NY’s “Groundbreaking” Buy American Legislation

New York Governor Andrew Cuomo is proposing a Buy American bill that would be “groundbreaking”, the strongest state mandate for the purchase of American-made products. The NY legislation would require all state agencies to give preferences to domestic products in purchases above $100,000. In 2016, the New York legislature rejected similar – but less onerous legislation – following opposition from the business community and foreign trading partners, including the European Union. But, this year may be different since the Governor is vigorously supporting the measure. If enacted, it could set a precedent for other states.

The proposed “New York Buy American Act” would require all state agencies to give preferences to products that are “manufactured in America”, that is products that are mined, grown or produced in whole or substantial part within the United States. Two requirements would be imposed on products that incorporate components: their manufacture or final assembly would have to take place in the U.S. and more than 60% of their components (by cost) would have to be of U.S. origin. These requirements also apply to sub-components.

As in 2016, the business community strongly opposes the latest forced localization legislation. On February 16, in a letter to the NY Governor and state legislators, 30 business organizations, including state and local groups as well as national organizations, such as the National Foreign Trade Council and the Organization for International Investment, called for the Buy American provisions to be stripped from NY’s 2018 budget. They emphasized that the domestic content requirements would undermine companies that rely on cross-border supply chains, imposing the greatest burden on small businesses that “are less capable of reinventing their supply chain and manufacturing networks” to meet a new localization mandate.

The proposed measure allows for several exemptions, including where a U.S.-made product cannot be produced in sufficient quantities or of satisfactory quality or at a reasonable cost. In addition, and particularly important from the trade perspective, the proposed legislation would allow a state official to exempt procurement where a reciprocal trade agreement or treaty has been negotiated by the U.S. government, on behalf of or including New York, with a foreign nation or government that requires nondiscriminatory governmental procurement practices or policies. The legislation further provides that the Buy American provision is not “intended to contravene any existing treaties, laws, trade agreements, or regulations of the United States”.

These provisions appear to provide authority for New York officials to comply with the State’s obligations under the WTO Government Procurement Agreement (GPA) and eight free trade agreements (FTAs). Under those agreements, New York is not allowed to favor domestic suppliers in procurement by its state agencies, state university system, public authorities and public benefit corporations. This obligation applies to state purchases with a value at or above $522,000 for goods and services and $7.36 million for construction projects.

Notwithstanding an apparent savings provision for international agreements, the latest NY measure would represent an unprecedented extension of Buy American requirements at the state level. The industry letter pointed out that: “No other U.S. state has ever sought to cast such a wide web affecting billions of dollars in annual purchases and thousands of contracts”. Since the trade agreements are only triggered when purchases reach  $522,000, extensive state procurement could be subject to the domestic content mandate under the low NY threshold.

With a new Administration in Washington making “Buy America” one of the cornerstones of its trade policy, adoption of extensive domestic content legislation by a major state like New York could encourage other states to pursue similar legislation.

Jean Heilman Grier

February 21, 2017

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