Trade Agreements Act of 1979: Broad Authority, Narrow Application

Although the Trade Agreements Act provides the President with broad authority to waive discriminatory purchasing requirements, in practice the waiver has limited application.

Under the WTO Government Procurement Agreement (GPA) and free trade agreements (FTAs), the United States has committed to open its government procurement to 57 countries or economies on a non-discriminatory basis. With respect to the goods and services covered by these agreements, the U.S. must treat the goods, services and suppliers from the 57 parties in a manner comparable to U.S. goods, services and suppliers. To enable the U.S. to implement this requirement, the U.S. Congress enacted the Trade Agreements Act of 1979 (TAA). That Act, on its face, provides the President with broad authority to waive discriminatory purchasing requirements for procurement that the U.S. covers under international agreements. But, in practice, this authority is very limited.

The Act authorizes the President to waive “the application of any law, regulation, procedure, or practice” that would, if applied to goods, services or suppliers of GPA or FTA parties, result in treatment that was less favorable than that accorded to U.S. goods, services or suppliers. This authority would appear to cover any law or measure with “buy American” provisions that require or encourage federal agencies to give preferences to U.S. goods or services in their procurement.

In practice, this TAA authority is narrowly circumscribed. First, the Act qualifies its broad grant of authority to the President by expressly stating that it cannot be used to waive “any small business or minority preference.” Such preferences cover almost a quarter of U.S. federal procurement. The Small Business Act of 1953 requires the federal government to set-aside a certain amount of procurement for U.S. small and minority businesses. The current target for these set-asides is 23% of federal procurement. Since the U.S. cannot waive this requirement for procurement covered by its trade agreements, it must exclude these sets-asides from its commitments. In doing so, the U.S. defines a set-aside broadly to include any form of preference.

Second, the President’s waiver authority has been applied to only two of the numerous discriminatory purchasing requirements that the Congress has enacted over the years, the Buy American Act of 1933 and the U.S. Department of Defense’s (DoD) Balance of Payments Program. The Buy American Act of 1933 (BAA) restricts U.S. government purchases to U.S.-made supplies and construction materials for use inside the United States, unless an exception applies. DoD’s Balance of Payments Program applies similar restrictions to DoD purchases of supplies and construction materials for use outside of the U.S.

The importance of the TAA waiver of the BAA cannot be discounted because it is the best-known U.S. domestic preference program and is often cited by trading partners as evidence that the U.S. procurement system is not open. However, the TAA waiver does not affect numerous other laws that require preferences for U.S. goods, services or suppliers. With respect to these other domestic purchasing requirements, the U.S. must exclude the procurement subject to them from its obligations under the GPA and FTAs. An earlier posting describes the procurement that the U.S. excludes from its procurement agreements.

Finally, the treatment of a “buy American” requirement in the American Recovery and Reinvestment Act of 2009 (ARRA) illustrates that the TAA does not apply to new domestic purchasing restrictions. The ARRA required the use of U.S.-produced iron, steel and manufactured goods in projects that used ARRA funding. It provided three exceptions that commonly accompany “buy American” requirements: when use of U.S.-produced iron, steel and manufactured goods would be inconsistent with the public interest; when such goods are not produced in the U.S. in sufficient and reasonably available quantities or of satisfactory quality; or when it would increase the cost of the overall project by more than 25 percent.

Most important for U.S. commitments under trade agreements, ARRA directed that the “buy American” requirement be applied in a manner consistent with U.S. obligations under international agreements. That requirement meant that for procurements covered by trade agreements, the ARRA “buy American” requirement did not apply to the U.S. trading partners. Thus, the U.S. did not rely on the TAA waiver authority to exclude GPA and FTA partners from the application of the ARRA “buy American” requirement, but rather it included an explicit provision to exempt them.

Jean Heilman Grier

April 21, 2014

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