‘Made in America’ — President Biden Signs Executive Order to Boost U.S. Manufacturing, but to What Practical Effect?
On January 25, 2021, President Biden signed the “Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers” (Made in America EO) to leverage federal purchasing power to strengthen domestic manufacturing, spur job creation for Americans, and bolster the middle class. The EO tightens “Made in America Laws,” including the Buy American Act (BAA), at a time when U.S. industries and supply chains are faltering under the strains of the COVID-19 pandemic.
To many onlookers, President Biden’s reliance on Made in America laws to boost domestic manufacturing echoes the “Buy American, Hire American” strategy implemented by former President Trump. Yet the Biden administration argues that, unlike the numerous orders and directives issued by his predecessor, this EO provides “a clear directive with clear direction and clear time-limited windows” to deliver fundamental change. Below, we review the key components of the EO and assess its predicted impact on federal contractors, supply chain participants and global trading partners.
What Is Included in the New Executive Order?
Increased Domestic Content Requirements and Price Preferences
The Made in America EO aims to increase domestic content requirements and to improve how domestic content is defined and measured for qualifying purchases in order to limit exploitation of existing loopholes. Despite its focus on “Made in America Laws,” the EO targets only the Buy American Act. Specifically, it directs the Federal Acquisition Regulatory (FAR) Council to consider the following regulatory amendments to the BAA within 180 days (July 25, 2021):
Replace the “component test” in FAR Part 25, which identifies domestic end-products and domestic construction materials, with a new test that measures domestic content by the value added to the product through U.S.-based production or U.S. job-supporting economic activity
Increase the numerical threshold for domestic content requirements for end products and construction materials
Increase price preferences for domestic end-products and domestic construction materials
Critically, the EO does not establish specific percentage increases to domestic content requirements or domestic price preferences. This is particularly relevant given that the FAR Council issued a final rule on January 19 implementing President Trump’s July 2019 Executive Order 13881, “Maximizing Use of American-Made Goods, Products, and Materials.” As discussed in our prior alert, the January 19 final rule increases domestic content requirements from 50% to 95% for iron and steel products, and to 55% for other products. The rule also raises price preferences by 20% for domestic products. While this final rule does not go into effect until February 22, 2021, it remains to be seen whether the Biden administration will take additional action to enhance further the domestic sourcing requirements.
Waiver Reductions and New “Made in America Office”
The Made in America EO directs federal agencies to take a tougher stance on Buy American waivers that permit the purchase of foreign goods. It creates the new “Made in America Office” within the Office of Management and Budget (OMB), along with the new “Director of the Made in America Office” position, which will be responsible for implementing the directive and overseeing a reformed waiver process. Under the new waiver process, agencies must first provide the director with a description of the proposed waiver along with a “detailed justification for the use of goods, products, or materials that have not been mined, produced, or manufactured in the United States.” The director will have 15 days to review each waiver request, and agencies may appeal in writing any adverse waiver determinations.
To increase transparency into authorized waivers, the EO also directs the General Services Administration to create a public website to house waiver requests, information submitted as part of the agency justification, and the status of each requested waiver. Ultimately, the Biden administration hopes these changes will result in fewer granted waivers overall as well as greater consistency in the use of such waivers across agencies. While that outcome certainly may materialize, it is possible that it will come with a side of public shaming with waivers published on the new website.
Furthermore, to the extent permitted by law, the EO requires federal agencies to consider whether a significant portion of the cost advantage of a foreign-sourced product is “the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods,” prior to granting any waiver. The granting agency may consult with the International Trade Administration when making this determination and integrate its findings in making any wavier assessment.
Manufacturing Extension Partnership
The EO further directs federal agencies to utilize the Manufacturing Extension Partnership (MEP), a network of centers across the U.S. and Puerto Rico that connects agencies with small- and medium-sized American manufacturers. The goal of this “supplier scouting,” according to the Biden administration, is to increase participation of domestic small businesses, minority-owned businesses and other communities that are historically underrepresented in federal procurement.
Agency Reporting Requirements
The EO directs, within 180 days, that agencies review and report on their (i) implementation of, and compliance with, Made in America Laws; (ii) ongoing use of waiver authority; and (iii) recommendations to further achieve the EO’s Made in America policy goals. A biannual reporting requirement obligates agencies to also analyze spending resulting from waivers issued pursuant to the Trade Agreements Act (separated by country of origin), as well as to analyze goods, products, materials and services not subject to Made in America Laws or where such requirements have been waived.
Review of Application to IT Procurement
Pursuant to the EO, the FAR Council must comprehensively review the application and use of Made in America Laws for IT procurement. This includes a review of the existing BAA exception at FAR 25.103(e), which permits agencies to purchase certain commercial IT items without regard to BAA country of origin requirements. Although the deadline to do so is unclear, the council must develop recommendations to remove existing constraints on the extension of Made in America Law requirements to the procurement of these items.
Practical Limitations on Implementation
Despite the political appeal of the Made in America EO and its aspirational goals to increase domestic sourcing, there are certain practical limitations of which federal contractors and supply chain participants should be aware. As an initial matter, the Made in America EO fails to address the realities of U.S. manufacturing capabilities. For example, there is no apparent strategy in place regarding the inability of companies to shift quickly their manufacturing processes.
It also remains unclear how the new mandate will mitigate or eliminate limitations on current U.S. manufacturing capabilities. This is particularly true for emergency medical supplies in light of U.S. supply chain weaknesses exposed by the coronavirus pandemic. Any federal attempt to divert funding quickly towards items lacking resilient U.S. supply chains may very well result in an obstructed waiver process that delays product delivery.
Furthermore, the integrated nature of global supply chains makes it challenging not only to ascertain the domestic content of many manufactured goods, but also to identify even the domestic suppliers for certain components. The EO does not provide any further guidance or changes regarding current origin determination rules for U.S.-produced products or the purchase of foreign products under the Trade Agreements Act. In addition, to the extent that procurement can be restricted to domestic sources to reduce foreign competition, there remains the distinct possibility of increased costs and displaced jobs in other industries.
The order also offers little to no analysis of its trade implications. Spurned by tariff wars and trade confrontations under the Trump administration, other countries are sure to be closely watching President Biden’s Made in America EO. In practice, however, America’s international trade commitments may mean that the EO has little practical effect on foreign competition — even despite the protectionist spirit of the order.
As an initial matter, the EO directs these changes to the extent they will be “consistent with applicable law,” which is typically interpreted to mean consistent with U.S. trade requirements and obligations. President Biden also has reiterated his commitment to existing U.S. procurement obligations under the World Trade Organization (WTO) Government Procurement Agreement (GPA), the United States-Mexico-Canada Agreement (USMCA), and other U.S. free trade agreements.
It is unclear, for example, what, if any, impact this EO will have on the Trade Agreements Act as an exception to the Buy American Act requirements for purposes of federal acquisition planning and source selection planning. Minimally, any elimination of this exception is antithetical to the administration’s recommitment to the World Trade Organization (WTO) and to the United States re-engaging on the world stage, including U.S. commitments under the WTO GPA.
Further, proposed restrictions and potential contravention of U.S. commitments under the WTO GPA may prompt retaliatory actions on government procurement by key U.S. trading partners at a time when the Biden administration is seeking to restore normalized trade relations with the European Union, United Kingdom, Canada and others. This would make it more difficult for U.S. companies to compete for government procurement contracts in those jurisdictions. Notably, China is not a member of the WTO GPA.
The practical realities of global interdependence of supply chains, and of the U.S. government’s reliance on global sourcing for products that are unavailable in sufficient supply in the U.S., would seem to make it impossible to disavow world trade in favor of an America-centric procurement system. Without legislative action or a renegotiation of U.S. commitments under these agreements, it will be difficult to exclude foreign entities from federal procurement participation.
The EO represents the first step in President Biden’s broad economic plan to invest in American manufacturing and infrastructure. Despite the practical limitations discussed above, industry participants should begin preparing for increased compliance obligations under Buy American and other Made in America laws, along with potential delays in the issuance of waivers allowing for the government procurement of foreign products. Federal contractors and suppliers may want to be prepared to weigh in on any changes that the FAR Council proposes to the BAA FAR requirements. Faegre Drinker will continue to monitor new developments as the contours of President Biden’s domestic strategy and trade policy continue to unfold.