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1 1 (January 14, 2021)

handle is hein.crs/govebtx0001 and id is 1 raw text is: * ressionol Sesearch Service nfnrriinQ Lh~ I ~j~kIatn~ deb~ne flr( 1 it 9 Updated January 14, 2021 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 of international 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 issued executive orders that aim to incentivize companies to relocate to the United States by limiting waivers that would allow government purchases of foreign goods. Within this context, Members haveraised questions regarding how federal agency acquisitions comply with two domestic sourcinglaws :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 TAAhaveprovisions that affect trade, there is a criticaldifference between their respective requirements. Whereas BAA operates as aprice preference for U.S. products, TAA establishes aprohibition on procuring products and services fromnondesignated foreign countries, unless one ofTAA's exceptions applies. Background During the past50 years, the United States has played a prominent role in the development ofinternational trade rules on government procurement. The mostnotable of U.S. international agreements addressing procurement and trade are the World Trade Organization (W TO)'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 and nondiscriminatory rules for certain procurements among the parties. U.S. federal procurement expenditures are estimated to havebeen equivalent to 9.3% ofU.S. gross domestic product (GDP) in 2017. International regimes on government procurement do not cover every country or sector. For example, the 48 parties bound by the GPA negotiate market access commitments on a reciprocal basis. In addition, the United States, while among the most open markets, maintains restrictions on foreign sourcing under BAA, and state and local governments may also have s imilar preferential policies. A 2017 study estimates that while the United States opens as much as 80% of federal contracts to foreign suppliers, South Korea and Japan, for example, may do the same for 13% and 30%, respectively. tps://crsreport 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 achallenging task. Whatfollows is an overview of BAA and TAA, andis sues of congressional interest with implications for U.S. trade policy. Buy American Act of 1933 BAA is the major U.S. domestic preference statute that governs procurement by the federal government. 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 les s costly after a comparative price evaluation test. For civilian agency procurement, the contracting officer typically adds a price evaluation penalty to thelowforeign offerequalto 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 penalty is typically 50%. (Ifa foreign offer is accepted, contracting agencies pay the proposed price and not the increased evaluated price.) Notably, BAA does not apply to contracts for services. Figure 1. Applicability of the Buy American Act 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 50% 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 productsfor BAA purposes. .con Qress.Qov

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