Buy American EO applies domestic preferences for "essential medicines" and "medical countermeasures"

Hogan Lovells

On August 6, 2020, U.S. President Donald Trump issued his much-anticipated "Buy American" Executive Order (EO), intended to increase and support domestic manufacture and Federal government procurement of "essential medicines," "medical countermeasures," and "critical inputs" (including API, raw materials, and medical device components), and decrease dependency on non-domestic sources. The directives included in the EO are many and far-reaching. The order imposes requirements aimed at maximizing US production capability for essential medicines, medical countermeasures, and their components, and, along those lines, addresses regulatory barriers to domestic production. At the same time, the order directs Federal agencies involved in contracting for these medical products to apply preferences aimed at increasing procurement of products made in the US.

Notably, to allow for application of domestic procurement preferences, the order directs the US Trade Representative (USTR) to modify existing trade agreements to eliminate reciprocal treatment afforded to signatory countries. Many of these reciprocal structures have been in place for decades under the World Trade Organization (WTO) Agreement on Government Procurement and other international agreements. It is far from clear that these steps are consistent with existing agreement frameworks. Key directives within the EO are analyzed below.

Development of lists of "medically necessary" items

The EO tasks the Food and Drug Administration (FDA) and Department of Defense (DoD) to identify supply chain vulnerabilities and to compile lists of essential medicines, medical countermeasures, and their critical inputs that are "medically necessary to have available at all times in an amount adequate to serve patient needs and in the appropriate dosage forms."

Government procurement domestic preferences

The EO directs the Secretary of Health and Human Services (HHS), in accordance with its authority under the Defense Production Act, to prioritize procurement of covered products, and allocate materials, services, and facilities as "necessary or appropriate to promote the national defense." It also generally requires that Federal agencies involved in the procurement of these medical products (including DoD, HHS, and Veterans Affairs (VA)) take the following actions: (1) limit competition for covered products to those "produced in" the U.S. within existing procurement law, (2) divide procurement requirements among U.S. manufacturers "to the maximum extent permitted by applicable law," and (3) implement procurement strategies (including "long-term contracts") to strengthen and mobilize the "Public Health Industrial Base" to increase manufacture of the products.

  • What is "domestic"?: The standard for assessing whether an item is "produced in the United States," is that the "critical inputs" must be produced in the U.S. and the finished product must be "manufactured" in the U.S. This standard establishes a higher bar for finding US origin than required under the current Buy American "domestic end-product" and the Trade Agreements Act "U.S.-made end product" tests for these items, which do not require domestic components.

  • Removes reciprocal treatment for trade partner country product: As noted, the EO also directs elimination of the reciprocal treatment (parity with US products) that is currently afforded for products of countries that are parties to existing US trade and defense agreements in the context of Federal procurements. Application of this change would require revision of the Trade Agreements Act, the Federal Acquisition Regulation, and the Defense Federal Acquisition Regulation Supplement. Doing this would effectively reinstate Buy American domestic preferences that apply in their absence, many of which been "waived" for years pursuant to trade agreements.

  • Broad exceptions: There are significant public interest exceptions to the EO's Buy American directives. These cover certain circumstances where product is not produced in the US in sufficient and reasonably available commercial quantities and of a satisfactory quality, and where application of the Buy American framework would involve excessive cost (defined in the EO as an increase of more than 25%, or 50% for DoD procurements). Another key exception covers circumstances where procurement of non-domestic product is necessary in the case of a Public Health Emergency, or an emergency under the Stafford Act or the National Emergencies Act, including the COVID-19 pandemic.

USTR and DoD action to modify trade agreements and related procurement regulations

To allow for elimination of the reciprocal treatment for trade partner ("designated") countries under Federal procurement law, and to implement these new domestic procurement preferences, the EO directs the USTR– to the extent permitted by law – to modify international trade agreements to exclude the essential medicines, medical countermeasures, and critical inputs, identified as "medically necessary." These agreements include the WTO Agreement on Government Procurement and other free trade agreements. The USTR is required to act within 30 days of obtaining the "initial list" of medically necessary items.

Extensive FDA activity

In connection with the supply chain vulnerability assessment, the Secretary of HHS, through the FDA commissioner, is required to: 1) consider proposing regulations or issuing guidance on the collection of sourcing and inspection-related information as part of the regulatory approval process and developing agreements to allow interagency sharing of confidential commercial information, 2) determine whether any regulations are barriers to domestic production, 3) accelerate approval or clearance for domestic producers of covered products, 4) negotiate with countries to increase site inspections and increase unannounced inspections, and 5) refuse admission for covered products made in facilities for which FDA inspection was refused or unreasonably delayed.

EPA streamlining

The Environmental Protection Agency is required to take steps to streamline requirements to facilitate the establishment of domestic manufacturing facilities, including by accelerating siting and permitting approvals.

Measures against counterfeit drugs

Finally, the EO directs the Office of Management and Budget (OMB), in consultation with agency heads, to take steps to limit online procurement consistent with Department of Homeland Security (DHS) best practices on combating trafficking in counterfeit goods, and permit evaluation and confirmation of compliance with these practices.

These sweeping changes will require significant analysis – both by government procuring agencies and manufacturers of drugs, medical devices, medical countermeasures, and all required ingredients and components. Whether and how this EO will be implemented remains to be seen. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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