On April 18, 2017, President Trump signed the “Presidential Executive Order on Buy American and Hire American.” While there is no immediate impact, the Executive Order (“EO”) sets the stage for executive agencies to perform reviews of compliance with Buy American laws and could potentially lead to changes in how these laws are implemented. Note that although there is a “Buy American Act” the term “Buy American” is also used as a generic term to describe a variety of laws and regulations that impose domestic content requirements.
“We will follow two simple rules: buy American and hire American.” While world leaders are pondering what these words from President Trump’s Inaugural Address mean for international trade, a different question looms for U.S. Government contractors—what is on the horizon as far as the Buy American Act and similar protectionist regulations?
- Any new infrastructure spending bill that provides funding for state and local public works projects likely will incorporate domestic preference requirements similar to those incorporated in 2009’s American Recovery and Reinvestment Act.
- The process for issuing new waivers when a particular item is not available in commercial quantities from U.S. producers may be further restricted, and some existing waivers could be cancelled.
- Even if no new rules are implemented, contractors should be prepared for increased enforcement.
The Buy American Act, Balance of Payments Program, Cargo Preference Act, Berry Amendment and similar regulations all require U.S. Government contractors to exclusively use, or give a preference to, U.S. suppliers. Further, the Trade Agreements Act prohibits U.S. Government purchases of products from many foreign countries. Continue reading →
In a development that may have important implications for companies selling products to the U.S. government, on December 7, 2016, the Court of International Trade (CIT) issued a decision holding that the assembly in the United States of a flashlight using imported components did not qualify as “U.S. origin” under the Trade Agreements Act. The court’s decision potentially may alter the manner in which government agencies determine whether a product with foreign content is eligible to be purchased.
Donald Trump’s victory in the 2016 Presidential election put the Republican Party in charge of the White House and Congress for the first time in a decade. President-elect Trump ran as an anti-establishment candidate who departed from many traditional Republican positions and promised bold and in some respects controversial reforms. How his administration will govern and the extent to which its policies will be supported in Congress are key questions facing companies and investors.
This report comments on aspects of international trade, sanctions and export control policies that are currently at the forefront of discussion.
On October 5, the trade ministers of the 12 nations participating in the negotiations announced that they had successfully concluded the Trans-Pacific Partnership (TPP) free trade agreement. Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam are the member countries. There is a long way to go before the TPP is ratified and implemented (and the prospects for ratification in certain countries are not certain), but the agreement represents a major accomplishment for negotiations that began in 2009.
On June 24, after weeks of legislative wrangling and extensive lobbying by influential interest groups, the U.S. Senate passed the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, better known as the Trade Promotion Authority (“TPA”) legislation. The House approved identical legislation last week, so the President now can sign TPA into law.
Although enactment of TPA is technically not a prerequisite for Congress to consider pending free trade agreements (“FTAs”), the “fast track” procedures contained within the TPA legislation offer the President critical leverage to finalize negotiations for several key FTAs and provide assurances to trading partners that Congress will not reopen the negotiations after the agreement has been finalized. In particular, the TPA bill mandates the use of several procedures to accelerate Congressional consideration of legislation to implement a trade agreement. These expedited procedures include:
This afternoon the House of Representatives approved a rule that extends time for a second vote on Trade Adjustment Assistance legislation which the House failed to pass on Friday. By a vote of 236-189, the House voted to allow for reconsideration of the trade legislation before July 30th. The next six weeks promise to be full of interesting legislative twists and turns as supporters of the trade agenda seek a path forward.
President Obama and Republican House leaders are regrouping in an effort to put key trade legislation back on track after House Democrats voted against Trade Adjustment Assistance (TAA) for workers displaced by global trade, a key part of the President’s trade agenda.
The development threatens ultimate passage of the Trans-Pacific Partnership (TPP), a proposed trade agreement with 12 nations along the Pacific Ocean. A legacy priority for the Obama Administration, the TPP would eliminate Non-Tariff Barriers (NTBs) to trade, lower tariffs, and harmonize regulations in countries representing 40 percent of the global economy. Continue reading →
Japanese Prime Minister Shinzo Abe’s visit last week to the United State was a huge success. Through the visit, President Obama and the Prime Minister affirmed the importance of the Trans-Pacific Partnership (TPP) as a trade agreement, but also as a strategic security tool for the Asia Pacific region. The Prime Minister also made his mark as the first Japanese prime minister to address a joint meeting of Congress.
Unfortunately for TPP supporters, opposition forces in Congress have taken the wind out of the sails of the Prime Minister’s successful state visit. Controversy continues to brew in Congress over the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, legislation to grant the President Trade Promotion Authority (TPA) to negotiate international deals that Congress can approve or disapprove, but which Congress cannot filibuster or amend. TPA is seen as essential to completing a treaty like TPP which is being negotiated with 12 countries. Continue reading →
Major new free trade agreements are on the horizon. For the past several years, the Obama Administration has been negotiating two new major free trade agreements: the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Partnership Agreement (TTIP). Because of divisions within the Democratic Party regarding trade agreements, previously it was uncertain whether the President could garner the support necessary to obtain Congressional approval. With both Houses of Congress now controlled by the Republican Party—which historically has supported trade agreements—the prospects for ultimate approval have significantly improved. Action on the TPP in particular is possible during 2015.
Most of the existing U.S. free trade agreements have only two parties—the United States and one foreign country. (Exceptions are the NAFTA, with Canada and Mexico, and the CAFTA, with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.) There are currently 12 countries negotiating the TPP: the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. Of these, the United States already has free trade agreements with all except Japan, Malaysia, New Zealand and Vietnam.
Although there are extensive multilateral obligations to reduce or eliminate trade barriers contained in the World Trade Organization (WTO) agreements, free trade agreements go further. Such agreements require the complete elimination of customs duties (usually phased out over time), and also contain commitments relating to trade in services, government procurement, protection of intellectual property, and a wide range of other subjects. Adding Japan, Malaysia, New Zealand and Vietnam to the list of countries that have made free trade commitments to the United States will create new market opportunities for many industries.
To be eligible to benefit from preferential tariff commitments, exporters and importers must be able to verify that a product complies with the applicable “rule of origin” for that product. Rules of origin ensure that sufficient value is added in a member country so that products of a non-member cannot benefit simply by undergoing minimal processing in a member country. The TPP is expected to contain a “cumulation” provision that will allow content from any of the 12 member countries to be counted toward satisfaction of the rules of origin. This provision will create more flexibility for component sourcing and manufacturing arrangements.
The TPP is also expected to include enhanced obligations in a number of areas, for example with respect to disciplines on government support (e.g., subsidies) to state-owned enterprises, and the elimination of barriers to the provision of services by foreign companies in certain sectors.
Although a number of difficult issues remain to be resolved in the negotiations, significant progress has been made on the text. The prospect of potential receptivity by the U.S. Congress has created new momentum to complete the negotiations, and an effort is being made to reach agreement on the toughest subjects in the very near future.
Trans-Atlantic Trade and Partnership Agreement
TTIP is a proposed free trade agreement between the United States and European Union, on behalf of its 28 member states. Average tariffs on goods between the two trading partners are already low at 3%, and a major portion of bilateral trade is not subject to any duties. However some sectors still have relatively high customs duties, particularly the agricultural sector.
As with the TPP, the TTIP negotiating agenda is ambitious and goes beyond reducing customs duties. The United States and the European Union hope to deepen economic integration by streamlining customs rules and procedures, increasing liberalization of trade in services, expanding participating in government procurement contracts, and coordinating approaches for issues of global concern such as protection of intellectual property. A major goal is to increase regulatory coherence by promoting transparency, participation and accountability in the development of regulations concerning standards for products.
Trade Promotion Authority Legislation
The procedures under which the Administration negotiates and submits trade agreement are complex. Normally, Congress authorizes the negotiations through the enactment of Trade Promotion Authority (TPA) legislation. TPA allows the President to negotiate trade agreements under certain parameters, including requirements to consult with certain Congressional committees during the negotiations, and to incorporate certain goals, priorities and objectives into the trade agreements. If all of the substantive and procedural requirements are met, a trade agreement can be submitted by the President to Congress simultaneously with implementing legislation, and Congress is required to act within strict time deadlines to either approve or disapprove the entire agreement, without the ability to introduce amendments. Absent this procedure, foreign governments would be reluctant to make concessions, knowing that the Congress could override commitments of the U.S. government and reopen the negotiations.
The President’s TPA authority actually expired in 2007. Nonetheless, the Administration has carried out the TPP negotiations as though TPA were in place, in the expectation that Congress would at some point reenact TPA with largely the same substantive and procedural requirements.
Last week the House Ways and Means Committee and the Senate Finance Committee both reported out draft TPA legislation, and the full House and Senate are expected to take up the legislation for debate and a votes within the next few weeks.
These are noteworthy developments and the result of bipartisan consensus from leaders in the House and Senate. However, trade agreements remain politically controversial. We expect opponents from both political parties to propose amendments designed to force the Administration to stop the TPP and TTIP negotiations. To overcome a potential filibuster and pass the full Senate, the legislation also will need to garner all Republican votes and at least six votes from Democrats to achieve a 60-vote margin.
Achieving this goal will require Senator Ron Wyden (D-OR), Ranking Member of the Senate Finance Committee, and and other Democrats to continue to work closely with the President’s trade leadership team, which is intent on advancing TPP and TTIP as legacy issues for President Obama. Given the strong levels of bipartisan engagement among key leaders at this time, the prospects for ultimate approval are relatively strong.