Stimulus Bill Would Significantly Expand Buy America Steel Source Restrictions
A major element of the stimulus package pending in Congress, which may total $825 billion, is federal funding for infrastructure projects (e.g., highways, public works construction, public transportation). The Appropriations Committee of the House has added a provision sought by domestic steel producers that would expand existing Buy America laws to require the use of U.S.- made steel in any projects included in the stimulus package. Arguably, this expansion could violate U.S. international obligations under the WTO agreements and bilateral and regional trade agreements and potentially signal a retreat by the U.S. from open trade principles.
The Obama administration has not taken a position on this important issue, but may be faced with it in the stimulus package. Congress is considering a significant expansion of current “Buy America” provisions in the stimulus package.
H.R. 595, titled the “American Steel First Act of 2009,” was introduced by Rep. Pete Visclosky (DIN) on January 15, 2009. The House Appropriations Committee incorporated this bill essentially in its entirety to the House economic stimulus package on January 21, 2009. As incorporated into the stimulus bill, these provisions would apply to all projects covered by the stimulus bill.
The bill would require that most federally funded public works projects, defense installations, and some other new federal buildings use only steel produced in the United States, regardless of whether the funding is provided through the stimulus package or other appropriations. In addition, the first release by the House leadership of the stimulus bill would require U.S.-produced steel for school construction by local school districts.
Key Buy America Provisions in the Stimulus Bill
The stimulus package’s Buy America provision is essentially the same as is applied under the current Buy America Act for federally funded highway projects (23 U.S.C. § 313), mass transit construction projects (49 U.S.C. § 5323(j)), and airport projects (49 U.S.C. § 50101).1 The standard for steel requires exclusive use of steel “produced” in the United States. “Produced” under applicable regulations means that all essential steelmaking operations must have occurred in the United States, including melting and pouring of molten steel and all other essential processing, including rolling and coating. See, e.g., 49 CFR Part 661.
Current law allows a waiver of these requirements on three possible grounds. The first ground, vague but rarely invoked, is that the public interest requires it. The second ground applies when U.S. steel is not timely available in sufficient quantities for the project. The third ground, price differential, may be invoked if using domestic steel rather than a less expensive foreign alternative would increase the total cost of the entire project by at least 25 percent. This is seldom the case, even if the bid using domestic steel is substantially higher than the competition. For example, if steel at the world market price represents 10 percent of project cost, the domestic steel price would have to be two and a half times the price of competing foreign steel in order to permit a waiver.
The new bill would apply these “Buy America” standards to major new categories of spending. For example, the bill would cover any project for the construction, alteration, or repair of buildings or public works funded by appropriations to the Departments of Defense (DOD), Homeland Security (DHS), and Transportation (DOT). “Public works” is defined broadly to include virtually any construction project, including dams, water works, pipelines, harbors, piers, airports, roads, bridges, and rail systems. Major areas not already covered under current law include:
- Dams, canals, levees, harbor, and water works projects, most of which are conducted by the Army Corps of Engineers, a unit of DOD.
- Buildings, piers, and other facilities constructed or funded by DOD, with no exception provided for overseas construction.
- Homeland security infrastructure, such as border fences and crossing stations, which could include any such infrastructure outside the U.S.
- New buildings or facilities for DHS or DOT funded by appropriations to those departments.2
- Coast Guard pier or base projects.
- Any other state or local infrastructure projects that might be included in a federal stimulus program, if funded by any of the three covered departments and falling under the definition of “public works.” This would include public works projects funded by FEMA grants after emergencies
The bill would make another significant change to Buy America requirements by mandating new procedural requirements for granting waivers to the Buy America rules on steel in covered projects. First, whenever a waiver is considered under any of the three grounds for waiver outlined above, the agency concerned would be required to publish a “detailed written justification” in the Federal Register and allow a “reasonable time” for public comment. These procedural requirements could make final approval of waivers more difficult and time-consuming. The notice and comment requirements would apply not only to the projects newly covered under the bill, but to alreadycovered highway and mass transit projects. In addition, the agencies would have to report annually to Congress on any instances of non-application of the domestic steel requirement due to waivers or the application of international agreements or other provisions of law.
The extent to which these new steel provisions would impose Buy America requirements on downstream products made from steel is unclear. While some products made wholly or largely from steel may be subject to Buy America requirements as well as basic steel products, others may not be. The current Buy America provisions are governed by specific regulations, which must be consulted to determine whether specific products provided for a project are subject to these requirements.
Other Expanded Buy America Steel Restrictions May Be on the Horizon
Domestic steel producers have advocated additional Buy America restrictions. Last month, the Congressional Steel Caucus sent a letter to House leadership urging the inclusion of Buy America provisions to steel and “manufactured products” in any economic stimulus package. The stimulus bill text applies restrictions similar to the American Steel First Act to funding for “21st Century Green High-Performing Public School Facilities.”
Arguably, the bill’s Buy America provisions violate the World Trade Organization (WTO) Government Procurement Agreement (GPA) and some free trade agreements to which the United States is a party. The GPA includes the United States and 39 other WTO members, including the 27 members of the European Union. The North American Free Trade Agreement (NAFTA) covers Canada and Mexico, and the U.S. has bilateral and regional free trade agreements with 18 other countries. Each of these agreements would need to be examined to see if new steel procurement requirements would be consistent with its provisions. In many instances, we see actual or potential conflicts.
These agreements generally require the U.S. and the other participants to give reciprocal access to the products of the other participants in procurements funded by those governments, with limited exceptions. The GPA, for example, applies to almost all federal procuring entities, including the Departments of Defense, Homeland Security (except TSA), and Transportation. It applies generally to construction of buildings and public works (under Annex 5), as well as to construction materials acquired directly rather than as incorporated in completed construction projects (under Annex 1). However, when entering the GPA, the U.S. Trade Representative negotiated a carve-out for federal highway and transit projects, to accommodate the existing Buy America statutes..
The GPA does not generally apply to federal non-procurement spending, such as grants and cooperative agreements to universities, state and local governments, and non-profit organizations. However, 37 U.S. states have joined in the GPA during or since the Uruguay Round, and their procurements are generally covered under the GPA (although state GPA annexes must be examined to determine the degree of coverage). Thus, many state and local infrastructure projects that receive federal support through the stimulus program could be subject to GPA requirements.
Thus, while current Buy America coverage is essentially consistent with U.S. international obligations, the expanded coverage of the Buy America provisions in the stimulus bill expand coverage to areas not mentioned in the GPA. WTO members could file dispute settlement cases and seek the authority to retaliate against U.S. exports. Consistent with the GPA, however, expanded Buy America requirements could be applied in the following areas:
- To projects costing less than the $7.443 million GPA threshold for construction projects (rarely the case).
- To exclude steel from country sources that are not covered by the GPA or other FTAs, such as China.
- To infrastructure grants to states and local authorities that are not covered by the GPA at all, or which exclude steel or the particular type of project from coverage.
The bill as currently written does not include an explicit exception for instances that would breach international agreements, although the annual reporting provision described above appear to recognize that the bill may be inconsistent with international obligations and that a waiver on those grounds may be necessary.
The bill does not contain factual findings respecting the effects of additional restrictions on U.S. industry. The stimulus package is intended first and foremost to foster U.S. employment and to stimulate U.S.-based business. Expanded application of the Buy America restrictions could have
the effect of creating jobs in some U.S. sectors at the expense of others.