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1 1 (January 24, 2022)

handle is hein.crs/govehfd0001 and id is 1 raw text is: rIce 0 Updated January 24, 2022 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 nondesignated 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 10% of U.S. gross domestic product in 2019. 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 Source: CRS, BAA, and 48 C.F.R. Part 25. 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. (1) USTR establishes TAA thresholds bi-annually. (2) There is no statutory definition of manufactured or substantially all. ngress bnal Research Ser rrmn th ieaislative d bate s 1c 114

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