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Steel industry looks for loopholes in Buy American provisions

Strict definition could put some pipe projects at risk

Just how much "domestic content" should be required for steel pipe used in U.S. projects?

Various sectors in the U.S. steel industry are making a determined effort to influence the final definition of “domestic content” related to iron and steel required of U.S. pipeline builders.

Concerning iron and steel products, President Donald Trump’s January presidential memorandum wants to define “produced in the United States” as applying only to products for which all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the U.S. It goes on to explain that steel or iron material or products manufactured abroad from semifinished steel or iron from the U.S. do not qualify. The Commerce Department is implementing the specifics and will produce a final definition by January 2018.

These restrictions would apply “to the maximum extent possible and to the extent permitted by law.” The requirement would apply to all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the U.S.

The steel industry is now dickering over the extent of loopholes that could be created when “to the maximum extent” is fleshed out. U.S. Steel, for example, says that weakening Trump’s “all manufacturing processes” standard would threaten to “drain critical processes in steel making, and the technology and significant jobs required to perform this work, outside our borders.”

That “all manufacturing processes” description of domestic content is fairly ironclad. The question is which of the many current domestic- content laws, and interpretations thereof, it is based on—if any. The oldest law is the Buy American Act of 1933. It restricts the federal purchase of items that are not “domestic end products.” It requires more than 50 percent of the cost of all components of any product to be mined, produced, or manufactured in the U.S. Another standard is set by the Trade Agreements Act of 1979, which provides that the federal government may acquire only “U.S.-made or designated country end products” when the underlying contract exceeds certain varying financial thresholds. The Trade Agreements Act employs a “substantial transformation” test to determine the origin of the product, which differs from the cost-of-components test applied to traditional Buy American projects. Federal transportation agencies all define “Buy American” requirements differently, though many use the definition established by the Federal Trade Commission, which calls for “all or virtually all” of a product to be made in the U.S.

Simeon Kriesberg, counsel to Weldbend, a manufacturer of carbon steel butt-welded pipe fittings and flanges in Argo, Ill., said the Commerce Department should adopt the FTC’s “all or virtually all” definition. It allows foreign content that is negligible. Where components are not available in the U.S.&emdash;when the “to the extent possible” exemption comes into play&emdash;Weldbend wants pipelines to select fittings and flanges that satisfy the country-of-origin rules administered by U.S. Customs and Border Protection.

This definitional maneuvering reflects in part a concern that very strict standards would force pipelines to derail projects on the books, resulting in lost business for the domestic industry. If written without any flexibility, this type of domestic-content policy could end up hurting the domestic steel industry it was supposed to help.

“We have received some alarmed phone calls from current and potential pipeline project sponsors,” said James Bowe Jr., a partner in the energy practice at law firm King & Spalding, which represents interstate pipeline companies. “Projects planning to use 48-in., 42-in., and even in some cases 36-in. pipe might be canceled because those diameters are not available domestically in the quantities the projects require.”

One steel company official admitted that her company’s support for the Trump memorandum might sound lukewarm.

“But we don’t know what it will look like, nor whether the administration even has the authority to apply a domestic-content requirement to privately built pipelines,” she said.

About the Author

Stephen Barlas

Contributing Writer

Stephen Barlas is a freelance writer that has more than 30 years of experience covering Congress, the White House, and the many regulatory agencies found in Washington, D.C. He has covered issues affecting the metal fabricating industry for The FABRICATOR for more than a decade.