Re-Thinking Made in America Preferences: President Biden Signs 'Made in America' Executive Order
President Biden signed an executive order (order or EO) on January 25, 2021, to direct more spending of the federal government’s $600 billion procurement budget on American-made products, while rethinking the existing regulatory framework.
By narrowing the loopholes that allow government purchases of foreign products, increasing agency accountability, and directing agencies to seek out US suppliers, the order aims to revitalize the domestic manufacturing industry and create American jobs in furtherance of Biden’s economic recovery plan, “Build Back Better.” We discussed several of these changes in a previous alert.
The order directs the Office of Management and Budget (OMB) and the Federal Acquisition Regulatory (FAR) Council, which assists in the direction and coordination of government-wide procurement regulatory activities, to:
- Reduce, centralize, and provide transparency for individual waivers of Made in America restrictions.
- Adopt a “value-added” approach to defining what constitutes as “American-made” products, in the Component test in FAR Part 25.
- Raise domestic-content requirements and price preferences.
Other key elements include:
- Appoint a new OMB leader to monitor the government’s Made in America policy approach.
- Increase oversight of waivers to domestic content laws, potentially making them more difficult to obtain.
- Reiterate the President’s support for the Jones Act (requiring domestic preference for maritime transport on U.S. flag vessels).
- Direct a cross-agency review of all domestic content requirements.
We note it is not clear whether the increases will be from the original numbers or the recent Trump EO numbers that increased the domestic content requirement and price preference percentages. While the order sets out broad goals for the government, it is not clear yet how the order will affect eligibility or close loopholes. Much depends on implementation. It is prudent for companies to review their qualifications now for the major Made in America provisions to gauge the impact on their business when the proposed changes are published.
The Biden Administration reinforced this change to government procurement when it issued the Executive Order on “Tackling the Climate Crisis at Home and Abroad” on January 27, 2021: Section 205 (Federal Clean Electricity and Vehicle Procurement Strategy) and Section 206 (Procurement Standards). It is summarized here: FACT SHEET: President Biden Takes Executive Actions to Tackle the Climate Crisis at Home and Abroad, Create Jobs, and Restore Scientific Integrity Across Federal Government | The White House
Key points include:
- Federal agencies are directed to purchase carbon pollution-free electricity and clean zero-emission vehicles.
- The vehicles are intended for Federal, State, local, and Tribal government fleets, including vehicles of the United States Postal Service.
- The vehicles must be “Made in America”. The order references the January 25, 2021, Buy American Executive Order.
- A plan to implement this order must be submitted to a newly created National Climate Task Force within 90 days.
The effects of these two key executive orders are discussed below.
Quick Primer on Major US Government Domestic Content Provisions
The Buy American Act of 1933 (BAA), as amended, generally requires federal agencies to purchase “domestic end products” and use “domestic construction materials” on contracts exceeding the micro-purchase threshold (typically $10,000) performed in the United States.
The Trade Agreements Act of 1979 (TAA), as amended, permits the waiver of the Buy American Act and has resulted in “eligible products” from “designated countries” receiving equal consideration with domestic offers when certain federal agencies procure certain goods or services whose value exceeds certain monetary thresholds.
The Buy America Act is the popular name for a group of domestic content restrictions that have been attached to grant funds administered by the U.S. Department of Transportation (DOT) and certain other federal agencies.
The Executive Order refers to these and other U.S. domestic content requirements collectively as “Made in America laws” (Section 2).
What Does the New Executive Order Do?
Reduce waivers. The executive order (EO) aims to reduce waivers from government procurement rules that allow purchases of foreign products. The EO calls for the creation of a website to publish waivers issued by all agencies (Section 6) and the creation of a Made in America Office in the OMB to update and centralize all waivers (Section 4).
New OMB Office to review waivers. A new senior OMB official will be assigned to oversee all waivers: the Director of the Office of Made in America. The Made in America Office will develop a review process by which agencies will submit proposed waivers to OMB for review for consistency with the EO (Section 4). Decisions will be issued by OMB to the agency in writing within 15 days of the agency’s submission. Waiver requests will also be published by the Administrator of General Services on a public website, to be developed in the coming months, within 5 days after the information is received from the OMB. The publication should allow U.S. companies the opportunity to either take advantage of the waiver themselves or possibly object to the waiver. No official process has been established for objecting to waivers, which potentially could be directed either to the agency or the OMB.
Account for “sources of cost advantage” when considering waivers. Prior to granting a waiver in the public interest, the relevant granting agency shall assess whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods (e.g., made from materials subject to antidumping duty or countervailing duty (AD/CVD) orders). (Section 5) The granting agency may consult with the International Trade Administration in making this assessment.
Shift to a “value-added” approach with increased domestic content thresholds and price preferences. The order will also change how the percentage of domestic content of products are calculated for Buy American rules (under the Buy American Act of 1933). The EO directs the FAR Council to consider proposing for notice and public comment amendments to the applicable provisions in the Federal Acquisition Regulation (FAR) (Title 48 of the Code of Federal Regulations) to:
- replace the “component test” in Part 25 of the FAR that is used to identify domestic end products and domestic construction materials with a test under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity;
- increase by an unspecified amount the numerical threshold for domestic content requirements for end products and construction materials; and
- increase by an unspecified amount the price preferences for domestic end products and domestic construction materials (i.e., the difference in price over which the government can buy a product from a non-U.S. supplier if the price of competing domestic products are deemed excessively high).
- The EO also calls for the FAR Council to consult with the Made in America Director before updating the list of domestically nonavailable articles to ensure the decision is consistent with the EO (Section 9).
- The FAR Council must also review whether Made in America laws can be extended to commercial off-the-shelf (COTS) information technology items consistent with the policy preferences of the EO (Section 10).
- The EO encourages sourcing from small and medium-sized US companies by directing federal agencies to partner with the Hollings Manufacturing Extension Partnership to conduct “supplier scouting” of American companies.
- Additionally, the EO proposes to impose new reporting requirements on federal agencies. Agencies will need to publish spending analysis, by country of origin, in connection with waivers issued pursuant to the TAA. Agencies would also have to report on their respective efforts to implement the BAA and other Made in America Laws, such as FTA’s Buy America requirements and the Jones Act (Pub. L. 66-261).
TAA waivers. The EO does not specifically direct changes to TAA waivers. The TAA, 19 U.S.C. § 2501, et seq., provides that products and services from a country with which the US has a trade agreement (“designated countries”) will be treated equally with US-made products, and requires the acquisition of only “US-made” or “designated country” end products. “Designated countries” are countries that are signatories to the World Trade Organization Government Procurement Agreement, countries with which the US has free trade agreements (e.g., USMCA) which provide for reciprocal non-discriminatory treatment for public procurement purposes, and certain developing and Caribbean Basin countries. The Biden Administration has indicated a desire to work with signatories on changes to the Government Procurement Agreement.
Revocation of Certain Presidential and Regulatory Actions. The EO revokes or supersedes several previously issued Executive Orders concerning the Buy American Act (Section 14).
What Happens Next?
The FAR Council will review the Executive Order to determine proposed changes to policy or regulations to put these steps in place. Regulatory changes would go through the normal notice-and-comment rulemaking process and be published in the Federal Register. The public will have the opportunity to comment on proposed regulatory changes. Additionally, agency heads will review their procurement policies consistent with the new EO. The EO does not affect state preference programs, but they could eventually follow the federal position.
Trump Administration Buy American Change Potentially In Limbo
Shortly before former President Trump left office, his administration issued a final rule that tightens domestic content requirements for federal projects requiring iron and steel. On January 19, 2021, the FAR Council issued a final rule implementing changes first outlined in Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials (84 FR 34257, July 18, 2019). The effective date of the rule is January 21, 2021. The changes would apply to solicitations issued on or after February 22, 2021, and resultant contracts.
The final rule, among other things, calls for an increase in the percentage of domestic content required for a product to be considered American-made from 50% to 95% for iron and steel products, and to 55% for other products. It also increases the price evaluation preferences from 6 percent to 20 percent for large businesses and from 12 percent to 30 percent for small businesses; for DOD procurements there is no change to the DOD 50 percent amount.
However, the status of that rule is unclear due to a regulatory freeze put into place by the Biden administration, which directs agencies to consider postponing the effective date of rules that were issued but have not taken effect, for 60 days or March 20, 2021. There are no reports any agencies have delayed the rule. Until there is more clarity, for the time being, it would be prudent for companies to treat the higher figures in the recent final rule as controlling. Additionally, the Trump EO (13881), is superseded by Section 14 of the Biden EO to the extent the Trump EO is inconsistent with the Biden EO – so these domestic content thresholds and price preferences may be subject to change.
What Does This Mean for Your Business?
Companies that sell to federal government agencies, including DOD, would be advised to review what products currently qualify for Buy American and other domestic content provisions and determine the impact of these proposed changes.
The new EO has not gone unnoticed by US trading partners. For instance, Canada is reportedly seeking exemptions from the Biden Administration, much in the same fashion as it did in 2009 with the American Recovery and Reinvestment Act (ARRA). Those “carve-outs” were directly linked to US procurement projects funded by the ARRA itself, which has long expired. Other countries may look to adjust their government procurement preference programs in response.
These heightened requirements may also lead to increased agency enforcement actions or False Claims Act litigation regarding the use of non-US material or products, including eligibility through TAA substantial transformation analysis. Make no mistake about it, reviewing supply chains, increasing visibility, and developing comprehensive compliance policies is now more important than ever. Arent Fox can assist companies doing business in the US procurement market to understand their current and longer-term exposure to this new EO, including a review of current supply agreements, and help shape a strategy to conform with changes anticipated in the years ahead.