Federal Procurement:

International Agreements Result in Waivers of Some U.S. Domestic Source Restrictions

GAO-05-188: Published: Jan 26, 2005. Publicly Released: Feb 15, 2005.

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Over the years, Congress has enacted a variety of laws designed to encourage federal agencies to purchase U.S. supplies and services. These laws are commonly referred to as domestic preference laws or domestic source restrictions. Perhaps the best known of these laws is the Buy American Act, a 1933 law that established a statutory preference for U.S. supplies and construction materials. At the same time, Congress has approved a number of international agreements that open certain government procurements to goods and services from countries that are parties to those agreements. In addition, the Department of Defense (DOD) has entered into reciprocal procurement memoranda of understanding (MOUs) with some of its foreign counterparts, under which DOD may procure goods and services from those countries. Congress asked us to determine the effect of international agreements on the applicability of U.S. domestic source restrictions. In response, this report (1) identifies the current international trade agreements to which the U.S. is a party that contain government procurement provisions, as well as the reciprocal defense procurement MOUs, and (2) describes how these trade agreements and MOUs affect the applicability of selected domestic source restrictions.

The United States is currently a party to several trade agreements that require each party's goods and services to be given treatment comparable to domestic goods and services in certain government procurements. These agreements include three multilateral trade agreements, four bilateral free-trade agreements, and three recently signed free-trade agreements that now await congressional approval or entry into force. In addition, DOD has signed reciprocal defense procurement MOUs with its counterparts in 21 countries. These MOUs typically call for the signatories to remove barriers to the procurement of defense supplies. Together, the current trade agreements result in the waiver of the Buy American Act and a DOD domestic source restriction known as the Balance of Payments Program for 45 countries. This waiver is limited to those procurements in excess of established dollar thresholds and to the categories of products and the federal entities covered by each agreement. For example, eligible products from the countries that are parties to the World Trade Organization's Government Procurement Agreement (GPA) compete on a comparable basis with U.S.-made products in certain U.S. procurements without regard to the Buy American Act and the Balance of Payments Program. Similarly, for DOD procurements, the reciprocal defense procurement MOUs result in the waiver of the Buy American Act and the Balance of Payments Program for products originating in the 21 MOU countries. Subject to several limited exceptions, neither the trade agreements nor the MOUs affect the remaining domestic source restrictions we reviewed, including the Cargo Preference Act of 1954 and those that apply solely to DOD.

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