The Infrastructure Investment and Jobs Act (IIJA), which became law on November 15, 2021, imposes a new domestic preference on infrastructure projects undertaken by non-federal entities with federal financial assistance (grants). This post focuses on provisions in the IIJA that relate to international agreements in which the U.S. has commitments to provide national treatment to its trading partners in government procurement.
Beginning on May 14, 2022, federal agencies cannot provide federal funds to non-federal entities for an infrastructure project “unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” Unlike the domestic preference in the 2009 American Recovery and Reinvestment Act, which only applied to the infrastructure projects that it funded, the IIJA has no such limitation. Instead, it extends to all infrastructure projects undertaken by non-federal entities with federal financial assistance.
The IIJA’s domestic preference for infrastructure projects was examined in a webinar, “Buy American and the New U.S. Infrastructure Legislation”, which was organized by Professor Chris Yukins and presented by the George Washington University Law School, on January 19, 2022. (The webinar link includes extensive information on the legislation. Another good source of analysis of the IIJA’s “Buy America” provisions is Dustin Painter’s client advisory.)
Congress included several provisions relating to trade agreements in the IIJA. In its Findings for its Buy America Domestic Sourcing Requirements, Congress stated that domestic content procurement preference laws “are fully consistent with the international obligations” of the U.S. It also expressed the view that those laws “are important levers for ensuring that United States manufacturers can access the government procurement markets of the trading partners of the United States”.
Consistency with International Agreements: The IIJA’s most important provision relating to trade agreements is the requirement that its domestic preference be applied in a manner consistent with U.S. obligations under international agreements. That means that the preference does not apply to infrastructure projects covered under agreements and that foreign firms can participate in the projects without complying with them, provided the project is covered under an agreement.
The U.S. has implemented numerous trade agreements in which it has exchanged access to U.S. government procurement for access to foreign procurement, namely the WTO Government Procurement Agreement (GPA) and more than a dozen free trade agreements (FTAs). Under these agreements, the U.S. covers both direct procurement by federal agencies and procurement by certain state and several other sub-federal entities. The U.S. covers procurement of 40 states: 37 states under the GPA and FTAs with Chile and Singapore and fewer states under several FTAs. It also undertook obligations for three states, seven cities, and the Massachusetts Port Authority under a 1995 U.S.-EU Memorandum of Understanding. Under the GPA and FTAs with Chile and Singapore, the U.S. extended its commitments to the Port Authority of New York and New Jersey, the Port of Baltimore, and the New York Power Authority.
When these sub-federal entities undertake an infrastructure project with federal funding, the project will not be subject to the IIJA’s domestic preference, provided that it is above $7 million in value and it has not been excluded from the sub-federal entity’s commitments. Six states exclude construction services from their obligations: Arkansas, Hawaii, Kansas, Kentucky, Oklahoma, and Tennessee. In addition, a dozen states exclude construction-grade steel (including requirements on subcontracts): Delaware, Florida, Illinois, Iowa, Maine, Maryland, Michigan, New Hampshire, New York, Oklahoma, Pennsylvania, and Wyoming. However, the IIJA’s domestic preference applies to highways, mass transit, and airport projects because the U.S. excludes domestic purchasing restrictions for these projects from its GPA and FTAs commitments.
Exceptions to the Buy American Act: A second IIJA provision relating to trade agreements revised the Buy American Act of 1933 (BAA). It added trade agreements and defense memorandum of understandings to the list of exceptions to the BAA’s application, providing that the BAA does not apply to “any articles, materials, or supplies procured pursuant to a reciprocal defense procurement memorandum of understanding . . . or a trade agreement or least developed country designation described in subpart 25.400 of the Federal Acquisition Regulation” (FAR). That FAR provision lists the GPA and the U.S. FTAs. (With regard to the least developed country (LDC) designation, the U.S. Trade Representative (USTR) designates LDCs that are allowed to participate in federal procurement without meeting the BAA requirements.)
Since the U.S. entered its first international procurement agreement in 1981, it has waived application of the BAA based on authority provided by the Trade Agreements Act of 1979 (TAA). The TAA authorizes the president to waive discriminatory purchasing requirements for GPA and FTA parties. Although the TAA provides broad waiver authority, it has been applied narrowly. It has been understood to apply only to domestic preferences in the BAA and the Department of Defense’s Balance of Payments Program. The addition of the exception for trade agreements makes certain that goods covered by trade agreements are excluded from the BAA when purchased by federal agencies.
Assessment of Trade Agreements: The infrastructure law also directs USTR, the Secretary of Commerce, and the Office of Management and Budget to assess the impact of the GPA and all U.S. FTAs on the operation of Buy American laws, including their impact on the implementation of domestic procurement preferences. It further requires that their report, due by mid-April 2022, be made available to the public. That directive contrasts with a similar report mandated by the former president, which was never made public (or perhaps even completed).
Jean Heilman Grier
January 20, 2022