Rethinking Made in America preferences: Biden signs new executive order

Introduction
Key points
Major government domestic content provisions
What does the new EO do?
What's next?
Trump administration Buy American change potentially in limbo
What does this mean for your business?

Introduction

On 25 January 2021 President Biden signed an executive order (EO) 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 EO aims to revitalise the domestic manufacturing industry and create American jobs in furtherance of Biden's economic recovery plan, Build Back Better.(1)

Key points

The EO 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, centralise and provide transparency for individual waivers of Made in America restrictions;
• adopt a value-added approach to defining what constitutes 'American-made' products, in the component test in FAR Part 25; and
• raise domestic content requirements and price preferences.

In addition, the EO:

• appoints a new OMB leader to monitor the government's Made in America policy approach;
• increases oversight of waivers to domestic content laws, potentially making them more difficult to obtain;
• reiterates the president's support for the Jones Act (requiring domestic preference for maritime transport on US flag vessels); and
• directs a cross-agency review of all domestic content requirements.

It is unclear whether the increases will be from the original numbers or the recent Trump EO numbers which increased the domestic content requirement and price preference percentages. While the EO sets out broad goals for the government, it is not yet clear how it 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 Tackling the Climate Crisis at Home and Abroad EO on 27 January 2021.(2)

The key points of this EO are as follows:

• 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 US Postal Service.
• The vehicles must be 'Made in America'. The EO references the 25 January 2021 Buy American EO.
• A plan to implement this EO must be submitted to a newly created National Climate Task Force within 90 days.

The effects of these two key EOs are discussed below.

Major government domestic content provisions

The Buy American Act (BAA) 1933, 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) which are performed in the United States.

The Trade Agreements Act (TAA) 1979, as amended, permits the waiver of the BAA 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 'BAA' is the popular name for a group of domestic content restrictions that have been attached to grant funds administered by the US Department of Transportation and certain other federal agencies.

The EO refers to these and other US domestic content requirements collectively as the "Made in America laws" (Section 2).

What does the new EO do?

Reduce waivers
The EO aims to reduce waivers from government procurement rules that allow purchases of foreign products. It calls for the creation of:

• a website to publish waivers issued by all agencies (Section 6); and
• a Made in America Office under the OMB to update and centralise all waivers (Section 4).

New OMB office to review waivers
A new senior OMB official (the director of the Made in America Office) will be assigned to oversee all waivers. The Made in America Office will develop a review process by which agencies will submit proposed waivers to the OMB for review for consistency with the EO (Section 4). The OMB will issue decisions to the agency in writing within 15 days of receiving the submission. Waiver requests will also be published by the General Services Administration on a public website, to be developed in the coming months, within five days of the OMB's receipt of the information. The publication should allow US companies the opportunity to take advantage of the waiver themselves or possibly object thereto. No official process has been established for objecting to waivers, which could be directed to either 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 will 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 subsidised steel, iron or manufactured goods (eg, made from materials subject to anti-dumping duty or countervailing duty) (Section 5). The granting agency may consult with the International Trade Administration in making this assessment.

Shift to value-added approach with increased domestic content thresholds and price preferences
The EO will also change how the percentage of domestic content of products is calculated for the Buy American rules (under the BAA). The EO directs the FAR Council to consider proposing for notice and public comment amendments to the applicable provisions in the FAR (Title 48 of the Code of Federal Regulations) to:

• replace the component test in Part 25 of the FAR which 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 US-based production or US 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 (ie, the difference in price over which the government can buy a product from a non-US supplier if the price of competing domestic products is deemed excessively high).

Other actions
In addition, the EO:

• calls for the FAR Council to consult with the Made in America director before updating the list of domestically non-available articles to ensure that the decision is consistent with the EO (Section 9);
• requires the FAR Council to review whether Made in America laws can be extended to commercial off-the-shelf IT items consistent with the EO's policy preferences (Section 10);
• 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 US companies; and
• 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 will also have to report on their respective efforts to implement the BAA and other Made in America laws, such as the Federal Trade Association'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 US Code Section 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:

• signatories to the World Trade Organisation (WTO) Government Procurement Agreement;
• countries with which the US has a free trade agreement which provides for reciprocal non-discriminatory treatment for public procurement purposes (eg, the US-Mexico-Canada Agreement); and
• certain developing and Caribbean Basin countries.

The Biden administration has indicated a desire to work with signatories on changes to the WTO Government Procurement Agreement.

Revocation of certain presidential and regulatory actions
The EO revokes or supersedes several previously issued EOs concerning the Buy American Act (Section 14).

What's next?

The FAR Council will review the EO to determine proposed changes to policy or regulations to put these steps into 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. In addition, agency heads will review their procurement policies to ensure that they are consistent with the new EO. The EO does not affect state preference programmes, 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 tightened domestic content requirements for federal projects requiring iron and steel. On 19 January 2021 the FAR Council issued a final rule implementing changes first outlined in EO 13881, Maximising Use of American-Made Goods, Products and Materials (84 FR 34257, 18 July 2019). The rule took effect on 21 January 2021. The changes would apply to solicitations issued on or after 22 February 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% to 20% for large businesses and from 12% to 30% for small businesses; for Department of Defence (DOD) procurements, there is no change to the DOD 50% 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 until 20 March 2021. There are no reports of any agencies having delayed the rule. Until there is more clarity, companies should treat the higher figures in the recent final rule as controlling. In addition, the Trump EO (13881) is superseded by Section 14 of the Biden EO to the extent that the Trump EO is inconsistent with the Biden EO. Thus, 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 the DOD, are advised to review which products 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 programmes 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. Reviewing supply chains, increasing visibility and developing comprehensive compliance policies is now more important than ever.

For further information on this topic please contact Travis L Mullaney, David Salkeld or Birgit Matthiesen at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email (travis.mullaney@arentfox.com, david.salkeld@arentfox.com or birgit.matthiesen@arentfox.com). Alternatively, contact Angela Santos at Arent Fox LLP's New York office by telephone (+1 212 484 3900) or email (angela.santos@arentfox.com). The Arent Fox LLP website can be accessed at www.arentfox.com.

Endnotes

(1) Further information is available here.

(2) Section 205 (Federal Clean Electricity and Vehicle Procurement Strategy) and Section 206 (Procurement Standards). This EO is summarised here.