Importers, suppliers, and manufacturers hoping to cash in on federal stimulus money for renewable energy projects provided under the American Reconstruction and Reinvestment Act (ARRA) should be aware of the “Buy American” provisions contained in the bill. In an effort to ensure that federal stimulus money stays in the country, iron, steel, and manufactured goods funded, in whole or in part, by federal stimulus money must meet the requirements of the Buy American provision, with some exceptions.
The ARRA continues a long history of protection for U.S. business in government expenditures. The original Buy American Act (BAA – 41 U.S.C. § 10a–10d) was passed in Congress in 1933 as part of Roosevelt’s New Deal. The Act required the U.S. Government to prefer U.S. made products and services in its purchases. Similarly, the Buy American Act, part of the Surface Transportation Assistance Act of 1982 (49 U.S.C., § 5323 (j)) contained similar requirements for purchases over $100,000 related to mass transit that were at least partially funded with federal money. The provisions included in the ARRA, however, have met with some controversy in light of various agreements among world governments not to impose protectionist measures in fighting off a world recession.
Under the ARRA, no funds appropriated under the act can be used for public works projects unless “all iron, steel, and manufactured goods used… are produced in the U.S.” Exceptions to the rule exists, including (1) where the head of a federal agency determines that adherence to the policy would be “inconsistent with the public interest,” (2) where iron/steel/goods are not manufactured in sufficient quantity in the U.S. or (3) where inclusion of U.S. products would increase costs by 25% or more. Waiver provided for under any of these provisions must be published, with justification, in the Federal Register.
In interpreting the somewhat ambiguous language of the ARRA, the Obama administration has issued regulatory guidance in the form of interim guidelines, among other things. With respect to steel and iron products, the guidelines are clear, all manufacturing processes for iron and steel must occur in the U. S. The guidelines provided for manufactured goods, however, remain amorphous, leaving manufacturers guessing. A manufactured good is considered produced in the U. S. if “it results from processing into a specific form and shape or combining of raw material into a property different from the individual raw materials, and that processing and/or combining occurs in the United States.”
In response to the lack of clarity in the guidelines, the Office of Management and Budget (OMB) has issued interim guidelines. The OMB guidelines rely on the familiar “substantial transformation” test traditionally used by U.S. Customs and Border Protection (Customs) when determining the country of origin of an imported product. Importers and manufacturers seeking to ensure that their final product will meet the various Buy American and government procurement guidelines may seek a final determination from Customs under 19 CFR Part 177, subpart B. The request is made in the form of a letter containing, among other things, the name of the requester, a description of the article, the country the article is claimed to be a product of, and, if applicable, the specific governmental procurement for which the final determination is requested. The results of the final determination are published in the Federal Register and interested parties may seek judicial review of the final determination within 30 days.
To provide additional guidance, the U.S. Environmental Protection Agency provides the following questions to determine if a good has been substantially transformed:
- Were all of the components in the good manufactured and assembled in the U.S.?
- Was there a change in character or use of the good or the components in the U.S.?(1)
- Were the processes performed in the U.S. complex and meaningful?
If the answer to question one is yes, the product is clearly manufactured in the U.S. The remaining questions are generally decided on a case-by-case basis by the applicable government agency. The guidelines further state that mere packaging or processes that are overly simple or minimal would likely not meet the requirements.
Assembly in the U.S. seems to play a substantial role in the determinations. Fairplay Electric Cars, LLC, for example, recently received a final determination that country of origin for their electric cars was the U.S. The cars were composed of Chinese body parts coupled with American motors and electronics and were assembled and wired completely in the U.S. The U.S. was also found to be the country of origin for recumbent bicycles assembled in the U.S. by Brunswick Corporation from parts manufactured in Mexico, China, Taiwan, Germany, Indonesia, Korea, and the U.S. On the other hand, heating boilers, assembled by Camus Hydronics, Ltd. in Canada from parts made in the United States, Canada, and France, were found to originate in Canada.
The provisions of the ARRA with regard to the Buy American clause are ambiguous at best. It is important that renewable energy companies seek legal advice on applicable Buy American provisions prior to committing resources.
Authored by Robert R. Elliott Jr.
(1) This inquiry applies to the finished product as a whole, not merely the individual components.