KIC Holdings

Mr. G. Patrick Guzmer
KIC Holdings, Inc.
4109 Fruit Valley Road
Vancouver, Washington 98660

Dear Mr. Guzmer:

This responds to your letters of April 21, 2003 and May 20, 2003, in which you request a public interest waiver of the Buy America requirements for the sale of KIC-Reyco (KIC) heavy-duty brake drums sold as replacement parts.

FTA's requirements concerning domestic preference for federally funded transit projects are set forth in 49 U.S.C. §5323(j). The implementing regulation provides that all components of a manufactured product must be of U.S. origin and that a "component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents." 49 CFR 661.5(d)(2). However, Section 5323(j)(2)(A) states that these requirements may be waived if their application would be inconsistent with the public interest. The regulation also notes that "[i]n determining whether the conditions exist to grant this public interest waiver, the [FTA] will consider all appropriate factors on a case-by-case basis . . . ." 49 C.F.R. 661.7(b).

You contend that only one heavy-duty brake drum manufacturer, Webb Wheel (Webb), is able to comply with Buy America and that Webb has a monopoly. You assert that having only one manufacturer able to comply with Buy America is contrary to the public interest and generating competition is in the publicís interest. You also argue that a waiver for KIC would save the transit industry a great deal of money.

FTA posted a request for comments on this matter on our website and received six comments: Four against, one in favor, and one informational. The comment in support of the waiver, from Onyx Distribution, a brake drum distributor, noted that a waiver would provide a more competitive marketplace for the industry. The informational comment was from the President of Truck Trailer Transit, a brake drum manufacturer, who affirmed that to the best of his knowledge, there is only one Buy America compliant manufacturer of heavy-duty brake drums.

The commenters against the waiver all argued that the facts presented by petitioner do not accurately reflect the state of the market and that there are at least three other manufacturers able to comply with Buy America, including Arvin Meritor, Gunite, and DuraBrake. Webb Wheel, the alleged sole domestic manufacturer, commented that DuraBrake and Gunite both comply with Buy America. Arvin Meritor informed FTA that it is a major supplier of after market Buy America compliant brake drums. Arvin Meritor also noted that Hayes, Conmet, and Gunite are compliant manufacturers. DuraBrake clarified that while they have closed their Washington facility, they are opening up a new plant in Baltimore, Maryland next month and will continue to supply compliant brake drums. And Gillig Corporation noted that Arvin Meritor is a compliant manufacturer and that regardless of whether there is more than one compliant manufacturer, to grant such a waiver would be contrary to the purpose and intent of the law. Gillig also commented that Webb has kept their prices down and competitive.

After submitting your request, you became aware of at least one other domestic manufacturer, and contacted my staff to inform FTA of this fact. You then supplemented your argument by stating that, despite the fact that Grunite and DuraBrake plan to manufacture brake drums in the U.S., a two-year waiver is still appropriate because it will take that much time for DuraBrake and Grunite to secure the approval of enough transit properties to become a viable competitor to Webb. However, our research reveals that testing process takes weeks, not years, and generally is not required if a company moves its facility.

The comments reveal that there is competition in this industry: There are countless distributors, who compete with each other, and at least four domestic manufacturers. Even if FTA were to consider the argument that increasing competition was in the public interest, it would not be sustainable under these circumstances.

If you have any questions, please contact Meghan Ludtke at (202) 366-1936.

Very truly yours,

Gregory B. McBride
Deputy Chief Counsel

Denial of a public interest waiver request from the KIC Holdings, a manufacturer of heavy-duty brake drums. The request was based on the argument that it was in the public interest to generate competition in the industry.

June 3, 2003