Over the course of our nation’s history, the federal government has passed laws that helps stimulate American manufacturers over foreign companies for goods and services. One of those pieces of legislation is the Buy America Act, passed in 1982 as part of the Surface Transportation Assistance Act (more on that in a bit). More recently, the Buy America Act and others have received a heightened focus from President Trump and the Executive Branch as they push for domestic products and sourcing, like his “Presidential Memorandum Regarding Construction of American Pipelines” in January 2017. Below, we’ll get into what the Buy America Act is, its nuances, and a full analysis on how effective it is at truly benefiting American businesses.
What is the Buy America Act?
The Buy America Act is a subsection (section 165) of the Surface Transportation Assistance Act and was passed in 1982. As the name of the broader legislation indicates, it has to deal with purchases related to road and rail transportation like highways, rail transit systems, and other forms of public transportation. More specifically, the Buy America Act says that the Secretary of Transportation shall not obligate any funds to mass transportation projects that don’t prefer purchasing materials like iron, steel, and other manufactured products from within the United States (49 U.S.C. § 5323(j)(1)). Implementation of the act and compliance with its regulations is handled by the Federal Transit Administration. The BAA mostly applies to state and local government projects.
Broader Legislation: Surface Transportation Assistance Act
As we mentioned, the Buy America provision is just a subsection of the broader STAA. Championed by the Reagan administration, the STAA was intended to stimulate the public projects for transportation infrastructure to make sure they were well kept or restored, in many cases.
To provide that catalyst for restoration, the STAA contains a law called Title V, which added 5 cents to the per gallon tax for gas, of which 4 cents went to restoring highways and bridges, and 1 cent went to public transit projects.
Buy America Act (1982) vs. Buy American Act (1933)
The Buy America Act is not to be confused with the Buy American Act, which was passed in 1933 and focuses on broader government procurements outside of just transportation projects. For a full analysis of the Buy American Act, check out our comprehensive guide.
Requirements and Compliance
Naturally, as with many pieces of U.S. legislation, the requirements are fuzzy and transit agencies often have trouble determining how to stay in compliance with the Buy America Act.
For starters, the Buy America Act has different compliance standards for different government agencies. The Federal Transit Administration (FTA), Federal Highway Administration (FHWA), Federal Aviation Administration (FAA), and other DOT agencies all have different requirements.
As we mentioned above, the Buy America Act says that all iron, steel, and end products used in the project have to be produced in the United States. This requirement also applies to the iron and steel manufacturing process, unless it involves the “refinement of steel additives.” However, these requirements don’t apply to iron or steel used as components or sub-components of other manufactured goods or rolling stock (read: transit vehicles).
For each transportation project they start, the government agency has to fill out two certificates:
- A Certificate of Compliance that outlines all of the materials they want to procure that are made in the USA.
- A Certificate of Non-Compliance that lists all of the foreign materials they want to procure and the appropriate exceptions or waivers they fall under (more on that below).
The Act also has some growing requirements each fiscal year for procuring rolling stock (train equipment like train control, communication, and traction power equipment), which dictates that the cost of the components and subcomponents produced in the U.S. must be:
- >60% for FY2016 and FY2017
- >65% for FY2018 and FY2019
- >70% for FY2020 and beyond
Fortunately, there are some sections of the law that have repercussions for agencies that intentionally violate the Buy America Act. If they falsely claim that one of the materials they want to use is made in America, they won’t be awarded the contract for that transportation project.
However, each department has waivers (read: loopholes) that can get them around buying domestically.
Loopholes That Hurt U.S. Manufacturers
On the surface, it seems simple – 100% of the components of the final product should be made in the U.S. However, there are several waivers that agencies use to get around this requirement.
First is a cost-based waiver. If the cost of the U.S. product is 25% greater than the same foreign product, the agency is allowed to purchase the foreign product.
Certain niche transportation projects also have large waivers to get around the Buy America Act. A good example is ferryboat transportation, which has a nationwide waiver to buy certain international steel materials and machinery needed for construction. However, like we mentioned above, it’s tough to determine whether specific products make the cut or not, given the vagueness in requirements.
There are also quality and availability requirements, although no specific numbers are given. The Secretary of Transportation has the ability to waive compliance with the Buy America Act if the American materials or machinery are not made in the USA “in sufficient and reasonably available quantities and of a satisfactory quality.”
All international trade requirements are also not subject to this Act. Legislation like the World Trade Organization Government Procurement Agreement, U.S.-EC Exchange of Letters (May, 1995), and North American Free Trade Agreement (NAFTA) allow agencies to bypass BAA regulations.
Finally, the Secretary of Transportation can also waive Buy America requirements if it is “inconsistent with the public interest.” This is by far the most unclear of all the waivers and a primary reason why lots of government transportation projects are not 100% domestically sourced.
For each transportation project, all waivers have to be posted in the Federal Register after a final decision has been made.
How It Benefits U.S. Businesses
Legislation like the Buy America Act that favors domestically sourced materials for government contracts is favorable for U.S. businesses, especially in such large industries like iron and steel. The U.S. steel industry employs over 80,000 Americans, and big government transportation projects help keep those businesses afloat.
That being said, it is unfortunate that legislation like this Act (similar to the Buy American Act) has many loopholes that allow government agencies to look internationally for raw materials and other resources. What can we do to fix that? Keep increasing visibility of what these laws actually do and keep supporting our American manufacturers.