International Trade Agreements and US Procurement Law

• Author: Christopher R. Yukins and Allen B. Green
• Pages: 148-177

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Chapter 9

International Trade Agreements and US Procurement Law

Christopher R. Yukins andAllen B. Green

I.Introduction and Summary

Some of the most difficult issues in USprocurement law stem from the nation’s several

centuries of accumulated protectionist measures and from a patchwork of trade agreements

meant to contain that protectionism.These conflicting measures reflect a push-and-pull in US

procurement policy, between those who favor closed procurement markets and those who favor

open competition; the compromises reached between the two camps have created a Byzantine set

of rules and requirements.The USsystem’s complexity is likely to deepen over the next few

years, as the “Buy American” policies that played such a prominent role in the 2016 elections are

addressed.At the same time, however, regulatory cooperation between nations, driven by

international and regional agreements, will help reduce some of the organicbarriers—the

differences between rules systems that raise unnecessary barriers to competition—that have

plagued international procurement markets for so long.

To make sense of this complex area, this chapter proceeds in several parts.Part II reviews

the major pieces of protectionist legislation passed by Congress,1focusing first on the Buy

American Act of 1933; this discussion also references some of the most important implementing

regulations. Part III reviews the most important UStrade agreements which have limited the

force of that protectionist legislation, including the World Trade Organization’s Agreement on

Government Procurement (GPA).2Because barriers to procurement can also arise from structural

factors—“non-tariff barriers to trade,” which, in practice, may protect domestic vendors—this

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part also explains how the trade agreements mitigate those non-tariff barriers.Part IV offers

some practical suggestions for those working in this field.

II.Major Protectionist Measures in USLaw

In assessing major laws thatprotect the US federal procurement market, it is worth noting

that this type of protectionism stretches back throughout the history of the United States.3 Indeed,

even Adam Smith (whose free-market arguments helped shape the early economic policies of the

United States) argued for special protections in trade involving military materiel, because of the

national security implications of allowing foreign nations to control critical supplies.4As a

practical matter, domestic preferences in procurement are deeply embedded in USpolitics and

law, and, once in place, are difficult to erase.

A.The Buy American Act

The Buy American Act5was passed by Congress in 1933 as part of a broader

protectionist reaction to the Great Depression.6The Act generally requires federal agencies to

purchase only USmaterials and manufactured goods.7Under the Act, as implemented in federal

regulations (discussed below), manufactured products made wholly in the United States, or

products from “substantially all” domestic components, are eligible for price preferences over

foreign products.8The Buy American Act’s preferences turn on the place of manufacture of the

products (or the source of raw materials), and not the nationality of the contractor.The Buy

American Act applies to the federal government’s direct purchases exceeding the micro-purchase

threshold (currently $3,500),9and applies where a preference is consistent with the public

interest, and the proffered items are reasonable in price.10To assess price reasonableness,

agencies apply a margin of preference, and will purchase the domestic item (even if it is more

expensive than the foreign good) if the price of the domestic item falls within the specified