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1 1 (March 15, 2021)

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                                                                                           Updated March  15, 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. government procurement. As such, Members
have sought ways to incentivize U.S.-based production by
prioritizing the procurement of domestic goods and
services, while upholding U.S. commitments under various
international trade agreements. Separately, the Trump and
Biden Administrations have issued executive orders that
aim to maximize the procurement of domestic goods and
services and increase oversight of waivers that would allow
government  purchases of foreign goods.
Within this context, Members have raised questions
regarding how federal agency acquisitions comply with 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 a price preference
for U.S. products, TAA establishes a prohibition on
procuring products and services from non-designated
foreign countries, unless one of TAA's exceptions applies.
Background
During the past 50 years, the United States has played a
prominent role in the development of international trade
rules on government procurement. The most notable 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 global government
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 have been
equivalent to 9.3% of U.S. gross domestic product 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, meaning that procurement coverage in
each market varies considerably. In addition, the United
States, while among the world's most open markets,
maintains restrictions on foreign sourcing under BAA, and
state and local governments may also have similar
preferential policies. A 2017 study estimates that while the
United States opens as much as 80% of its federal contracts
to foreign suppliers, South Korea and 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. What follows is an
overview of BAA  and TAA,  and issues 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 not prohibit federal
agencies from purchasing 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
penalty to the low foreign offer equal to 20% or 30%,
depending on whether the low domestic offer is from a
large or small business. For U.S. Department of Defense
(DOD)  procurements, the penalty is typically 50%. (If a
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


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. BAA or another domestic
preference law may also apply, for example, to certain acquisitions exempted
from full and open competition or using simplified acquisition procedures.


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