Congress has again imposed a domestic preference on the Department of Homeland Security’s (DHS) purchase of uniforms and other items related to national security interests. The provision in the National Defense Authorization Act (NDAA) for FY 2023 is reminiscent of the so-called Kissell Amendment in the American Recovery and Reinvestment Act of 2009 (ARRA), but with certain significant differences. The most important difference is that the NDAA requirement does not make any provision for the US to apply the preference consistent with its international agreement obligations. This post examines the new NDAA requirement and considers issues it may raise under the WTO Government Procurement Agreement (GPA) and free trade agreements (FTAs).
The 2023 NDAA, signed by President Biden on December 23, 2022, includes the Homeland Procurement Reform Act. That Act requires DHS to ensure, “to the maximum extent possible,” that no less than one-third of specified covered items that it purchases in a year are “manufactured or supplied in the United States” and by entities that qualify as small business concerns, as defined by the Small Business Act. That requirement applies to DHS’s procurement of uniforms; footwear; holsters and tactical pouches; patches, insignia, and embellishments; protective gear; and body armor for the various DHS units. Those units include the Transportation Security Administration (TSA), the Customs and Border Protection, the Federal Emergency Management Agency, and the Secret Service. The DHS secretary can waive the requirement if the president declares a national emergency or national disaster. (The requirement becomes effective six months after the NDAA’s enactment.)
This domestic preference requirement is contrary to the US obligation under the GPA and FTAs to provide national treatment to goods from its trading partners. US commitments under these agreements apply to DHS and all its units, except TSA’s procurement of textiles and apparel. The NDAA does not make any allowance for the US to comply with its international obligations.
The absence of an accommodation of US trade obligations contrasts with a domestic preference in ARRA. That 2009 law’s Kissell Amendment generally restricted DHS from procuring certain fibers, textiles and clothing directly related to US national security interests unless they were grown, reprocessed, reused or produced in the US. It required the domestic preference to be applied in a manner consistent with US obligations under international agreements. That meant DHS procurement of uniforms and other items covered by the GPA and FTAs were not subject to the domestic purchasing requirement, limiting the impact of the preference.
In 2017, the US Government Accountability Office (GAO) reported to Congress on DHS’s implementation and compliance with the Kissell Amendment and the policy’s effectiveness. GAO concluded the Kissell Amendment restriction affected “a limited number of procurements due to multiple factors and has not fully restricted DHS from purchasing textiles from foreign sources.” Among the factors, it pointed out that for most DHS units, their coverage under trade agreements limited the application of the Kissell Amendment to certain foreign textile procurements below the GPA threshold. Significantly, GAO also found that despite TSA’s exclusion from most agreements, it was still purchasing uniforms from foreign sources.
While US trading partners may raise the NDAA requirement as yet another example of US protectionism, they may conclude that its impact will be limited since it only applies to a third of DHS’s purchases of the covered items and TSA purchases are already excluded. Citing the Congressional Budget Office (CBO), the Government Executive reported that the agencies covered by the DHS measure “currently spend $100 million on 1,500 items annually.” CBO reportedly estimated that DHS would need to purchase 150 of those items from new sources to meet the requirements of the legislation. That office also estimated “that each item that is re-sourced from domestic small business manufacturers would cost about 100% more.”
If challenged by its trading partners, the US may seek to justify the reservation of procurement for small businesses as consistent with its obligations based on the US exclusion of procurement set aside for small businesses from the GPA and FTAs. Under the GPA, the US broadly defines a ‘set-aside’ in its commitments to include “any form of preference, such as the exclusive right to provide a good or service, or any price preference.”
The US might try to justify the NDAA preference under the national security exception in the agreements as relating to national security interests. However, such an argument would not seem very compelling given the preference’s limited application. In addition, in 2009, Congress allowed the procurement of such items from trade agreement partners.
Perhaps the more consequential element of the NDAA provision is that it breaks from a precedent initiated in 2009 in ARRA to allow the US to implement domestic preferences in a manner consistent with its international obligations. Most recently, such a provision was included in the 2021 Infrastructure Investment and Job Act’s far-reaching domestic preference for infrastructure projects.
Jean Heilman Grier
January 17, 2023