When US president Joe Biden fulfilled a campaign promise and won passage of the Infrastructure Investment and Jobs Act (IIJA) in November, there was widespread rejoicing about the $1.2tn that would pour into the US economy, restoring the nation’s decaying infrastructure and galvanising domestic manufacturing.
Foreign companies eager to take advantage of the new largesse — especially in the lucrative transportation, construction and utility sectors — were a notable exception. They as they saw a rocky road ahead, full of obstacles thrown up by the IIJA’s ‘Build America, Buy America’ (Baba) provisions on federal procurement.
Baba complements the ‘Buy American’ law, in place since 1933, requiring federal purchasers to use domestic materials and to apply a price preference for “domestic end-products”. Waivers to purchase foreign products may be granted if the goods are not easily available in the US or if the cost to produce them domestically is unreasonable.
However, in the Biden administration’s view, “these preferences have not always been implemented consistently or effectively”; Baba aims to remedy that.
Locally sourced materials
Indeed, one of Mr Biden’s first acts as president was to issue a ‘Made in America’ executive order on January 25, 2021, intended to protect US companies and jobs from foreign competition.
The order created a Made in America Office (MIAO) to enforce the rules and to ensure that any waivers from them “are applied clearly, consistently, and transparently across federal agencies”. A MIAO website listing all requests for waivers submitted enables domestic companies to keep tabs on their foreign competitors.
There are no generally accepted statistics on the share of the $600bn annual spent on federal procurement that goes to non-US companies. However, according to a notice of proposed amendments to the Federal Acquisition Regulations (FAR) published in July 2021, the value of the waivers granted under the Buy American law declined sharply from $78bn out of a total spend of $7.6tn during February–April 2020 to $15bn out of $29tn in the same period of 2021.
The IIJA adds new restrictions on foreign sourcing. No project can now receive federal financial assistance unless all of the iron, steel and construction materials it uses are made domestically. The Act also foreshadows an increase in the domestic content requirement from 55% now to 60% in the near future, and 75% within five years. The FAR notice also proposed granting an enhanced price preference to “critical products”, including products made up of critical components. It also specifies that the new rules are to be applied in a manner consistent with the country’s active free trade agreements, including the USMCA, and World Trade Organization (WTO) rules. Nevertheless, both Canada and the EU are up in arms about its implications.
Made in the US, eh?
A Canadian House of Commons special committee set up in 2021 concluded, after witness testimony, that Buy American policy “prevents integrated supply chains from functioning properly, can cause some firms to forego investments in Canada, and reduces Canada’s exports of certain products to the US, including some that are production inputs,” while making both countries less competitive, raising US procurement costs and putting jobs in each nation at risk.
Canadian Manufacturers and Exporters, a trade association, issued incensed statements calling on the Canadian government “to dial up the pressure on the White House” and “enact reciprocal procurement market access provisions” if the US government did not provide Canada with an exemption. “Canadian manufacturers and American manufacturers are not competitors. They are part of a highly integrated North American industrial system,” the association proclaimed.
However, Mike Wagner, a partner in the law firm Covington & Burling’s Washington DC office, notes that procurement access has long been a huge issue between the US and Canada. “The regulations in the IIJA were not written on a clean slate; extensive regulations already apply,” he points out. “From a federal procurement perspective, the country of incorporation is typically not a consideration, with some exceptions. More often, the consideration is where the product is manufactured.”
The concern is that the Biden administration policy will restrict the granting of waivers
Lawrence L. Herman, a Canadian expert who has advised his country’s government on international trade and investment law, says Canada is particularly exposed to Buy America restrictions and notes that some Canadian companies have long-standing relationships with US entities that may now come to an end, despite the safeguards for procurement under free trade agreements such as the US–Mexico–Canada agreement.
“The concern is that the Biden administration policy will restrict the granting of waivers. Waivers are very important because under the WTO government procurement agreement (GPA), the US is required to provide fair and open and non-discriminatory access to foreign suppliers within the WTO,” Mr Herman says.
Foreign companies’ positions are further hampered because the GPA obligations only apply to procuring agencies specifically listed in agreements between countries, and only to listed types of purchases, Mr Herman adds. Any entity that is not listed is not covered by the GPA, and the US already has many carve-outs and exceptions that bar non-US companies from bidding.
Friction with Europe
The EU is also unhappy with the Baba provisions. “De facto, this closes the US procurement market to certain EU exports,” the European Commission website DG Trade stated. The EU Trade Commissioner Valdis Dombrovskis also commented, telling Politico: “We will be assessing to what extent the US complies with its WTO commitments under the GPA”.
Speaking at a webinar organised by GW Law School in Washington DC, EU diplomat Eike Klapper identified several aspects of US policy that the EU finds “problematic”, stirring concerns it will further expand the Buy American rules. Mr Klapper said the EU is following developments very closely and is in communication with federal officials. “The more transparency you put on Buy American you will see that the economic facts are not positive and the political gains are not worth doing.”
Some US experts share that concern. A recent analysis by the Congressional Research Service (CRS) noted that the new rules could impact supply chains across multiple industries. Other companies worried about access to imported components, or that domestic producers without foreign competitors could raise project costs.
Despite the complaints, another CRS report found the US remains among the most open federal procurement markets, with as much as 80% of its federal contracts open to foreign suppliers.
This article first appeared in the February/March 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.