Senior Vice President for International Policy
January 24, 2023
“Buy American” and “Buy America” rules have been a feature of U.S. government procurement law for nearly a century. For example, Buy America rules require federally-funded transportation infrastructure to be built with U.S.-made iron and steel. Buy American rules apply to federal spending in diverse sectors.
Partly as a result of these rules, 97% of U.S. federal contracts by value were awarded to U.S. firms over the 2014-2019 period. The executive branch has also increased the percentage of domestic content required to qualify as a domestic end product for Buy American Act purposes and taken steps to make the issuance of waivers more difficult.
However, extending the reach of Buy American/Buy America rules to new products and sectors can backfire in ways that harm American workers and the companies that employ them while thwarting our bipartisan infrastructure development goals. The following cautionary tales from producers of goods as diverse as broadband equipment and gravel show some common, concerning threads:
- At times, U.S. companies that employ hundreds of thousands of Americans find that Buy American/Buy America rules may bar their products from federal procurements and programs for including imported inputs—even when those inputs aren’t available from domestic sources.
- The disruption caused by the expansion of Buy American/Buy America rules has in some cases delayed major infrastructure projects by generating red tape and confusion—driving costs up dramatically in the bargain.
- Further, expansion of these rules can waste taxpayer dollars as contracts go to firms that excel at jumping through regulatory hoops—as opposed to those offering superior goods and services at the lowest price.
Case 1: Water and Wastewater Equipment
The landmark Infrastructure Investment and Jobs Act (IIJA) signed into law in 2021 included a mandate known as “Build America, Buy America Act” (BABA) that extended the reach of Buy America rules into new sectors, with fewer exceptions and higher domestic content requirements.
One sector where the expanded rules are causing serious concern is the $110 billion water and wastewater infrastructure industry. This is a sector where the IIJA aimed to produce badly needed improvements in drinking water and wastewater treatment. The vast majority of the inputs companies in the sector require are already American-made, including pipe and structural steel. However, these critical infrastructure suppliers also depend on specialized pieces of equipment produced through global supply chains—the use of which BABA may complicate.
Flagging these concerns, more than a dozen water and wastewater equipment manufacturing associations and companies sent a letter to EPA Administrator Michael Regan and White House “infrastructure czar” Mitch Landrieu in September. They argued the mandate will throw a wrench into the sector’s plans and slow the launch and execution of needed projects to provide safe drinking water and wastewater treatment.
Worryingly, the new BABA rules mandate the exclusive use of equipment made in the United States even though, the industry groups wrote, some equipment is only manufactured abroad. This includes “high speed turbo and other blowers; motors; smart meters and sensors, actuators; certain types of pumps; UV technologies; membranes and membrane bioreactors; reverse osmosis system equipment and piping; ozone treatment; monitors, data analysis, and other smart technologies; and certain adsorbent media, including PFAS removal best available technologies.”
In the near term, the industry requested that the Biden administration grant water and wastewater project developers a two-year waiver from the new BABA requirements, warning that “a clear understanding on how the various departments and agencies will implement the requirements does not exist.”
For some in the industry, it’s a case of déjà vu all over again. A decade ago, many water and wastewater projects funded by the 2009 American Recovery and Reinvestment Act were delayed while states and municipalities conferred with their lawyers to figure out how to comply with federal Buy America rules to which they had never before been subject. So-called “shovel ready” projects were delayed for months and even years.
As of January 2023, the water and wastewater sector has far more questions than answers. The hope remains that the Administration will provide flexibility so that BABA rules don’t produce hardship for American companies and their employees while stalling economic development.
Case 2: Broadband and ICT Equipment
Also newly subject to BABA requirements are the broadband and technology sectors. The imposition of these obligations on these industries marks a break with customary exemptions included for decades in U.S. government procurement legislation that shielded information and communications technologies (ICT) from domestic content requirements. The federal government historically granted these exemptions to the Buy American Act because these products are developed and manufactured not in any one country but on the basis of globe-spanning supply chains.
The application of BABA requirements to broadband and ICT infrastructure today is about much more than iron and steel. The role of technology in facilitating modern infrastructure projects includes the following (as laid out by the Information Technology Industry Council in a blog):
- “Providing reliable internet access in rural communities requires high-speed network switches and routers, and fiber optic cabling.
- “Adding buses for public transportation requires sophisticated engine control computers and sensors to ensure clean emissions, and deploying new, faster rail cars requires modern sensors and communication devices for safe operation.
- “Turning wastewater into clean, drinkable water requires an advanced, distributed, and connected network of sensors to optimize the cleaning processes.
- “Deploying electric vehicle charging infrastructure requires modern high-power semiconductors for effective high-speed charging.”
Unfortunately, the extension of BABA requirements to broadband and other ICT-intensive areas exacerbates existing supply chain challenges in the marketplace. This challenge is particularly acute because key broadband components and equipment are not produced in the United States. Among other effects, this mandate will complicate the achievement of the IIJA’s main broadband objective—namely, closing the digital divide for millions of Americas.
The broadband sector has echoed other industries in conveying to the Administration that the implementation of BABA requirements with regard to ICT products generally lacks clarity and is confusing for state and local governments and the private sector. The Chamber, in conjunction with stakeholders from a diverse array of sectors, has repeatedly raised questions about this issue, and others, with the Office of Management and Budget (OMB), which has a coordinating role on implementation of Buy America requirements. Unfortunately, answers have not been forthcoming.
Case 3: Stone, Sand, and Gravel
The IIJA also extended BABA mandates to some construction materials for the first time. While representatives of producers of aggregates (such as stone, sand, and gravel), cement, and concrete convinced Congress to exclude their products from the expanded BABA mandate, the industry hasn’t escaped unscathed.
The availability of aggregates such as stone, sand, and gravel is limited by geology in many coastal states. These states often find it much more economical to import these materials by barge from Canada, Mexico, or Caribbean nations than to transport them by rail or truck from domestic sources. Forcing coastal states to “Buy American” in these circumstances would increase construction costs dramatically.
In an enlightened move, the IIJA’s congressional authors excluded from its definition of construction materials “cement and cementitious materials, aggregates such as stone, sand, or gravel, or aggregate binding agents or additives.” (Among the materials that were added to the definition are non-ferrous metals, plastic and polymer-based products, glass, lumber, and drywall.) The law also made clear that products made by combining these items, such as concrete and asphalt, are excluded from the new BABA requirements.
Unfortunately, this exclusion isn’t widely understood. As the National Stone, Sand, and Gravel Association (NSSGA) has conveyed to the Administration, multiple state departments of transportation, in addition to federal agencies, have begun issuing guidance and information requests directing suppliers to begin complying with BABA. Frequently the guidance fails to make clear the exclusion of aggregates materials from BABA’s reach.
To expeditiously execute on the promise of the IIJA to improve U.S. infrastructure, it is imperative that federal and state partners responsible for distributing federal investments respect the exclusion of these construction materials from BABA—as the law clearly affirms—and avoid imposing any domestic sourcing requirements on aggregates, cement, and related materials.
As these examples show, extending the reach of Buy America rules to new products and sectors can easily backfire and make infrastructure development goals harder to achieve. Officials should take the following precautions to avoid repeating this unhappy history:
- Take a “measure twice, cut once” approach to extending these rules to new products and sectors or otherwise add new strictures (such as raising domestic content percentages). A great deal more deliberation is needed before imposing mandates that weren’t written with adequate understanding of business realities.
- Enhance industry engagement and respond meaningfully to questions raised repeatedly with clear and expeditious guidance — and hold mandates in abeyance until they are rendered workable.
- Use the statutory BABA waiver process flexibly to account for marketplace and supply chain realities to support the timely completion of infrastructure projects.
- Comply with U.S. obligations under the WTO Government Procurement Agreement and other trade agreements, which afford U.S. companies and the workers they employ extremely valuable access to foreign government procurement markets. This should extend to BABA requirements and federal transfers to states and localities.
- Congress should make clear that the Department of Transportation’s existing de minimis threshold is applicable to all programs and projects covered by BABA requirements.
Given the broad applicability of Buy America, Buy American, and BABA rules, extending their coverage further and denying waivers often results in lost sales and higher costs for U.S. businesses as well as delays and sharp cost increases for infrastructure projects. Officials would do well to exercise caution with a collection of policies that can so easily backfire.