Buy America Requirements


Printer Friendly Number 61 FR 6299
02-16-96

[Federal Register:  February 16, 1996  (Volume61, Number 33)]
[Rules and Regulations ]               
[Page 6299-6303]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16fe96-20]

[[Page 6299]]
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Part II


Department of Transportation


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Federal Transit Administration

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49 CFR Part 661

Buy America Requirements; Final Rule

[[Page 6300]]

DEPARTMENT OF TRANSPORTATION
Federal Transit Administration
49 CFR Part 661
[Docket No. FTA-95-471]
RIN 2132-AA42
 
Buy America Requirements
AGENCY: Federal Transit Administration, DOT.
ACTION: Final rule.
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SUMMARY: This final rule implements section 1048 of the Intermodal 
Surface Transportation Efficiency Act of 1991 (ISTEA), which amends the 
Federal Transit Administration's (FTA) Buy America requirements, and 
makes other amendments intended to update and clarify FTA's Buy America 
regulation.
EFFECTIVE DATE: February 16, 1996.
FOR FURTHER INFORMATION CONTACT: Rita Daguillard, Deputy Assistant 
Chief Counsel, Federal Transit Administration, 400 Seventh Street, 
S.W., Washington, D.C. 20590, (202) 366-1936.
SUPPLEMENTARY INFORMATION:
I. The Notice of Proposed Rulemaking
    On September 12, 1995, FTA issued a notice of proposed rulemaking 
(NPRM) seeking to implement section 1048 of the Intermodal Surface 
Transportation Efficiency Act (Pubic Law 102-240) (ISTEA), which 
amended its Buy America requirements. FTA requested comments on this 
proposal and on other proposed amendments intended to update and 
clarify its Buy America regulation, 49 CFR Part 661.
    FTA received four comments: two from public transit agencies; one 
from a State department of transportation; and one from an organization 
representing mass transit systems, manufacturers and suppliers. All of 
the commenters supported the proposed amendments, although some 
suggested minor modifications, which are discussed below.
II. The ISTEA Amendments
A. Addition of ``Iron'' (Sec. 661.5(a)-(c))
    In the NPRM, FTA explained that 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 extended Buy 
America protection to iron and iron products, in addition to steel and 
manufactured products, which were previously protected. FTA proposed to 
amend 49 CFR 661.5 (a) and (b) to reflect this statutory amendment. FTA 
also proposed 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. The NPRM proposed 
that these items include, but not be limited to, structural steel or 
iron, steel or iron beams and columns, running rail, and contact rail. 
The requirements would not apply to iron used as components or 
subcomponents of other manufactured products or rolling stock.
    Two commenters opined that the use of the qualifier ``primarily'' 
may lead to confusion in the absence of greater specificity. They 
suggested that ``primarily'' may mean close to one hundred percent, and 
stated that some additional discussion or guidance on this issue might 
be appropriate. They also stated that the phrase ``primarily steel and 
iron'' should read ``primarily steel or iron'' to avoid an unintended 
implication that only products made primarily of both steel and iron 
are covered.
    FTA believes that it is not appropriate to attach a percentage to 
the definition of section 661.5(c), since the percentage of steel or 
iron in a particular item may vary according to an individual 
producer's refinement or manufacturing processes. Generally, the 
definition refers to construction or building materials made either 
principally or entirely from either steel or iron. All other 
manufactured products, even though they may contain some steel or iron 
elements, would not be covered. Therefore, steel girders would fall 
within the definition while buses with frames made partially from 
steel, would not be covered. To clarify this point, FTA will modify the 
proposed definition to specify that it is intended to apply to 
construction materials used in infrastructure projects, such as transit 
or maintenance facilities, rail lines, or bridges. FTA will also adopt 
the commenters' suggestion that these items be described as made of 
``primarily steel or iron.''
B. Intentional Violations (Sec. 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 under ISTEA. In the NPRM, FTA proposed to add 
new section 661.18, which would bar such persons from Federal 
assistance under ISTEA ``pursuant to suspension and debarment 
proceedings under [49 CFR Part 29].''
    Two commenters expressed the view that the wording of proposed 
section 661.18 could lead to a situation in which a person convicted of 
fraudulent misrepresentation under criminal statutes, but not processed 
through an administrative debarment/suspension proceeding, would remain 
eligible to receive ISTEA funds, contrary to Congressional intent. 
According to these commenters, the reference to debarment and 
suspension proceedings is unnecessary and should be removed. They 
stated that the remaining ineligibility under 49 CFR Part 29 is 
sufficient to implement Congress' intent without causing undue 
confusion.
    FTA agrees that the use of the term ``proceeding'' in section 661.8 
may create confusion since it could imply that only persons who have 
been suspended or debarred through a formal administrative process or 
hearing would be ineligible to receive ISTEA funds. In order to make it 
clear that any person suspended or debarred under 49 CFR Part 29, 
whether through a formal administrative hearing or under the general 
procedures of the regulation, will be so ineligible, FTA will delete 
its reference to ``proceedings.''
C. Limitation of the Applicability of Waivers (Sec. 661.7(h))
    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). In the NPRM, FTA noted 
that there is currently no agreement between the United States and a 
foreign country which waives the Buy America requirements. FTA 
therefore stated that it considered this provision inoperative at the 
present time. FTA proposed to amend 49 CFR 661.7 to add a new 
subsection that will reflect this statutory change, and sought comment 
on whether its conclusion that 49 U.S.C. 5323(j)(4) is not applicable 
at this time requires further discussion or expansion.
    Two commenters agreed that the provision should be adopted as 
proposed, but suggested that it be amended to provide clarification or 
guidance in the event that the type of international agreement 
contemplated in section 1048(b) should be concluded. Accordingly, FTA 
will adopt proposed subsection 661.7(h), subject to eventual 
[[Page 6301]]
amendment, should the United States become party to such an agreement.
III. Amendments to Update and Clarify the Buy America Regulation
    In the NPRM, FTA also sought to update the regulation by removing 
provisions that are no longer applicable, and to clarify certain other 
provisions.
A. Definition of ``Component'' (Sec. 661.3)
    The FTA Buy America regulation, 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 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 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 (51 U.S.C. 10(a)-(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 
proposed in the NPRM to add it to the definitions provision of the 
regulation, section 661.3. All comments on this issue were favorable, 
and FTA is adopting the definition as proposed.
B. Component Requirement for Manufactured Products (Sec. 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 
misunderstanding, FTA proposed to amend subsection 661.5(d)(2) to state 
that for a manufactured product to be considered of domestic origin, 
all of its components must be of United States origin. FTA also 
proposed to treat a component as being of U.S. origin if it is 
manufactured in the United States, regardless of the origin of its 
subcomponents. All of the commenters agreed that the proposal would 
correct the confusion and misunderstanding created by the current 
language of subsection 661.5(d)(2). FTA is amending this subsection as 
proposed.
C. Determination of Grandfathered Companies (Sec. 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 (Secs. 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. Subsections 
661.11 (b) and (c) of Part 49 implemented these statutory provisions. 
Since the 60 percent domestic content requirement is now in effect for 
all contracts executed after April 1, 1992, FTA will delete subsections 
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.
IV. Regulatory Impacts
A. Executive Order 12866
    FTA has determined that this action is not significant under 
Executive Order 12866 or 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 
with 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 
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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.
List of Subjects in 49 CFR Part 661
    Buy America, Domestic preference requirement, Government contracts, 
Grant programs--Transportation, Mass transportation.
Amendment of 49 CFR Part 661
    Accordingly, for the reasons described in the preamble, Part 661 of 
Title 49 of the Code of Federal Regulations is amended as follows:
PART 661--[AMENDED]
    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 
Sec. 661.3 to read as follows:

Sec. 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 Sec. 661.5 to read as follows:

Sec. 661.5  General requirements.
    (a) Except as provided in Sec. 661.7 and Sec. 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 construction 
materials made primarily of steel or iron and used in infrastructure 
projects such as transit or maintenance facilities, rail lines, and 
bridges. 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.
    (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:

Sec. 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.
* * * * *
    5. By removing Sec. 661.10.

Sec. 661.10  [Removed]
    6. By revising Sec. 661.11 to read as follows:

Sec. 661.11  Rolling stock procurements.
    (a) The provisions of Sec. 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 an activity 
separate and distinct 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 that 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. 
[[Page 6303]]
    (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 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 using the 
foreign exchange rate 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:
(1) Radios
(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
(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 transformer rectifiers
(3) DC switch gear
(4) Traction power console and CRT display system at central control
(5) Bus ducts with buses (AC and DC)
(6) Batteries
(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
(15) 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
(23) Inverters
(24) Traction motors
(25) Propulsion gear boxes
(26) Third rail pick-up equipment
(27) Pantographs
    (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 Sec. 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 Sec. 661.9. In lieu of these procedures, the bidder must submit the 
appropriate certificate required by Sec. 661.12.
    7. By adding Sec. 661.18 to read as follows:

Sec. 661.18  Intentional violations.
    A 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 part 29 of this title if it has been 
determined by a court or Federal agency that the 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: February 9, 1996.
Gordon J. Linton,
Administrator.
[FR Doc. 96-3388 Filed 2-15-96; 8:45 am]
BILLING CODE 4910-57-P