Buy American Report Due Soon

In response to an April presidential directive, the Secretary of Commerce is to present the President with a Buy American report by November 24. That report is to include “specific recommendations to strengthen implementation of Buy American Laws”. In preparing the report, the administration invited comments on the costs and benefits to U.S. industry of the WTO Government Procurement Agreement (GPA) and free trade agreements (FTAs) and the impact of those agreements on the operation of Buy American laws. Over 40 firms, business and trade associations, foreign governments and others submitted comments. This post focuses on the comments, and particularly the recommendations, of the advocates of maintaining and expanding Buy American requirements, in light of U.S. trade obligations.

Approximately half of the respondents focused their comments on support of existing Buy American requirements, contending that they were critical to their respective industries. A number of those comments came from the steel sector, a significant beneficiary of such requirements. Others pointed to the importance of the exclusion from trade agreements of Berry Amendment products, such as clothing and specialty metals, purchased by the Defense Department.

Their recommendations ranged from withdrawing from the GPA and FTAs or renegotiating them to eliminating waivers of the Buy American Act and expanding Buy American requirements to more state and local infrastructure projects. Several of the most significant requests and recommendations, with a brief consideration of their impact on U.S. trade obligations, follow:

  • Use presidential authority to eliminate the waiver of domestic preferences for trade pact partners. This refers to the authority provided by the Trade Agreements Act of 1979, which authorizes the president to implement procurement commitments by waiving domestic purchasing requirements. While that authority is broad, it has been narrowly applied to only the Buy American Act and the Defense Department’s Balance of Payments program. Eliminating the waiver would undermine U.S. compliance with its trade obligations.
  • Extend Buy America preferences to more infrastructure programs that receive federal assistance. This would apply to the types of projects funded by the 2009 American Recovery and Reinvestment Act (ARRA). The ARRA’s Buy American requirements did not run afoul of trade agreements because many ARRA-funded state and local projects were not covered under trade agreements; and ARRA exempted projects that were subject to trade obligations.
  • Extend Buy American laws to the acquisitions of contracting services, cement, aggregates, asphalt, labor, and items produced from other materials such as aluminum. Such an extension would not be consistent with U.S. trade obligations.
  • Cap foreign access to U.S. procurement, as the U.S. recently proposed in the negotiations of the North American Free Trade Agreement (NAFTA), to reflect the opportunities in the trading partner’s procurement market and the history of contracts actually obtained by U.S. firms.
  • Address loopholes in the Berry Amendment, such as its application above the Simplified Acquisition Threshold (currently set at $150,000). As the U.S. excludes products covered by the Berry Amendment from its trade obligations, modifications within the program should not affect compliance with U.S. trade obligations. However, any extension to additional products would likely be problematic.
  • Improve existing Buy American programs, including by harmonizing the various requirements. One concern cited was that in U.S.-funded infrastructure projects, the steel must be “melted” in the U.S., but under the Buy American Act, that is not required, as long as the steel products have been substantially transformed in the U.S. Since most Buy American requirements are excluded from U.S. procurement commitments under trade agreements, changes in them would not likely affect U.S. compliance with its obligations.
  • Renegotiate thresholds to reflect the increased cost of construction projects.

Several complained that trade agreements are not resulting in reciprocal market access, citing a Government Accountability Office (GAO) report. An earlier blog post addressed deficiencies in that report. They also contended that more and better data is needed to confirm the benefits of U.S. procurement market access concessions under international trade agreements.

On the other side of the ledger, a number of firms, major business and trade organizations, as well as several U.S. trading partners outlined the benefits of the GPA and FTAs and the costs of complying with existing Buy American requirements. They also set out concerns with the potential abandonment of existing agreements and expansion of the Buy American requirements and the potential retaliatory impact of strengthening domestic procurement preference policies.

At the recent meeting of the WTO procurement committee, the United States responded to concerns with the executive order that mandated the upcoming report by highlighting that the order states that nothing in its text shall be construed to impair existing rights or obligations under international agreements.

When the Commerce Department sends its Buy American report to the President, it should, in the interest of transparency, make it public.

Jean Heilman Grier

November 10, 2017

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