After ordering, yesterday, that the Keystone XL and Dakota Access pipelines be moved forward, President Donald Trump issued another executive order that required them, and all pipeline projects, to use only American-made steel.
According to Trump’s memo, steel produced in the U.S. must be used “for all new, expanded or retrofitted pipelines in the United States.”
It further defined “produced in the United States” to:
- With regard to iron or steel products, that all manufacturing processes for such iron or steel products, from the initial melting stage through the application of coatings, occurred in the U.S.
- Steel or iron material or products manufactured abroad from semi-finished steel or iron from the U.S. are not “produced in the U.S.” for purposes of this memorandum.
- Steel or iron material or products manufactured in the U.S. from semi-finished steel or iron of foreign origin are not “produced in the United States” for purposes of this memorandum.
This definition differs a bit from the existing Buy American Act of 1933, which required the federal government to prefer U.S.-made products in its purchases. The Hoover administration-signed act was essentially extended to procurement for federal surface transportation products with the similarly named Buy America Act of 1983 during the Reagan administration.
Shortly thereafter, Miller extended those Reagan-era beliefs and standards to beer production.
Buy American… If You Can
All kidding aside, according to the Buy American Act, in certain government procurement situations, the requirement to purchase U.S.-made steel may be waived by the contracting officer or the head of the contracting activity under certain conditions: If the domestic cost is 25% or more expensive than if foreign-sourced, if the product is not available domestically in sufficient quantity or quality, or “if doing so is in the public interest,” a virtual elastic clause that has allowed substitution on federal projects for decades.
That 25% can be a high hurdle. For Department of Transportation projects, the cost of the American component must be so high as to increase the entire project contract cost by 25%, not just the cost of the specific item. For example, in a bridge project, the cost of a U.S. girder would have to be so high as to increase the whole bridge project cost by 25%, something that rarely if ever happens.
On non-DOT construction projects under the Buy American Act, the Federal Acquisition Regulations (FAR) specify adding a 6% cost differential in comparing bids. The relevant section (48 CFR 25.204 section b) reads “Unless the head of the agency specifies a higher percentage, the contracting officer must add to the offered price 6% of the cost of any foreign construction material proposed for exception from the requirements of the Buy American statute based on the unreasonable cost of domestic construction materials…”
The Trade Agreements Act of 1979 also weakened the Buy American Act in that it, in many ways, supersedes it. The TAA allows the President to waive Buy American provisions under certain conditions. In general, any product is also TAA compliant if it is made in the U.S. or a “designated country,” which includes countries the U.S. has free trade agreements with such as Canada, Mexico, Australia and Singapore. If the Trans-Pacific Partnership would have passed that list would have expanded considerably.
There is no language in Trump’s memo that indicates any waivers for American-made steel would exist for trade-agreement countries. Or any countries for that matter. Like many things with our new President, however, this is just a memorandum and an opening of negotiations. There could be significant alterations made by the Department of Commerce which is tasked with actually developing a policy based on the President’s memorandum.
If such a pipeline policy is to be articulated, it’s also likely that the Congress would formalize it into law since Trump’s republican party has a majority in both houses of the legislature, although he could face a fight from free-trade advocates inside his own party.
Still, if this policy is adopted for at least the next four years even by only the executive branch it is, by far, the most stringent definition of “American-made” we have seen in federal steel procurement.
Note: This post was updated to add a fuller explanation of what “25%” means in federal projects. Thanks for a further clarification are owed to Frank S. Swain, Partner at Faegre Baker Daniels LLP in Washington, DC.