Buy American Restrictions, Threat to Opening Procurement?

A new “Buy American Act” restriction passed by the U.S. House of Representatives could undermine the ability of the U.S. to negotiate access to new procurement markets for U.S. firms.

On May 30, 2014, Inside U.S. Trade reported that the U.S. House of Representatives had passed legislation intended to block U.S. procurement negotiations. The provision, an amendment to the 2015 Commerce, Justice, Science and Related Agencies Appropriations Act (H.R. 4660), would prohibit the use of funds “to negotiate an agreement that includes a waiver of the ‘Buy American Act’”. According to the Washington Trade Daily (June 2, 2014), the sponsor of the amendment argued that the Buy American Act of 1933 (BAA) should be excluded from any trade negotiations. If this amendment were included in the final appropriations bill and becomes law, it could well undermine, if not reverse, the authority that the Congress gave the President in 1979 to waive discriminatory purchasing requirements in order to implement procurement agreements. It may also deprive U.S. firms of access to new procurement markets and renew fears of a U.S. retreat on procurement.

Congress gave the President authority in the Trade Agreements Act of 1979 (TAA) to waive discriminatory purchasing requirements in order to implement U.S. procurement obligations under trade agreements. As discussed in a recent posting, this TAA authority has been used to waive only two of the numerous discriminatory purchasing requirements that Congress has enacted. The more prominent of the two is the domestic preference in the Buy American Act, which applies to goods purchased by federal agencies. Over the past 35 years, the U.S. has used this authority to waive the domestic preference in the Buy American Act in exchange for access for U.S. goods, services and suppliers to the procurement markets in 57 countries or economies.

Further expansion of foreign procurement markets may be curtailed if the House-passed legislation becomes law and the U.S. is unable to open up federal procurement of goods by waiving the Buy American Act preference. For the Trans-Pacific Partnership (TPP), the U.S. would likely lose its leverage to open up the government procurement of Malaysia and Vietnam or to gain rights to participate in government procurement in Brunei Darussalam and New Zealand. The U.S. has already waived the Buy American Act for the other seven parties to the TPP to implement obligations under the WTO Government Procurement Agreement (GPA) or free trade agreements (FTAs).

For the Transatlantic Trade and Investment Partnership (TTIP), enactment of the House bill would undermine the ability of the U.S. to extend its coverage of federal agencies in exchange for comprehensive access to central government entities in the European Union. The losers in both sets of negotiations would be U.S. suppliers.

Furthermore, the legislation raises the specter that the U.S. is once again wielding the “buy American” shield. This new bill has echoes of the stimulus legislation adopted by the House of Representatives in January 2009, the American Recovery and Reinvestment Act of 2009 (ARRA). The ARRA included a “buy American” provision that required the use of U.S.-produced iron, steel and manufactured goods in projects that used ARRA funding. When the House of Representatives passed the ARRA legislation, its version of the bill applied to procurement covered under international agreements. That provision prompted a large outcry from U.S. trading partners. They argued that such a provision would violate U.S. commitments under the GPA and FTA to not discriminate in U.S. procurement covered by those agreements.

Fortunately, when the Senate took up the House-passed bill, it added an amendment that required the “buy American” provision to be applied in a manner consistent with U.S. obligations under international agreements. That amendment was adopted as part of the final legislation, which was signed by President Obama in February 2009. Thus, when ARRA funds were used in a project that was covered by a trade agreement, goods from parties to those agreements did not have to meet the “buy American” requirement.

While the ARRA amendment ensured U.S. compliance with its trade obligations, the ARRA “buy American” requirement applied to a broad array of programs that channeled federal funds to states and other sub-federal entities. Its impact created a wariness of U.S. use of “buy American” restrictions. As a consequence, both the EU, in the TTIP negotiations, and Canada, in the TPP negotiations, are seeking a U.S. commitment to curb the future use of “buy American” provisions in federal funding to non-federal entities.

The restriction on procurement negotiations should be removed before the final legislation is adopted to ensure that the U.S. is able to continue to negotiate new market opportunities for U.S. goods, services and suppliers.

Jean Heilman Grier

June 2, 2014

Related Postings

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

Comprehensive Coverage of Central Government Procurement in TTIP?

Does TPP Procurement Success Depend on Four Markets?

Trade Agreements Act of 1979: Broad Authority, Narrow Application

TTIP and “Buy America” Requirements