Federal Domestic Content Restrictions on State & Local Projects

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[Next posting will be on August 25, 2014]

An earlier posting outlined U.S. treatment of domestic content requirements that apply to states and other sub-federal entities as a condition of federal loans or grants. This posting will examine the evolution of those requirements.

Domestic content requirements have long applied to federal government procurement, with the Buy American Act of 1933 as the centerpiece. In 1978, the U.S. Congress began to extend domestic content requirements to state and local projects undertaken with federal funds. Those requirements, which are often referred to as “Buy America” requirements, have applied specifically to iron and steel, as well as to manufactured products, used in non-federal infrastructure projects.

Restrictions on Department of Transportation Funds: The U.S. Department of Transportation (DOT) administers the most extensive set of Buy America provisions in the funding that it provides for highway, transit, railway and airport projects. Those restrictions are often collectively referred to as the “Buy America Act” (to be distinguished from the federal Buy American Act). DOT has posted a useful overview of its programs in a Side-by-Side Comparison on its website.

The Buy America requirements in the DOT programs have certain common characteristics. They require the use of U.S.-produced iron, steel and manufactured products (with 100% domestic content) in the transportation projects that DOT funds. The Secretary of Transportation may waive the requirement based on a finding that it would be inconsistent with the public interest, the non-availability of domestic materials and products or the inclusion of domestic materials would increase the cost of the overall project by more than a certain percentage, generally 25%.  Differences in the DOT programs are summarized below.

Federal Highway Administration (FHWA) Funds: The FHWA has imposed several limitations on the domestic content requirement that applies to the projects that it funds. In 1983, it used its rulemaking authority to determine that the Buy America requirement did not apply to raw materials and waived application of the requirement for manufactured products based on a public interest finding. In 1995, the FHWA issued a nationwide waiver for iron ore and pig iron due to a lack of adequate domestic supply.

Federal Railroad Administration (FRA) Funds: FRA grants under the High Speed Rail Program require the financed projects to apply the domestic content requirements where the project costs exceed $100,000. In addition to the exceptions that apply to all DOT programs, the DOT Secretary may waive the requirement where rolling stock or power train equipment cannot be bought and delivered in the U.S. within a reasonable time.

Federal Transit Administration (FTA) Funds: In FTA-funded projects, 60% of the components of buses and other rolling stock must be manufactured in the U.S., in contrast to the 100% requirement in other DOT projects. Waivers based on unreasonable costs may be issued where the domestic item or material would increase the cost of the contract between the grantee and the supplier of the item or product by more than 25%. For buses and other rolling stock (including train control, communication and traction power equipment), the Buy America requirement does not apply if the cost of U.S.-produced components would be more than 60% of the cost of all components and final assembly takes place in the U.S.

Federal Aviation Administration (FAA) Funds: Certain funds administered by the FAA may only be used for an airport project if U.S.-produced steel and manufactured goods are used in it. In contrast to other DOT-funded projects, it does not require the use of U.S.-produced iron. In addition to the waivers available for all DOT projects, a waiver may be granted for a facility or equipment funded under the Airport and Airway Improvement Act of 1982 where the cost of U.S.-produced components and subcomponents is more than 60% of the cost of all components of the facility or equipment, and final assembly of the facility or equipment takes place in the U.S.

None of these Buy America requirements are waived under the Trade Agreements Act of 1979. Instead, the U.S. takes an exception for them in the WTO Government Procurement Agreement and free trade agreements (FTAs) for procurement subject to such requirements. The European Union has cited access to these procurements as an EU priority in the Transatlantic Trade and Investment Partnership (TTIP) negotiations.

Environmental Protection Agency (EPA) Funds: EPA grants to sub-federal authorities for wastewater treatment projects require the use of U.S.-produced articles, materials and supplies. The EPA Administrator may waive the requirement using public interest, non-availability or unreasonable-cost determinations.

American Recovery and Reinvestment Act of 2009 (ARRA): ARRA required U.S.-made iron, steel and manufactured goods to be used in a wide array of public projects funded by the Act. It applied to numerous state and other sub-federal projects that had not been previously subject to such requirements. They included projects funded through the Departments of Agriculture, Energy, and Housing and Urban Development. To meet trading partner complaints that such requirements would violate U.S. trade agreement obligations, projects covered by international trade agreements were excluded from the requirement.

As discussed in a recent posting, Canada and the European Union have raised concerns with new legislation in 2014 that include more Buy America requirements attached to federal funding.

Jean Heilman Grier

Aug. 4, 2014

Related Posts

“Buy American” Requirements in Federal Financial Assistance to Sub-federal Entities

Canada Registers Concerns with New Buy America Legislation Backgrounder

Trade Implications of Buy American Act of 1933 Backgrounder