Enhanced Data Collection Can Target Necessary Fixes to Trade-Pact Buy American and Defense Waivers that Otherwise Undermine Administration’s Proposed Strengthening of Buy American
For Immediate Release: July 28, 2021
Contact: Matthew Groch, email@example.com, (202) 454-5111
WASHINGTON, D.C. — The Biden administration today issued proposed regulations to increase domestic content requirements, raise price preferences for certain goods critical to public health and national security, improve enforcement with new requirements that contractors report the exact value of domestic inputs and enhance data collection on the many still-existing waivers to Buy American. Lori Wallach, director of Public Citizen’s Global Trade Watch division, issued the following statement:
“We commend the administration’s efforts to improve Buy American policies so they reinvest American taxpayers dollars at home to rebuild our nation’s economic and health resilience, promote innovation and create American jobs. Today’s proposed regulatory changes would start to fix serious problems that now allow tens of billions in U.S. taxpayer funds to be offshored, and build on the innovation of their April appointment of a Buy American director to review Buy American waivers and powerful supply-chain reviews that propose ways to improve resilience in key sectors.
“However, to actually ensure that taxpayer funds are reinvested to purchase U.S. goods and services, more significant improvements are needed and we look forward to working with the administration on that. Broad Buy American waivers for 60 trade-pact signatory nations, Department of Defense International Procurement Memoranda of Understanding and more that are not addressed in today’s action would dramatically undercut the effectiveness of today’s proposed improvements. For instance, for all federal procurement contracts valued at $200,000 or more, the trade-pact exception waives the entire domestic content requirement that today’s proposed rule would raise from 55% to 75%.
“Given that existing federal government procurement data is of remarkably low quality, we appreciate today’s proposal to enhance data collection on waivers and domestic content for federal government procurement contracts so the needed changes to the trade-pact and other waivers can be best targeted.”
More details are available in this briefing paper, which explains:
- Firms and products from 60 nations with which the U.S. has trade pacts have been given the same access to U.S. government contracts as domestic firms and goods for all but the lowest-value government contracts. Formally known as the Trade Agreements Act (TAA) waiver, this policy is enacted by regulation. Congress delegated authority to the president to change the waiver list at any time. (19 U.S.C. 2511) Prominent groups of U.S. Senators and Representatives requested that President Joe Biden use this authority to waive the exception for COVID-related exceptional spending.
- The implementation of the trade-agreement exception allows all procurement above a set threshold, which today is $182,000 for goods under the World Trade Organization, to evade compliance with value-based domestic content rules. That means that instead of having to meet the current 55% domestic content component rules – or the enhanced domestic content proposed by the Biden administration – to qualify for Buy American Act preferences, these goods can meet a much weaker “substantial transformation” rule of origin, which requires some assembly or other processing to occur in a TAA-waiver country. As a result, for goods valued above the threshold price, inputs can be sourced from anywhere, including China and other countries not on the TAA waiver list, assembled in U.S. territory or in another of the 60 nations and compete on equal terms with high- U.S.-content goods. Thus, a product assembled in the U.S. of 100% foreign content is considered a U.S. end-product. This problem, which entirely undermines the Buy American goals, is also caused by what is called the “commercially available off-the-shelf” (COTS) waiver, which also allows firms to import tens of billions in components and parts, perform basic assembly operations and sell goods to the federal government as “domestic end products” with BAA preferences.
- The current trade-pact waiver policy offshores our tax dollars rather than investing them to create jobs and innovation at home. These Buy American waiver applies to subsidiaries of firms based in countries that have not signed agreements, such as China, and have not provided reciprocal access as long as a subsidiary is operating in a country that has a signed a U.S. trade pact. These limits on procurement policy apply to most U.S. federal purchases, with limits for U.S. defense agencies and some specific products listed in each trade deal.
These constraints are enacted through a waiver of Buy American and other domestic procurement preference policies through regulation, not by statute. The Trade Agreements Act gives the president discretionary authority to waive domestic procurement preferences but does not require a waiver. This waiver authority has been delegated to the U.S. Trade Representative (USTR). USTR’s practice is to add new trade agreement countries or countries joining the WTO procurement agreement to a list found at 48 CFR 25.400.
- Setting limits on how our democratically elected federal and state governments can spend our tax dollars on procurement was not a traditional focus of trade agreements. U.S. firms that offshored production did not want to be excluded from lucrative U.S. government contracts. They pushed for trade pacts to include rules that required companies operating in trade partner countries to be treated like U.S. firms – and foreign-made goods to be treated as if they were made in America.