Buy America Requirements
Number 60 FR 47441 09-12-95
Vol. 60, No. 176
DEPARTMENT OF TRANSPORTATION (DOT)
Federal Transit Administration
49 CFR Part 661
[Docket No. FTA-95-471]
Buy America Requirements
60 FR 47442
DATE: Tuesday, September 12, 1995
ACTION: Notice of proposed rulemaking.
SUMMARY: This notice of proposed rulemaking seeks to implement section 1048 of the Intermodal Surface Transportation Efficiency Act of 1991 (Public Law 102-240) (ISTEA), which amended the Federal Transit Administration's (FTA) Buy America requirements. FTA requests comments on its proposed implementation of the statutory provisions and on other proposed amendments intended to update and clarify its Buy America regulation, 49 CFR Part 661.
DATES: Comments must be received on or before November 13, 1995.
ADDRESSES: All comments concerning these proposed regulations should be sent to Docket Clerk, Docket No. FTA-95-471, Department of Transportation, Room PL-401, 400 Seventh Street SW., Washington, DC 20590.
FOR FURTHER INFORMATION CONTACT: Rita Daguillard, Office of the Chief Counsel, (202) 366-1936.
I. The ISTEA Amendments
A. Addition of "Iron" (§ § 661.5(a)-(c))
Section 1048 of ISTEA amends 49 U.S.C. 5323(j) by adding "iron" to the products covered, and by inserting two new subsections concerning waivers of the Buy America requirements. By adding the word "iron," Congress has extended Buy America protection to iron and iron products, in addition to steel and manufactured products, which were previously protected. FTA intends to amend 49 CFR 661.5 (a) and (b) to reflect this statutory amendment. FTA also proposes to amend 49 CFR 661.5(c) to specify that both the iron and steel requirements apply to items made primarily from those materials and used in construction and rail projects. These items include, but are not limited to, structural steel or iron, steel or iron beams and columns, running rail and contact rail. These requirements do not apply to steel or iron used as components or subcomponents of other manufactured products or rolling stock. FTA seeks comment on this proposed amendment of 49 CFR 661.5(c).
B. Intentional Violations (§ 661.18)
Section 1048(b) amends 49 U.S.C. 5323(j) by inserting subsection (5), which states that any person determined by a Federal agency or court to have affixed a false "Made In America" label to or misrepresented the origin of a foreign product, shall be ineligible to receive contracts funded by ISTEA, pursuant to suspension and debarment proceedings. FTA intends to add new section 661.18 to implement this statutory change.
C. Limitation on Applicability of Waivers (§ 661.7)
Section 1048(b) also amends 49 U.S.C. 5323(j) by adding subsection (4), which provides that if a foreign country is party to an agreement with the United States under which the Buy America requirements are waived, and the foreign country violates the agreement by discriminating against U.S. goods, products from that country shall not be eligible for waivers under 49 U.S.C. 5323(j). FTA notes that there is currently no agreement between the United States and a foreign country which waives the Buy America requirements. FTA therefore considers this provision inoperative at the present time. FTA intends to amend 49 CFR 661.7 to add a new subsection that will reflect this statutory change, and seeks comment on whether its conclusion that 49 U.S.C. 5323(j)(4) is not applicable at this time requires further discussion or expansion.
II. Amendments to Update and Clarify the Buy America Regulation
FTA also seeks to update the regulation by removing provisions that are no longer applicable, and to clarify certain other provisions.
A. Definition of "Component" (§ 661.3)
49 CFR Part 661, consistent with the Surface Transportation Assistance Act of 1982 (STAA) and the Surface Transportation and Uniform Relocation Assistance Act (STURAA), establishes separate requirements for manufactured products and for rolling stock. To be considered domestic, rolling stock must be assembled in the United States and 60 percent of its components, by cost, must be of U.S. origin. For a manufactured product to be considered domestic, all manufacturing processes must take place in the United States and all of its components must be of U.S. origin. In both cases, then, to determine compliance with the Buy America requirements, it is necessary to identify those parts of a product which may be considered components.
Section 661.11, which sets out the separate requirements for rolling stock, defines, at subsection (e), component as "any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into the end product at the final assembly location."
However, many suppliers of manufactured products have pointed out to the FTA that neither section 661.3 (general definitions) nor section 661.5 (requirements for manufactured products) contains a similar definition of component. They have therefore asked FTA for guidance in determining what constitutes a component of a manufactured product.
FTA notes that the definition of component of subsection 661.11(e) parallels that of the Federal Acquisition Regulations implementing the Buy American Act of 1933 (49 U.S.C. § 10a-d), which applies to manufactured products generally. FTA therefore considers that it is appropriate to apply this definition to components of manufactured products as well as to components of rolling stock. Accordingly, FTA proposes to add it to the definitions provision of the regulation, section 661.11(3).
B. Component Requirement for Manufactured Products (§ 661.5(d)(2))
Section 165(b)(3) of the STAA, as amended by section 337 of STURAA, imposes domestic preference requirements on the subcomponents of components of rolling stock and associated equipment. No such similar statutory changes were made to section 165(a) for manufactured products. Therefore, the agency concluded that a manufactured product is of domestic origin if it is manufactured in the United States. In other words, in determining the origin of a component of a manufactured product governed by section 165(a), FTA will look only to where the product is manufactured, and will not look to the origin of the various materials included in the product during the manufacturing process.
However, subsection 661.5(d)(2) of the regulation provides that for a manufactured product to be considered of U.S. origin, "all items or material used in the product must be of United States origin." In FTA's experience, the language of this provision has often created the incorrect assumption that in determining the origin of a manufactured product, FTA will consider all of its material content, even at the subcomponent level and below. In order to correct this misperception, FTA proposes to amend subsection 661.5(d)(2) to state that for a [*47443] manufactured product to be considered of domestic origin, all of its components must be of United States origin. This amended provision will also state that a component will be considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents.
C. Determination of Grandfathered Companies (§ 661.10)
Section 337 of the STURAA provided for a gradual increase in the domestic content requirements for buses and other rolling stock from 50 percent to 60 percent. Section 337(a)(2)(B) of STURAA stated that these revised requirements would not apply to any contract entered into prior to April 1, 1992, with any supplier or contractor or any successor in interest or assignee which had complied with the previous domestic content requirements. Section 661.10 of the regulation sets out the criteria for determining whether a company could qualify for grandfather treatment.
Since the April 1, 1992, deadline has elapsed, and since there is little likelihood that contracts for rolling stock executed prior to that date are still outstanding, FTA will delete this grandfather provision from its Buy America regulation.
D. Domestic Content Requirements for Rolling Stock (§ § 661.11(a)-(d))
As indicated above, section 337 of STURAA provided for a gradual increase in the domestic content for rolling stock from the previous 50 percent level to 55 percent for contracts entered into after October 1, 1989, and to 60 percent for contracts entered into after October 1, 1991, and after April 1, 1992, for grandfathered companies. 49 CFR 661.11 (b) and (c) implemented these statutory provisions. Since the 60 percent domestic content requirement is now in effect for all contracts executed after April 1, 1992, FTA intends to delete subsections 661.11 (b) and (c) and to amend subsection 661.11(a) to reflect this change. Subsections (k) and (n) will also be revised to indicate that the 60 percent domestic content requirements also apply to components of rolling stock. The remaining subsections of 49 CFR 661.11 will be re-numbered accordingly.
E. Request for Comments
FTA requests comments on any of the amendments proposed today. In addition to those matters, FTA requests recommendations or proposals for other amendments which could further clarify the regulation or facilitate its implementation.
III. Regulatory Impacts
A. Executive Order 12866
FTA has determined that this action is not significant under Executive Order 12866 or the regulatory policies and procedures of Department of Transportation regulatory policies and procedures. Since this final rule makes only technical amendments to current regulatory language, it is anticipated that the economic impact of this rulemaking will be minimal; therefore, a full regulatory evaluation is not required.
B. Regulatory Flexibility Act
In accordance with 5 U.S.C. 603(a), as added by the Regulatory Flexibility Act, Pub. L. 96-354, FTA certifies that this rule will not have a significant impact on a substantial number of small entities within the meaning of the Act.
C. Paperwork Reduction Act
This action does not contain a collection of information requirement for purposes of the Paperwork Reduction Act of 1980, 44 U.S.C. 3501, et seq.
D. Executive Order 12612
This action has been reviewed under Executive Order 12612 on Federalism and FTA has determined that it does not have implications for principles of Federalism that warrant the preparation of a Federalism Assessment. If promulgated, this rule will not limit the policy making or administrative discretion of the States, nor will it impose additional costs or burdens on the States, nor will it affect the States' abilities to discharge the traditional State governmental functions or otherwise affect any aspect of State sovereignty.
IV. List of Subjects in 49 CFR Part 661
Buy America, Domestic preference requirement, Government contracts, Grant programs-Transportation, Mass transportation.
V. Proposed Amendments to 49 CFR Part 661
Accordingly, for the reasons described in the preamble, it is proposed that Part 661 of Title 49 of the Code of Federal Regulations be amended as follows:
1. By revising the authority citation to read as follows:
Authority: 49 U.S.C. 5323(j) (formerly Sec. 165, Pub. L. 97-424; as amended by sec. 337, Pub. L. 100-17 and sec. 1048, Pub. L. 102-240); 49 CFR 1.51.
2. By adding in alphabetical order a definition of "Component" to § 661.3 to read as follows:
§ 661.3 -- Definitions.
* * * * *
Component means any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into the end product at the final assembly location.
* * * * *
3. By revising § 661.5 to read as follows:
§ 661.5 -- General requirements.
(a) Except as provided in § § 661.7 and 661.11 of this part, no funds may be obligated by FTA for a grantee project unless all iron, steel, and manufactured products used in the project are produced in the United States.
(b) All steel and iron manufacturing processes must take place in the United States, except metallurgical processes involving refinement of steel additives.
(c) The steel and iron requirements apply to all items made primarily of steel and iron including, but not limited to, structural steel or iron, steel or iron beams and columns, running rail and contact rail. These requirements do not apply to steel or iron used as components or subcomponents of other manufactured products or rolling stock.
(d) For a manufactured product to be considered produced in the United States:
(1) All of the manufacturing processes for the product must take place in the United States; and
(2) All of the components of the product must be of U.S. origin. A component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents.
4. By adding new 661.7(h) to read as follows:
§ 661.7 -- Waivers.
* * * * *
(h) The provisions of this section shall not apply to products produced in a foreign country if the Secretary, in consultation with the United States Trade Representative, determines that:
(1) That foreign country is party to an agreement with the United States pursuant to which the head of an agency of the United States has waived the requirements of this section; and
(2) That foreign country has violated the terms of the agreement by discriminating against products covered by this section that are produced in the United States and are covered by the agreement. [*47444]
§ 661.10 -- [Removed]
5. By deleting § 661.10.
6. By revising § 661.11 to read as follows:
§ 661.11 -- Rolling stock procurements.
(a) The provisions of § 661.5 do not apply to the procurement of buses and other rolling stock (including train control, communication, and traction power equipment), if the cost of components produced in the United States is more than 60 percent of the cost of all components and final assembly takes place in the United States.
(b) The domestic content requirements in paragraph (a) of this section also apply to the domestic content requirements for components set forth in paragraphs (i),(j), and (l) of this section.
(c) A component is any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into an end product at the final assembly location.
(d) A component may be manufactured at the final assembly location if the manufacturing process to produce the component is a separate and distinct activity from the final assembly of the end product.
(e) A component is considered to be manufactured if there are sufficient activities taking place to advance the value or improve the condition of the subcomponents of that component; that is, if the subcomponents have been substantially transformed or merged into a new and functionally different article.
(f) Except as provided in paragraph (k) of this section, a subcomponent is any article, material, or supply, whether manufactured or unmanufactured, that is one step removed from a component (as defined in paragraph (c) of this section) in the manufacturing process and that is incorporated directly into a component.
(g) For a component to be of domestic origin, more than 60 percent of the subcomponents of that component, by cost, must be of domestic origin and the manufacture of the component must take place in the United States. If, under the terms of this part, a component is determined to be of domestic origin, its entire cost may be used in calculating the cost of domestic content of an end product.
(h) A subcomponent is of domestic origin if it is manufactured in the United States.
(i) If a subcomponent manufactured in the United States is exported for inclusion in a component that is manufactured outside the United States and it receives tariff exemptions under the procedures set forth in 19 CFR 10.11 through 10.24, the subcomponent retains its domestic identity and can be included in the calculation of the domestic content of an end product even if such a subcomponent represents less than 60 percent of the cost of a particular component.
(j) If a subcomponent manufactured in the United States is exported for inclusion in a component manufactured outside the United States and it does not receive tariff exemption under the procedures set forth in 19 CFR 10.11 through 10.24, the subcomponent loses its domestic identity and cannot be included in the calculation of the domestic content of an end product.
(k) Raw materials produced in the United States and then exported for incorporation into a component are not considered to be a subcomponent for the purpose of calculating domestic content. The value of such raw materials is to be included in the cost of the foreign component.
(l) If a component is manufactured in the United States, but contains less than 60 percent domestic subcomponents, by cost, the cost of the domestic subcomponents and the cost of manufacturing the component may be included in the calculation of the domestic content of the end product.
(m) For purposes of this section, except as provided in paragraph (o) of this section:
(1) The cost of a component or a subcomponent is the price that a bidder or offeror must pay to a subcontractor or supplier for that component or subcomponent. Transportation costs to the final assembly location must be included in calculating the cost of a component. Applicable duties must be included in determining the cost of foreign components and subcomponents.
(2) If a component or subcomponent is manufactured by the bidder or offeror, the cost of the component is the cost of labor and materials incorporated into the component or subcomponent, an allowance for profit, and the administrative and overhead costs attributable to that component or subcomponent under normal accounting principles.
(n) The cost of a component of foreign origin is set at the time the bidder or offeror executes the appropriate Buy America certificate.
(o) The cost of a subcomponent that retains its domestic identity consistent with paragraph (j) of this section shall be the cost of the subcomponent when last purchased, f.o.b. United States port of exportation or point of border crossing as set out in the invoice and entry papers or, if no purchase was made, the value of the subcomponent at the time of its shipment for exportation, f.o.b. United States port of exportation or point of border crossing, as set out in the invoice and entry papers.
(p) In accordance with 49 U.S.C. 5323(j), labor costs involved in final assembly shall not be included in calculating component costs.
(q) The actual cost, not the bid price, of a component is to be considered in calculating domestic content.
(r) Final assembly is the creation of the end product from individual elements brought together for that purpose through application of manufacturing processes. If a system is being procured as the end product by the grantee, the installation of the system qualifies as final assembly.
(s) An end product means any item subject to 49 U.S.C. 5323(j), that is to be acquired by a grantee, as specified in the overall project contract.
(t) Train control equipment includes, but is not limited to, the following equipment:
(1) Mimic board in central control.
(2) Dispatcher's console.
(3) Local control panels.
(4) Station (way side) block control relay cabinets.
(5) Terminal dispatcher machines.
(6) Cable/cable trays.
(7) Switch machines.
(8) Way side signals.
(9) Impedance bonds.
(10) Relay rack bungalows.
(11) Central computer control.
(12) Brake equipment.
(13) Brake systems.
(u) Communication equipment includes, but is not limited to, the following equipment:
(2) Space station transmitter and receivers.
(3) Vehicular and hand-held radios.
(4) PABX telephone switching equipment.
(5) PABX telephone instruments.
(6) Public address amplifiers.
(7) Public address speakers.
(8) Cable transmission system cable.
(9) Cable transmission system multiplex equipment.
(10) Communication console at central control.
(11) Uninterruptible power supply inverters/rectifiers.
(12) Uninterruptible power supply batteries.
(13) Data transmission system central processors.
(14) Data transmission system remote terminals.
(15) Line printers for data transmission system. [*47445]
(16) Communication system monitor test panel.
(17) Security console at central control.
(v) Traction power equipment includes, but is not limited to the following:
(1) Primary AC switch gear.
(2) Primary AC transformers (rectifier).
(3) DC switch gear.
(4) Traction power console and CRT display system at central control.
(5) Bus ducts with buses (AC and DC).
(7) Traction power rectifier assemblies.
(8) Distribution panels (AC and DC).
(9) Facility step-down transformers.
(10) Motor control centers (facility use only).
(11) Battery chargers.
(12) Supervisory control panel.
(13) Annunciator panels.
(14) Low voltage facility distribution switch board.
1(5) DC connect switches.
(16) Negative bus boxes.
(17) Power rail insulators.
(18) Power cables (AC and DC).
(19) Cable trays.
(20) Instrumentation for traction power equipment.
(21) Connectors, tensioners, and insulators for overhead power wire systems.
(22) Negative drainage boards.
(24) Traction motors.
(25) Propulsion gear boxes.
(26) Third rail pick-up equipment.
(w) The power or third rail is not considered traction power equipment and is thus subject to the requirements of 49 U.S.C. 5323(j) and the requirements of § 661.5.
(x) A bidder on a contract for an item covered by 49 U.S.C. 5323(j) who will comply with section 165(b)(3) and regulations in this section is not required to follow the application for waiver procedures set out in § 661.9. In lieu of these procedures, the bidder must submit the appropriate certificate required by § 661.12.
7. By adding § 661.18 to read as follows:
§ 661.18 -- Intentional violations.
Any person shall be ineligible to receive any contract or subcontract made with funds authorized under the Intermodal Surface Transportation Efficiency Act of 1991 pursuant to the debarment and suspension proceedings under part 29 of this title if it has been determined by a court or Federal agency that any person intentionally-
(a) Affixed a label bearing a "Made in America" inscription, or an inscription with the same meaning, to a product not made in the United States, but sold in or shipped to the United States and used in projects to which this section applies, or
(b) Otherwise represented that any such product was produced in the United States.
Issued on: September 5, 1995.
Gordon J. Linton,
This material is reprinted with the permission of LEXIS-NEXIS, a division of Reed Elsevier Inc. No copyright is claimed as to any part of the original work prepared by a government officer or employee as part of that person's official duties.