon sales produced a net loss of 222,000 retail jobs in 2015, an increase of 29 percent over 2014, when it produced a net loss of 172,000 retail jobs, according to a study conducted by Civic Economics. Proposed deals, such as the one described in Section 846, would only compound these job losses.

    Moreover, Amazon’s dominance in the book industry cannot be overstated. Amazon has as large a market share in the entire book business as Standard Oil did in 1911, right before it was broken up into 34 companies as a result of an antitrust action brought by the federal government. Amazon now controls 75 percent of online sales of physical books, 65 percent of e-book sales, more than 40 percent of new book sales, and about 85 percent of self-published e-book authors.

    A significant reason for Amazon’s growth is because of its lobbying efforts to garner tax subsidies and incentives from government and because, for far too long, states allowed Amazon to shirk its responsibility to collect and remit sales tax — giving it an advantage over Main Street retailers. Amazon has secured at least $1.1 billion in public incentives to fund its rapid expansion, according to data compiled by Good Jobs First, a national policy resource center for grassroots groups and public officials. Its lobbying efforts to insert Section 846 into NDAA is yet another of its attempts to gain an unfair advantage over its smaller competitors.

    Stacy Mitchell of the Institute for Local Self Reliance, a nonprofit organization and advocacy group that provides technical assistance to communities about local solutions for sustainable community development, told The Hill that the provision could allow Amazon to gain a monopoly or duopoly on the profitable world of commercial government purchases. This, she said, would unfairly leave smaller businesses behind and “would further consolidate the behemoth tech firm’s power,” The Hill article explained.

    There is no question that Section 846 would accelerate the transfer of more and more government spending to Amazon. Furthermore, Amazon recruited outside firms to help it influence policymakers on the matter, as reported by The Hill. Disclosure filings made by lobbying firm TwinLogic Strategies, made on behalf of Amazon as its client, do not specify the exact legislation that they tried to influence, but note that they focused on the “modernization of the procurement process,” the article stated.

    With the amendment in NDAA, it is perhaps no coincidence that last week, Amazon introduced Amazon Business Prime to sell business-to-business, according to media reports.

    Time and again, our Main Street bookstore members hear lawmakers declare their support for small businesses, stressing they are the engines of our economy. Unfortunately, all too often these same small businesses have seen their elected officials fail to take the actions necessary to back up their words.

    Bricks-and-mortar retailers employ 47 people for every $10 million in sales, according to an analysis by ILSR of U.S. Census data. (If you exclude chains and look just at independent retailers, the figure is even higher — 57 jobs.) But Amazon employs only 14 people per $10 million in revenue. As Amazon grows and takes market share from other retailers, the result is a decline in jobs. 

    We urge you to stand up for independent bookstores and all Main Street retailers. Section 846 has no business in any bill and should be removed before the NDAA is signed into law.

    We would be happy to speak with you on this issue at your convenience.

    Sincerely,

    David Grogan, Director, Public Policy & Advocacy
    American Booksellers Association
    333 Westchester Ave, S202
    White Plains, NY 10604

    cc: The Honorable Mitch McConnell
    U.S. Senate Majority Leader
    United States Senate
    Washington, D.C. 20510

    The Honorable Chuck Schumer
    Senate Minority Leader
    United States Senate
    Washington, DC 20515