Doing the tighten up
President Trump’s “Buy American/Hire American” executive order sounds patriotic, but it could be on a collision course with U.S. trade commitments.
(page 1 of 4)
From the pages of In Business magazine.
American and Wisconsin manufacturing employees are in an enviable position, one that soccer moms and security dads once enjoyed. Given the swing-vote impact they had on the 2016 presidential election, blue-collar workers have the undivided attention of candidates in both major political parties who are fawning over them with the adoration of Scarlett O’Hara’s plantation beaus.
Exhibit A in this two-party courtship is President Trump’s recent “Buy American/Hire American” executive order, which directed various cabinet members to make recommendations on how to more strictly enforce various America-first provisions of federal procurement law.
Not to be outdone, U.S. Senator Tammy Baldwin and her fellow Senate Democrats have countered with legislation requiring the U.S. government to buy 100% American-made iron and steel for domestic water infrastructure projects.
For U.S. companies bidding on federal procurement contracts, the potential ramifications of strengthened “Buy American” policies are potentially enormous.
“Overall, the purpose of the executive order is to take the current Buy America/Buy American structure and in effect enhance its enforcement,” states business attorney David Ralston, a partner with the law firm Foley & Lardner. “It’s about working with the existing structure, saying what more can we do with it as it exists now, and asking various government agencies to look at areas where it could be, for lack of a better term, tightened up in terms of its application and enforcement.”
The problem is that any attempt to tighten up enforcement could run smack into the opposite requirements of foreign trade agreements. In this look at the Buy American debate, we spoke to local and national attorneys and advocates for Wisconsin manufacturing.
The term used in the executive order, Buy American, is a broad, generic concept that covers a host of laws that are often referred to as Buy America. Much of the focus is on the Buy American Act of 1933, a Depression-era law designed to give a preference to American-made goods in federal procurement. In procurement, when the government purchases goods from a domestic or foreign business, the government puts specifications out for bid and the bid can go either to the lowest bidder or lowest and best-qualified bidder.
As Ralston explains, there are several distinctions to be made between various laws. The Buy American Act is the law that applies to direct federal procurement and contains a two-part test under which a product is considered a “domestic end-product” if it is manufactured in the U.S. and 50% of the cost of all components is manufactured in the U.S. For example, if a car engine was made in the U.S., but more than 50% of the components were not made here, it would not be considered a domestic-end product.
A separate, similarly named statute contains the Buy America provisions, which principally cover transportation grants to states and localities and has a separate set of rules. A third statute that’s lumped in this same group is called the Berry Amendment, which applies only the Department of Defense and covers only a certain category of products.
Finally, there are Made in America provisions administered by the Federal Trade Commission, but they have nothing to do with federal procurement or grants. These are advertising related requirements, and the executive order doesn’t apply to them.
According to Ralston, federal agencies comply with these requirements to various degrees. For example, under Buy America, the U.S. Department of Transportation has in some cases very good enforcement programs; the Federal Transit Administration, with its pre- and post-procurement audits, is one example. In contrast, the Federal Aviation Administration has almost no enforcement. “I would think, using DOT as an example, that this [executive order] could have a significant impact at the FAA,” Ralston states, “forcing the agency to finally take up the issue of the Buy America requirements, which heretofore they have not shown a great deal of interest in, and which frankly would apply to every airport in the country that gets federal grant dollars.”
Government procurement attorney Mark Stempler notes there are a number of exceptions under the Buy American Act. It does not apply where materials are required for use outside of the U.S., such as when materials are going to be used in a foreign country or territory. “It also doesn’t apply to materials not produced in the U.S. of a satisfactory quality, or when the use of domestic materials would be inconsistent with the public interest,” Stempler notes. “That is a broad category and that determination can usually be made by the procuring officer for the government, and the interpretation of what is inconsistent varies.”
Another main exception is when the cost of domestic materials is unreasonable or impractical versus foreign materials. “If what’s available in the U.S. is so much more expensive than what’s available from an international provider, then the Buy American Act may not apply,” Stempler adds.
In some cases, President Trump could make recommended changes by executive order, but any proposed change in the law would require further legislation. For example, the Buy American Act has a set of procured regulations that enforce it, and there are changes the Trump administration could make to those regulations to bring about more rigorous enforcement.