The Biden administration has proposed changes in the rules that implement the Buy American Act of 1933, in response to the president’s January 2021 Made in America order. The changes include increases in the domestic content threshold required for a product to be considered “domestic.” They build on increases ordered by former-President Trump. The administration has also requested public input on issues on which it may make proposals in the future, such as requiring price preferences for services and revising the domestic content required for trade agreement waivers. This post examines the proposed changes and other areas in which proposals may be forthcoming.
Since President Biden issued his Made in America order in January, the administration has been moving forward with its implementation. In June, the new Made in America Office issued guidance on the review of waivers of the Buy American Act and other Made in America laws with the overall aim of curtailing the use of waivers. As the next step, the Federal Acquisition Regulatory Council (FAR Council) has proposed a rule that would increase U.S. content in products that the federal government purchases.
The proposed rule would change the Federal Acquisition Regulation’s (FAR’s) implementation of the Buy American Act in three areas. First, it addresses the Act’s requirement that “substantially all” of the components of goods purchased by the federal government be made in the U.S. However, it notes that products could qualify as U.S.-made if just over half (55%) of the value of their component parts are manufactured in the U.S. (The Trump administration increased the amount from 50% to 95% for iron and steel products and to 55% for all other products.)
The proposed rule change would increase the domestic content threshold for determining whether a product can be considered “domestic.” It proposes an immediate increase of the threshold from 55% to 60% and a phase-in of two additional increases. It would increase it to 65% in two years and to 75% five years after the second increase. The proposal would also provide a “fallback threshold” that would allow products meeting a specific lower domestic content threshold to qualify as a domestic product under certain circumstances. According to the White House fact sheet, these changes “would close a problematic loophole in the current regulation, while also allowing businesses time to adjust their supply chains to increase the use of American-made components.”
The second set of FAR changes would establish a framework for applying “an enhanced price preference for a domestic product that is considered a critical product or made up of critical components.” The enhanced price preferences would apply to select critical products and components identified by the Critical Supply Chain review, mandated under Executive Order 14017 on American’s Supply Chains (EO 14017), and the pandemic supply chain strategy called for under Executive Order on a Sustainable Public Health Supply Chain (EO 14001). Those products will be determined in a separate rulemaking.
The final set of FAR changes would increase the information contractors have to report to the U.S. government after they are awarded a contract. Currently, they only report on whether they meet the domestic content threshold and not the total domestic content in their products. Under the proposed revision, they would have to provide the specific domestic content of critical items and domestic products that contain a critical component that were awarded under a contract.
Contrary to expectations, the FAR Council did not propose a replacement of the “component test,” which measures the domestic content of a product by the value of its components. (That test was redesignated the domestic content test in the revision of the FAR by the Trump administration.) It had been directed by the president to consider a new test that would measure “the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity.” Instead of proposing a new test, the FAR Council is seeking public comments on “how domestic content might be better calculated” and the strengths and shortcomings of the current test.
The FAR Council is also seeking comments on other issues such as services and trade agreements. On services, it is asking how the federal government could “promote the use of Made in America services” and whether there are critical services that should be accorded price preferences. To date, price preferences have only been applied to goods; extending them to services could be a major development.
While recognizing that U.S. trade obligations are beyond the scope of its current rulemaking, the FAR Council asks for comments on the “the impact of the substantial transformation test and potential lost opportunities for American workers.” That test is used to determine whether a product covered by the WTO Government Procurement Agreement (GPA) or a free trade agreement is eligible for a waiver under the Trade Agreements Act of 1979.
The agencies pointed out that “domestic content rules do not currently apply” to most non-Department of Defense purchases of goods over the $182,000 threshold in the GPA. They further noted that a purchase covered by the GPA is treated as U.S.-made if it is mined, produced or manufactured in the United States or is “substantially transformed” in the U.S. “even if it is made of 100 percent foreign content.” They expressed a concern that a U.S.-made product that is substantially transformed in the U.S. “may have far less domestic content when compared to a domestic end product acquired under the Buy American statute.”
Another issue on which the federal agencies are seeking comments is commercial information technology (commercial IT). Currently, purchases of commercial IT are exempt from the Buy American Act. Based on the directive in the Biden order to review the impact of this exception, they question the extent to which the exception is still relevant and whether “current marketplace conditions support narrowing or lifting” it. The agencies are also considering whether the waiver of the component test for commercially available off-the-shelf items should be continued.
Public comments must be submitted by September 28, 2021, and a virtual public meeting is set for August 26, 2021.
Jean Heilman Grier
July 29, 2021
UPDATE (July 30, 2021): This post was updated to add the link to the publication of the proposed rule in the Federal Register on July 30, 2021 and the deadline for public comments.