By Jason Cooper, CPA Research Assistant
US Buy America laws mandate that the government prefer domestic products over foreign ones when making purchases. Free trade agreements (FTAs) carve out exceptions to that mandate by requiring that the government treat the products of most of our major trading partners as equivalent to domestic. In other words, FTAs prevent taxpayer money from procuring only USA made products. There is often considerable debate in Congress as to whether a government spending bill should have domestic procurement restrictions at all.
The biggest issues, in our view, are (1) whether there is a net benefit to the US economy from approving trade agreement provisions that mandate treating foreign and US goods as equivalent; and (2) whether the domestic procurement laws should be further tightened and expanded. As to the former, CPA believes there is a net loss regarding the trade agreement provisions. As to the latter, we believe that economic growth is maximized with full domestic procurement coverage for government spending with minimal exceptions.
Important Domestic Procurement Laws: The three most important domestic procurement laws are the Buy American Act of 1933, the Buy America Act of 1982 and a series of legislative provisions collectively known as the Berry Amendment. There are other laws with smaller scope that are similar.
1. Buy American Act of 1933: The first and most important law is the Buy America Act of 1933, which mandates that the US federal government prefer US-made products and construction materials for most purchases above a certain dollar threshold. “Domestic end products” must be 100% manufactured in the USA with at least 50% US content. The 1933 Act applies to direct purchases by the federal government, but not third parties, such as private contractors given procurement money through government grants.
2. Buy America Act of 1982: The Surface Transportation Assistance Act of 1982 is known as the Buy America Act. It applies to purchases related to rail or road transportation, including construction of highways, railways or rapid transit systems. Its provisions apply not only to direct federal government purchases, but also purchases made by third party agencies such as state departments of transportation who use federal funds.
3. Berry Amendment: In 1941, Congress passed the Fifth Supplemental DOD Appropriations Act which included domestic source restrictions to protect the domestic industrial base in the time of war. The portion of that law called the “Berry Amendment” gave preference in procurement to domestically produced, manufactured, or home-grown products, most notably food, clothing, fabrics, and specialty metals. It was the first “Berry Amendment” named for Ellis Yarnal Berry, who was a member of the U.S. House of Representatives from 1951-1971. Any later defense appropriations restrictions on government procurement also became known as Berry Amendments. The Berry Amendment became a permanent part of defense appropriations bills in 1994.
4. Other: There are other government spending laws that require domestic preferences in government procurement. However, they are often are modeled after the 1933 or the 1982 act. For example, the American Recovery and Reinvestment Act of 2009 (aka Obama Stimulus) included domestic preference provisions.
5. States: Most states and some municipalities are also under obligations with regards to trade agreements, the specifics as of 2012 are listed here.
Waivers and exceptions: There are several conditions in which waivers can be issued based upon the public interest, unavailability or costliness. The below are from 48 CFR 25.1 which are regulations relating to the 1933 act. Other domestic procurement laws have comparable rules.
1.Public Interest: The president, and agency heads, generally have the authority to waive Buy America requirements if they are not in the public interest. The “public interest” provides substantial discretion for waivers to be issued.
2.Unavailability: Agencies can also waive Buy America if the products are not available in the US in sufficient quantity or with satisfactory quality.
3.Cost: Agency heads can buy foreign products if their cost would be at least 6-12% lower than the comparable US product.
Trade Agreements: Most trade agreements require that foreign products be treated as equivalent to domestic products for federal procurement purposes. Other trade agreement signatories commit to allowing our products to be considered equivalent, with exceptions, under their domestic preference laws.
The Trade Agreements Act of 1979 (13 USC 2511) established the presidential authority to waive Buy America requirements due to trade agreements. The President, through regulations, delegated the authority to waive Buy America to the US Trade Representative. 48 CFR 25.402(a)(1). Virtually all trade agreements, including the WTO Government Procurement Agreement, curtail Buy America rules in large part. There are product coverage differences among the various trade agreements which are detailed at 48 CFR 25.402(b).
As the map below shows, products from many countries in the world are eligible for Buy America treatment. Major exceptions include China, India, Russia, Brazil, and most of the Middle East.
Conclusion: Domestic procurement laws were intended to have the American government spend procurement money on American goods to support US jobs, innovation and manufacturing. Free trade agreements have turned them into a mottled web of waiver exemptions and exclusions. This dilutes and diminishes the efficacy of their intended purpose including dilution of the economic stimulus effect of fiscal spending.