The federal government focuses on boosting domestic content requirements

As President Joe Biden and his administration get serious about its Buy American plans, a federal agency is looking to boost the domestic content requirement for goods supplied to the federal government. Getty Images

President Joe Biden’s administration continues to hone its Made in America policy with the goal of boosting U.S.-based manufacturing.

American steel manufacturers and their unions are among the biggest cheerleaders for the recent proposed rule increasing the domestic content required for sales to federal agencies administering programs governed by various Buy American or Made in America regulations.

During a virtual meeting on Aug. 26 to discuss the proposed rule issued by the Federal Acquisition Regulatory (FAR) Council, a group of representatives from the Office of Management and Budget, the Department of Defense, NASA, and the General Services Administration, which directs government-wide procurement policy and regulatory activities, some industry groups raised some very detailed questions about some of the proposed changes. Interest was focused on the significant increase in the domestic content requirement, new post-award reporting requirements, price preferences for companies, and the potential negative impact on U.S. exports if European countries, Japan, and others increase their own domestic content requirements in response to the U.S. move.

Probably the most significant aspect of the FAR Council’s proposal is a staged increase from 55% to 75% for the domestic content requirement, which is to occur over seven years. That percentage applies to products that are not “wholly or predominantly” made of iron or steel. However, if a product is “wholly or predominantly” made of iron or steel, the cost of foreign iron and steel must constitute less than 5% of the cost of all the components. That would not change.

The domestic requirement increases would be phased in accordingly:

• 60% for items delivered through calendar year 2023
• 65% for items delivered in calendar years 2024 through 2028
• 75% for items delivered starting in calendar year 2029

The increase to 75% received significant support during the virtual meeting. John Paul Smith, a former legislative policy representative with the United Steelworkers and now with the AFL-CIO, said the increase was a “significant” improvement, but that the Buy America Act “can still be improved, and we look forward to working with you to further strengthen those laws.”

Kevin Dempsey, president/CEO of the American Iron and Steel Institute, said, “Strong domestic procurement preferences—including provisions to require the use of American steel—are essential to creating and maintaining good-paying U.S. manufacturing jobs and to protecting our national security.”

Scott Boos, senior vice president for government affairs and policy Alliance for American Manufacturing, which has a significant labor union membership, pointed to the part of the Biden-proposed rule that lays out a new series of price preferences for domestic products considered critical. The objective here is to strengthen U.S. suppliers of such things as medical products—such as masks used to prevent the spread of viruses like COVID-19—and defense equipment.

Price preferences already are used to make domestic offers as attractive as low offers from overseas companies. In those instances, a specified percentage of the overall price is added to the foreign low offer, inclusive of duty. Under the current FAR Council guidance, large businesses offering domestic supplies receive a 20% price preference, and small businesses offering domestic supplies receive a 30% price preference. Those price preferences would increase to rates to be determined for those products deemed to be critical or made up of critical components. After watching former President Donald Trump’s administration impose national security tariffs on imported steel and aluminum, Washington observers believe it is not a far leap to expect a good number of defense products to be deemed “critical” by the current administration.

While domestic steel manufacturers and their unions praised Biden’s proposed rule, John Luddy, vice president for national security policy at the Aerospace Industries Association, implied that the quality of defense products could be diminished by the proposal.

“The U.S. derives strength from acquiring parts and components from partners and allies in the global marketplace. It allows us to deliver the best-quality products to U.S. and global customers, including the U.S. military and partner militaries around the globe,” Luddy said.

That is probably a reference to the fact that the Trade Agreements Act (TAA) of 1979 limits the Buy American Act’s applicability. The TAA requires U.S. government procurements to treat as if they were domestic those materials originating in a country with which U.S. has a covered trade agreement. It is not clear whether that significant loophole would be eliminated.

Sam Rizzo, senior director of policy at the Information Technology Industry Council, worried foreign countries would retaliate. He explained the European Union is considering a legislative proposal for an international procurement instrument.

“If passed, this will enable the European Commission to impose price preferences for its domestic firms where it determines that those firms are not receiving reciprocal market access in other markets including the U.S.,” Rizzo said.