On August 10, 2021, the U.S. Senate passed an infrastructure bill, the Infrastructure Investment and Jobs Act, which authorizes $1 trillion in spending on a broad range of infrastructure projects. Its 69-30 vote was “overwhelmingly bipartisan.” The bill contains a number of “Buy America” provisions, including a section entitled the “Build America, Buy America Act.’’ These provisions build on “Buy America” measures proposed by the Biden administration, beginning with the president’s “Made in America” order. The legislation imposes a domestic preference on all infrastructure projects that receive federal funding. This post examines key “Buy America” provisions in the legislation and their implications for trade agreements, in particular, on the potential expansion of U.S. coverage of such projects under agreements.
The “Buy America” provisions require every federal agency, within 180 days of enactment of the legislation, to impose a domestic preference on every infrastructure project that receives federal funding. Agencies cannot provide federal financial assistance for a project “unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” This constitutes an expansion of domestic preferences for infrastructure projects. Previously, domestic preferences were generally applied to specific types of infrastructure projects, especially transportation. When the American Recovery and reinvestment Act of 2009 (ARRA) imposed a broad domestic preference, it limited its application to infrastructure projects funded by ARRA. The new infrastructure package does not include any such limitation. Rather, it imposes the requirement on all federally funded projects.
The bill provides three definitions of “produced in the U.S.” For iron or steel products, all manufacturing processes – from the initial melting stage through the application of coatings – must take place in the U.S. For manufactured products, the product must be manufactured in the U.S. and the cost of the components of the manufactured product that are mined, produced or manufactured in the U.S. is greater than 55% of the total cost of all components (unless another standard applies). Finally, all manufacturing processes for construction materials must occur in the U.S.
The legislation provides for waivers of the domestic preference, namely that application of the preference would be inconsistent with the public interest, the products are not produced in the U.S. in sufficient and reasonably available quantities or of a satisfactory quality or inclusion of American-made products would increase the cost of the overall project by more than 25%. Before issuing a waiver, an agency must publish the proposed waiver on both its own website and one designated by the Office of Management and Budget (OMB) and provide 15 days for public comments on it.
The infrastructure bill’s “Buy America” requirements will not apply to infrastructure projects covered under the WTO Government Procurement Agreement (GPA) or free trade agreements (FTAs). The bill’s provision that such requirements must be applied in a manner consistent with U.S. obligations under international agreements is the same approach used in ARRA. This means that foreign firms can participate in infrastructure projects without complying with the “Buy America” preference, provided the project is covered under an agreement.
The U.S. only covers infrastructure projects that are undertaken by certain states and sub-federal entities under the GPA, FTAs and a 1995 U.S.-EU Memorandum of Understanding (MOU). However, for highways, mass transit and airport projects covered under the GPA or FTAs, the U.S. takes an exception for domestic preference. That means foreign firms can participate in such projects but must comply with the “Buy America” requirements.
The broader implication of the expansion of domestic preferences to all infrastructure projects that receive federal funds is that the U.S. would not likely be able to offer them in future procurement negotiations. If it did so, it would have to take an exception for the preference as it does for airport, highway and mass transit projects.
The infrastructure measure also revises the Buy American Act of 1933 (BAA) to add trade agreements and defense memorandum of understandings (MOUs) as exceptions to the BAA’s application. Other than making certain that the BAA does not apply to procurement covered under trade agreements, the purpose of this provision is not clear. Since the U.S. entered its first international procurement agreement in 1981 – the predecessor to the GPA, the U.S. Trade Representative’s (USTR) has issued a broad waiver of discriminatory provisions under the Trade Agreements Act of 1979, for GPA and FTA parties. The waiver is understood to apply to the BAA’s requirements and is so implemented in the Federal Acquisition Regulation (FAR).
The infrastructure measure directs USTR and OMB to assess the impact of the GPA and all U.S. FTAs on the operation of “Buy American” laws, including on the implementation of domestic procurement preferences. Their report, which is due 150 days after enactment of the law, must be made public. That directive contrasts with a similar report mandated by the former president, which was never made public.
The new legislation also directs OMB to issue guidelines “to standardize and simplify how Federal agencies comply with, report on, and enforce the Buy American Act.” They must include guidance for determining when the acquisition of American-made products would be inconsistent with the public interest. The legislation, as in the Biden “Made in America” order, requires federal agencies, before granting a waiver in the public interest, to assess whether a significant portion of the cost advantage of a foreign product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron or manufactured goods.
The legislative measure also requires OMB to establish a Made in America Office, which Biden had established in his “Made in America” order. It directs that office to report on the procurement of foreign products, including pursuant to a trade agreement or defense MOU. It also mandates other reports, including by agencies on federal financial assistance programs that are not consistent with the new legislation or apply a waiver of general applicability not limited to the use of specific products for use in a specific project.
Finally, the legislation includes a “sense of Congress” provision that the FAR should be amended to increase the domestic content requirements for domestic end products and domestic construction material to 75%, or, in the event of no qualifying offers, 60%.
The House of Representatives is expected to take up the infrastructure bill in late September.
Jean Heilman Grier
August 30, 2021