Volvo Bus Corporation -- Prevost Coach

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Mr. Shanker A. Singham
Squire Sanders
1201 Pennsylvania Avenue N.W., Suite 500
Washington, DC  2004-2401

Dear Mr. Singham:

I write in response to your letter dated November 17, 2010, in which you ask FTA to waive its Buy America requirements for motor coaches manufactured in Canada by Prevost Coach (Prevost), a division of the Volvo Bus Corporation.  For the reasons outlined below, I must deny your request.

Background

In your letter, you assert that FTA’s Buy America requirements “effectively grant a monopoly to one U.S. producer [of motor coaches]—MCI.”  You argue that this de facto monopoly has allowed MCI to offer an inferior product  at an inflated price.   To cure the de facto monopoly enjoyed by MCI, you ask FTA to issue a public interest waiver of its Buy America requirements.  If granted, the waiver you propose would allow FTA grantees to purchase motor coaches that are produced in Canada by Prevost.

Buy America

FTA’s Buy America requirements prevent FTA from obligating an amount of Federal funds for a project unless “the steel, iron, and manufactured goods used in the project are produced in the United States.”   For rolling stock procurements, FTA’s Buy America requirements are twofold: (1) the cost of the components and subcomponents produced in the United States must total at least 60 percent of the cost of all components in the rolling stock; and (2) final assembly of the rolling stock must occur in the United States.

Federal law authorizes FTA, at its discretion, to waive the Buy America requirements under certain conditions.  FTA may issue a non-availability waiver when it finds that a good is not produced in the United States in a sufficient and reasonably available amount or of an unsatisfactory quality.   It may issue a price-differential waiver if including domestic material will increase the cost of the overall project by more than 25 percent.   Public interest waivers are reserved, by statute, for circumstances when the application of the Buy America requirements would be inconsistent with the public interest.

When determining whether to issue a public interest waiver, FTA’s longstanding position is “that Congress intended that the public interest waiver provision . . . be utilized in extremely limited situations.”   Consistent with this position, FTA has articulated the following criteria for evaluating requests for public interest waivers:

1. FTA will consider each request on a case-by-case basis, taking into account the realities of the public transportation industry;

2. There must be a clear nexus between the waiver requested and the beneficial impact on the public;

3. FTA will deny requests that do not include factors like safety or the introduction of significant new technology; and

4. FTA will deny requests based on policy considerations—non availability and price differential—for which other waivers are available.

The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users  added a provision to the law that requires FTA to publish a written justification in the Federal Register and to allow for public comment before it may grant a public interest waiver.

Standing

FTA regulations limit who may apply for a waiver of FTA’s Buy America requirements.  According to 49 C.F.R. 661.9(b), “a bidder or offeror who seeks to establish grounds for an exception must seek the exception, in a timely manner, through the grantee.”  The only exceptions to this rule are if a manufacturer seeks a waiver for “a component or subcomponent [of rolling stock],” or for “a specific item or material that is used in the production of a manufactured product.”    All other waivers must be requested by an FTA grantee.

Discussion

Prevost lacks standing to apply for a public interest waiver.  As explained above, “a bidder or offeror,” like Prevost, “who seeks to establish grounds for an exception must seek the exception, in a timely manner, through the grantee.”  

Notwithstanding Prevost’s ineligibility to seek a waiver from FTA, your request would not satisfy FTA’s standard for a public interest waiver because it is based primarily on policy considerations—price and quality—for which other waivers are available.  I respond to your arguments, point-by-point, below.

Competitive Benefits

You claim that allowing a second competitor to enter the U.S. motor coach market would have positive effects on price and quality.  What you ignore in making this argument, however, is that other FTA waivers are intended to address these concerns.  If limited competition results in motor coaches ceasing to be available to FTA-funded transit agencies at a competitive price (measured by a greater than 25% price differential between foreign-produced and Buy America-compliant motor coaches) or quality, the appropriate action would be for an FTA grantee to apply for a waiver based on price-differential or non-availability. 

In addition, opening the federally funded coach market to foreign-produced motor coaches would send the wrong signal to bus manufacturers who have elected to comply with FTA’s Buy America rules by investing time and resources into developing the workforce and facilities needed to produce motor coaches in the United States.  An example you might follow is that of NovaBus, one of the sister divisions of the Volvo Bus Corporation.  In 2009, NovaBus opened a transit bus assembly facility in Plattsburgh, New York.  FTA encourages Prevost to make a similar investment if it wishes to compete in the domestic motor coach market.

Technological and Safety Benefits

You state that the lack of competition has stymied technological innovation and the inclusion of innovative safety features within the American-built motor coach industry.  While safety is a factor that could lead to a public interest waiver, such a request must come from an FTA grantee.  To the best of my knowledge, no FTA grantee has asserted that the current range of technological and safety features available to them on Buy America-compliant buses fails to meet their needs.  Moreover, if a bid from a Buy America-compliant motor coach manufacturer is not responsive to the transit agency’s technical specifications, the agency would be eligible to petition FTA for a non-availability waiver. 


Environmental Benefits

You note that motor coaches are instrumental in emission reductions for the role they play in moving large numbers of passengers who would otherwise be using less environmentally efficient means of transportation.  While I do not challenge that claim, noting that it is FTA’s mission to promote the use of public transportation, I do not see how a Canadian-made bus would benefit the environment any more or less than its American-made counterpart, particularly when both vehicles must comply with Federal Environmental Protection Agency standards.

Economic Benefits

Finally, you cite the benefits that a waiver would bring to the domestic economy, in particular, the potential of increased production at Volvo’s heavy-duty engine manufacturing facility in Hagerstown, Maryland.  While I am aware of correspondence from Maryland’s Congressional delegation attesting to this fact, my concern is for the overall impact on the American bus industry.  If FTA were to grant your request and allow foreign-assembled motor coaches to be purchased with FTA funds, it would come at a cost to those firms who currently employ American workers to assemble their buses.  Although you note that Hagerstown may experience job growth as a result of increased Prevost bus sales, you should know that FTA’s Buy America is not concerned in which state a particular component is manufactured, so long as at least sixty percent of them are manufactured in the United States.  As a matter of fact, I am aware that Prevost currently uses American-made Detroit Diesel engines in its vehicles, so converting those vehicles to use Volvo’s Hagerstown-made engines would not significantly augment the domestic workforce.  Rather, it may have the effect of simply shifting work from Michigan to Maryland, with little foreseeable net benefit to the American economy.

Conclusion

For the foregoing reasons, I hereby deny your request for a Buy America waiver. 
Feel free to contact Richard Wong or Jayme Blakesley of my staff if you have questions about this decision.

     Sincerely yours,

     Dorval R. Carter, Jr.
     Chief Counsel

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