On July 15, 2019, President Trump issued an executive order directing the Federal Acquisition Regulatory Council (the “Council”) to amend the Federal Acquisition Regulations (“FAR”) to change the definition of foreign goods under the Buy American Act (the “Act”). Under the Act, a Federal entity must purchase goods manufactured in the United States unless comparable foreign goods are available at significantly lower prices or unless certain public policy exceptions are applicable. Under the Act’s current thresholds, an end product is considered to be manufactured in the United States if the cost of components mined, produced, or manufactured in the United States exceeds 50 percent of the cost of the product’s components.

Under the President’s order, the Council is expected to propose amendments to the FAR that would:

• Clarify that end products incorporating iron and steel will be considered foreign-origin products (and therefore generally not purchasable by the Federal government) if the cost of the foreign iron and steel used in the end product is 5% or more of the cost of all the inputs used in the product.

• Clarify that other, non-iron and steel end products will be considered foreign-origin products if 45 percent or more of the cost of all the inputs used in the end product are foreign. In other words, the proposed amendment would lower the test for foreign goods content for these products from the current 50 percent test to 45 percent. In the order, the President directs the Council to consider whether the proposed 45 percent threshold should be reduced to 25 percent in the future.

• Reduce the price differential that would allow a Federal entity to purchase a foreign-origin end product. Under the order, a Federal entity could purchase a foreign-origin end product only if there were a 20 percent difference in price between the foreign and U.S. end products (or a 30 percent difference in the case of a small business bid).

The President’s order directs the Council to publish the amendments for comment by the public in 180 days. At this point, it is not clear if the amendments will be issued in proposed form (which means that they would only take effect after comments concerning the amendments have been considered) or in interim form (meaning they would take effect when published). The order suggests, however, that the traditional “proposed” rulemaking procedure will be followed.

Finally, it should be noted that, for large contracts, the Trade Agreements Act (the “TAA”) overrides the Buy American Act, providing that Federal entities can purchase end products from qualifying countries (a group of countries which does not include China, India, or Brazil, among others) as long as the products meet the TAA’s substantial transformation requirements. The President’s order does not specifically address how the proposed 45% component test under the Buy American Act will affect the TAA’s substantial transformation origin test. As a result, it is likely that there will be significant public commentary on this aspect of the proposed regulations.