On the surface, it might appear that so-called "Buy American" rules, like the ones President Joe Biden has promised to tighten as part of a push to promote domestic manufacturing, are pretty straightforward.
A product either comes with a "Made in the USA" sticker or it doesn't, right?
Unfortunately, it's not that simple. To qualify under federal "Made in America" rules, a product must have at least 60 percent of its component parts manufactured in the United States. The Biden administration raised the threshold from 55 percent last year, and further increases—up to 75 percent by 2029—have been outlined by the White House.
But what counts as a finished product or a component part is open to interpretation—and the process is time-consuming, bureaucratic, and full of opportunities for domestic companies to leverage the power of the federal government against potential competitors.
Take for example what happened when the Metropolitan Transportation Authority (MTA), which operates the subway systems and other forms of mass transit in New York City, tried to buy a fire-suppression system from Finland in 2011. At the time, the MTA was in the process of building a new subway line under Second Avenue in Manhattan. Because the project was partially funded with federal dollars, the federal "Buy American" mandate applied.
By that point, the MTA had already gone through several rounds of bureaucratic approvals over the construction of the station. In 2010, for example, the agency had asked the Federal Transit Administration (FTA) to clarify whether an escalator in one of the stations on the new line was a "manufactured end product" or a component of the larger station project. The FTA responded by saying that the "escalator was a component of the larger transit facility and that the transit facility was the manufactured end product." As long as the whole facility was comprised of 55 percent American-made components, it would be compliant with the law.
Using that same logic, the MTA assumed that the fire suppression system—which, like an escalator, is both full of component parts and a component within the transit facility—could be treated as a part of the whole.
Not so fast. In 2013, Securiplex, a company that manufactures fire-suppression systems, asked the FTA to launch an investigation into whether the MTA had violated the "Buy American" rules by purchasing the Finland-made system from the Marioff Corporation, one of Securiplex's competitors.
It took more than a year for the FTA to make a decision, but it ultimately ruled that the Marioff system was not compliant. "MTA must acquire water mist fire suppression systems that consist of components manufactured in the United States," the agency told the MTA in a January 2015 letter.
Dana Nifosi, then-acting chief counsel for the FTA, claimed in the letter that the MTA's "good faith" analogy with the escalators was "taken out of context." An escalator or elevator is "interrelated to and incorporated into the physical structure of the facility, and therefore, functions more like a component of the facility," but a fire-suppression system is "a comprehensive system that functions more like a manufactured end product," Nifosi wrote.
Maybe you think the FTA's logic holds water, or maybe it seems like a bunch of nonsense. That doesn't really matter. Either way, the situation illustrates an unappreciated problem with the "Buy American" rules that both drive up costs and slow down the process of building infrastructure in the United States.
"Compliance with Buy America requirements is often not straightforward," explained the Congressional Research Service in a 2019 report that highlighted the MTA's struggles with the mandate a few years earlier. Disagreements over whether a particular item is "an end product, a component, or a subcomponent" often lead to delays in federal transportation projects, the report found.
That same problem is now affecting projects funded by the $1.2 trillion federal infrastructure bill that Biden signed last year. Earlier this month, the U.S. Department of Transportation blocked an attempt by some U.S. ports to use a portion of that funding to buy new dock cranes, trucks, and boat lifts from foreign manufacturers, The Washington Post reported last week. The American Association of Port Authorities argues that the only heavy equipment that will comply with another Biden administration mandate—one that requires all new equipment purchased with infrastructure bill funded to be electric, rather than gasoline-powered—is manufactured overseas.
So the question is essentially the same as the one that faced the FTA and MTA several years ago. Is the port the end product, with cranes, trucks, and lifts as component parts? Or do each of those things count as their own end products? If the Department of Transportation sticks to the latter interpretation, ports might be unable to use federal funding to upgrade their equipment—an outcome that would slow, rather than improve, supply chains.
It goes to show that higher costs are just one of the ways that "Buy American" mandates kneecap federal infrastructure spending. If you want something done quickly, don't empower the bureaucrats. Unfortunately, that's exactly what Biden is doing.
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