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1 1 (June 18, 2020)

handle is hein.crs/govdgzy0001 and id is 1 raw text is: June 18, 2020 U.S. Government Procurement and International Trade The COVID-19 pandemic has demonstrated that U.S. companies and the federal government rely heavily on global supply chains. This has prompted congressional interest in better understanding the role ofinternational trade in U.S. governmentprocurement. In particular, Members have sought ways to incentivize U.S. domestic production by prioritizing the procurement of domestic goods and services, while upholding U.S. commitments under various international trade agreements. Separately, the Trump Administration has issued executive orders that aim to incentivize companies to relocate to the United States by limiting waivers thatwould allow government purchases of foreign goods. Within this context, Members have raised questions regarding how federal agency acquisitions complywith two domestic sourcing laws: namely, the Buy American Act of 1933 (BAA, 41 U.S.C. § § 8301-8305) and Trade Agreements Act of 1979 (TAA, 19 U.S.C. § § 2501-2581). Although both BAA and TAA have provisions that affect trade, there is a critical difference between their respective requirements. Whereas BAA operates as apricepreferen ce for U.S. products, TAA establishes aprohibition on procuring products and services from non-designated foreign countries, unless one o f TAA's exceptions applies. Over the past fifty years, the United States has played a prominent role in the development ofinternationaltrade rules on government procurement. The mostnotable of U.S. international agreements addressing procurement and trade are the World Trade Organization (WTO)'s plurilateral Agreement on Government Procurement (GPA) and the procurement chapters in most U.S. free trade agreements (FTAs), all of which are implemented primarily through TAA. Data limitations and other factors make it difficult to quantify accurately the size of the globalgovernment procurement market. However, these international agreements have opened many procurement opportunities around the world to international competition, worth trillions of U.S. dollars annually, while also requiring parties to establish transparent andnon-discriminatory rules for certain procurements among the parties. U.S. federal procurement expenditures are estimated at 9.3% of U.S. gross domestic product (GDP) in 2017. International regimes on governmentprocurement do not cover every country or sector. For example, the 48 WTO members bound by theGPA negotiate market access commitments on areciprocalbasis. In addition, the United States, while among the most open markets, maintains restrictions on foreign sourcing under BAA, and s tate and local governments may also have similar preferential policies. A 2017 study estimates thatwhile the United States opens as much as 80% of federal contracts to foreign suppliers, South Koreaand Japan, for example, may do the same for 13% and 30%,respectively. Determining the conditions under which federal agencies must open contracts to foreign suppliers, which legal framework applies in a given procurement, or how agencies determine whether goods and services are BAA-or TAA- compliant is a challenging task. Whatfollows is an overview of BAA and TAA, and is sues ofcongressional interest with implications for U.S. trade policy. BAA is the major U.S. domestic preference statute that governs procurement by the federalgovemment. As implemented, it establishes a price preference for federal agencies' purchases of domestic end products to be used in the United States. It generally does notprohibit federal agencies frompurchasing a foreign product if they determine that it is less costly after a comparative price evaluation test. For civilian agency procurement, the contracting officer typically adds a price evaluation p enalty to the low foreign offer equal to 6% or 12%, depending on whether the low domestic offer is froma large or small business. For U.S. Department of Defense (DOD) procurements, the penaltyis typically 50%. (If a foreign offer is accepted, contracting agencies pay the proposedprice andnot the increased evaluated price.) Notably, BAA does not apply to contracts for services. Figure I. Applicability of the Buy American Act WI[ -he good be prcured unde a contra-ct with an award value above the 'lc mcpurchase rhesk ($0,000) but eowthek TAA threshcdd (generally $82, 00)? :::::::::::::::::::::::::: COMPUANCE TE$T Aknfocwred oo munvfaaed, in te UniFd Saes' S.C1 §02) ANDdoe threshols itsc ent in a odentn ofmanufactured ia the Unt ed soar s exceed 50% of the cost of all its components u 8is Cde.F n o s ( t *oIs 7 umin r produie in the Unied States sig Uci pcal * NnavIlai~iy (uankyand qualIty) *Public iterest * cmmerc;a;fy aalabefthesef(OS items Source: CRS, BAA, and 48 C.F.R. Subpart 25. 1. Notes: * A variety of factors determine applicability. BAA may also apply above the TAA threshold if, among other things, the relevant trade agreement excludes a product or agency from TAA coverage. (I) USTR establishes TAA thresholds bi-annually. (2) There is no statutory definition of manufactured or substantially all. Agencies have long construed substantially all to mean that the costs of a product's U.S. components exceed 5000 of the cost of all its components, butthis definition is not set forth in statute. (3) COTS items are exempt from BAA's component cost test. (4) DOD also treats end products from 27 qualifying countries-those with which it has signed reciprocal defense procurement memoranda of understanding-as domestic end pruductsfur BAA purposes. A A '2 xa S 1,k y\

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