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

The U.S. has used different approaches in its procurement agreements with regard to domestic purchasing requirements attached to federal funds.

A recent posting examined U.S. treatment of “buy American” requirements that apply to federal government procurement covered under the WTO Government Procurement Agreement (GPA) or free trade agreements (FTAs). This posting examines the U.S. treatment of such requirements when they apply to states and other sub-federal entities, as a condition of  federal loans or grants.

In general, the U.S. has excluded financial assistance, including grants and loans, from its government procurement commitments under trade agreements. In some agreements, including the recent revision of the WTO Agreement on Government Procurement (GPA), the exclusion of financial assistance applies to all parties to the agreement. The revised GPA provides that: “Except where provided otherwise in a Party’s annexes to Appendix I, this Agreement does not apply to . . . non-contractual agreements or any form of assistance that a Party provides, including cooperative agreements, grants, loans, equity infusions, guarantees and fiscal incentives.”

While federal financial assistance is not considered procurement under the GPA or FTAs, there are two types of cases in which the U.S. has undertaken procurement commitments relating to financial assistance under those agreements. They responded to “buy American” requirements that Congress has imposed on the use of such funds. In the first instance, the U.S. has waived the “buy American” requirement in order to expand its procurement commitments. In the second instance, it has excluded the procurement subject to the “buy American” requirement from its commitments to avoid double jeopardy for the recipients of the federal funds.

Waiver of “Buy American” Requirements: The U.S. waived a “buy American” requirement attached to federal funds in two separate cases. The first involves power generation and telecommunications projects for which the Rural Utilities Service (RUS), a unit of the U.S. Department of Agriculture, provides financial assistance. The RUS funding is subject to the requirement that all materials and equipment financed with its loans or guarantees must meet “buy American” requirements. However, the Uruguay Round Agreements Act authorized the U.S. Trade Representative (USTR) to waive that “buy American” requirement for funding in the power generation or telecommunications sector if it determines that the trading partner provides reciprocal access to U.S. goods, services and suppliers in the sector.

The second case arose under the American Recovery and Reinvestment Act of 2009. As discussed in an earlier posting, the ARRA required U.S.-made iron, steel and manufactured goods to be used in public projects that it funded, unless the project was covered by a trade agreement. However, the domestic purchasing requirement applied to numerous state and sub-federal projects that were not covered by any agreement. In this case, the U.S. made an exception for Canada in a 2010 bilateral procurement agreement. Under that agreement, in exchange for Canada’s commitment to cover its provinces and territories under the GPA for the first time, the U.S. agreed to waive the ARRA “buy American” requirement with respect to Canadian iron, steel or manufactured goods in ARRA-funded projects under seven federal programs.

Exclusion of Procurement Subject to Domestic Purchasing Requirements: In a second set of cases, the U.S. had to act because domestic purchasing requirements were attached to federal funds that were used in procurement by state and other sub-federal entities that were subject to trade agreements. In those cases, the states and other entities could not comply with both their obligations under the agreement to treat foreign goods in the same manner as U.S.-made goods and the federal funding requirements that mandated preferences for U.S. goods.

This conflict arose with respect to several laws that are often collectively referred to as the “Buy America” Act (to be distinguished from the Buy American Act of 1933 that only applies to federal procurement). They require the use of U.S.-produced iron, steel and manufactured goods in federally funded projects administered by the Federal Highway Administration, Federal Transit Administration and the Federal Railroad Administration for the High Speed Rail Program. The Federal Aviation Administration imposes similar requirements when it provides financial assistance for airport projects.

To resolve the conflict presented by these laws, the U.S. excluded their domestic purchasing restrictions from U.S. commitments when it added coverage of procurement of states and other sub-federal entities to the GPA and FTAs. The exceptions allowed suppliers from U.S. trading partners to participate in the procurements covered by the agreement, but required them to meet the “buy America” requirements.

Jean Heilman Grier

April 28, 2014

Related Posts

Implementation of Revised GPA

TTIP and “Buy America” Requirements

Trade Agreements Act of 1979: Broad Authority, Narrow Application