Market Access Alert

    March 2009

    On February 17, 2009 President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (ARRA). The ARRA provides US$789 billion in spending and tax cuts and contains several accountability and transparency provisions. In addition, the ARRA includes billions of dollars for information technology (particularly in the health care arena), transportation infrastructure, energy and environmental research and development, and remediation, repair and upgrades to federal and Department of Defense facilities, and much more.

    The ARRA includes Buy America provisions (at Section 1605) that require the use of US-made steel, iron and manufactured goods in construction, alteration, maintenance and repair projects funded by the ARRA, unless to do so violates the US’s obligations under international agreements or if other exceptions are in place. Under Section 1605, the Buy American provisions do not apply if the head of the federal department or agency finds applying the provisions would be against the public interest, the goods are not produced or available in the United States in sufficient quantities or quality, or if use of US-made goods would increase the project’s cost by more than 25 percent. If the head of the agency decides to waive the provisions, they must publish an explanation in the Federal Register.

    In the Joint Explanatory Statement to Section 1605, the conferees state that Section 1605, except in certain circumstances, provides for the use of US-made iron, steel and manufactured goods. The conferees also state that “Section 1605(d) is not intended to repeal by implication the President's authority under Title III of the Trade Agreements Act of 1979.” Further, “[t]he conferees anticipate that the Administration will rely on the authority under 19 U.S.C. 2511(b) to the extent necessary to comply with US obligations under the WTO Agreement on Government Procurement and under US free trade agreements and so that section 1605 will not apply to least developed countries to the same extent that it does not apply to the parties to those international agreements.” The conferees “also note that waiver authority under section 2511(b)(2) has not been used.”

    The provisions of the ARRA that relate to Buy America are to be construed in compliance with the US’s obligations under international treaties. Government procurement is covered by the World Trade Organization’s plurilateral agreement on government procurement (GPA). Signatories to the GPA include the following countries: the 27 Member States of the European Community (Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxemburg, Latvia, Lithuania, Malta, the Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden and the United Kingdom), Canada, Hong Kong, Iceland, Israel, Japan, Korea, Liechtenstein, the Netherlands with respect to Aruba, Norway, Singapore, Switzerland and the United States.

    In the case of the United States, 37 states joined with the federal government as participants in the GPA, each designating specific state government entities subject to the provisions of the Agreement. Annex 2 of the US agreement lists the involved state government entities as well as certain limitations on their participation. According to one limitation, 12 states that are subject to pre-existing restrictions are exempt from the GPA with respect to procurement of construction-grade steel, motor vehicles, or coal.

    The GPA outlaws discrimination in the government procurement process. In addition, countries that have signed free-trade agreements (FTAs) with the United States that have government procurement chapters may also have rights against discrimination. These include Australia, Bahrain, Canada, Chile, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Mexico, Morocco, Nicaragua, Oman, Peru and Singapore.

    Many US FTAs have provisions on competition that apply to designated private or public monopolies and state-owned enterprises (SOE) designed to prevent discrimination and the abuse of privileged status by the monopoly or SOE. To the extent that the US designates specific firms as monopolies, they will have to conduct business that do not discriminate against non-US firms from FTA countries which have applicable competition chapters (including Australia, Canada, Chile, Mexico, Peru and Singapore).

    While this gives firms from some countries – broadly, GPA members, and FTA partners – some rights to challenge US practices if they are discriminated against as a result of Buy America provisions, many firms from non-GPA and non-FTA countries will not have such rights. Precisely whether the WTO or FTA provisions will be implicated will depend on the specifics of each individual government procurement program and this will be determined on a case-by-case basis.

    If you are impacted by the Buy America provisions of the stimulus, please contact a member of our market access group.