[Federal Register Volume 60, Number 176 (Tuesday, September 12, 1995)]
[Proposed Rules]
[Pages 47442-47445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22499]




[[Page 47441]]

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Part II





Department of Transportation





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Federal Transit Administration



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49 CFR Part 661



Buy America Requirements; Proposed Rule

  Federal Register / Vol. 60, No. 176 / Tuesday, September 12, 1995 / 
Proposed Rules  

[[Page 47442]]


DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

49 CFR Part 661

[Docket No. FTA-95-471]
RIN 2132-AA42


Buy America Requirements

AGENCY: Federal Transit Administration, DOT.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This notice of proposed rulemaking seeks to implement section 
1048 of the Intermodal Surface Transportation Efficiency Act of 1991 
(Public Law 102-240) (ISTEA), which amended the Federal Transit 
Administration's (FTA) Buy America requirements. FTA requests comments 
on its proposed implementation of the statutory provisions and on other 
proposed amendments intended to update and clarify its Buy America 
regulation, 49 CFR Part 661.

DATES: Comments must be received on or before November 13, 1995.

ADDRESSES: All comments concerning these proposed regulations should be 
sent to Docket Clerk, Docket No. FTA-95-471, Department of 
Transportation, Room PL-401, 400 Seventh Street SW., Washington, DC 
20590.

FOR FURTHER INFORMATION CONTACT:
Rita Daguillard, Office of the Chief Counsel, (202) 366-1936.

SUPPLEMENTARY INFORMATION: 

I. The ISTEA Amendments

A. Addition of ``Iron'' (Secs. 661.5(a)-(c))

    Section 1048 of ISTEA amends 49 U.S.C. 5323(j) by adding ``iron'' 
to the products covered, and by inserting two new subsections 
concerning waivers of the Buy America requirements. By adding the word 
``iron,'' Congress has extended Buy America protection to iron and iron 
products, in addition to steel and manufactured products, which were 
previously protected. FTA intends to amend 49 CFR 661.5 (a) and (b) to 
reflect this statutory amendment. FTA also proposes to amend 49 CFR 
661.5(c) to specify that both the iron and steel requirements apply to 
items made primarily from those materials and used in construction and 
rail projects. These items include, but are not limited to, structural 
steel or iron, steel or iron beams and columns, running rail and 
contact rail. These requirements do not apply to steel or iron used as 
components or subcomponents of other manufactured products or rolling 
stock. FTA seeks comment on this proposed amendment of 49 CFR 661.5(c).

B. Intentional Violations (Sec. 661.18)

    Section 1048(b) amends 49 U.S.C. 5323(j) by inserting subsection 
(5), which states that any person determined by a Federal agency or 
court to have affixed a false ``Made In America'' label to or 
misrepresented the origin of a foreign product, shall be ineligible to 
receive contracts funded by ISTEA, pursuant to suspension and debarment 
proceedings. FTA intends to add new section 661.18 to implement this 
statutory change.

C. Limitation on Applicability of Waivers (Sec. 661.7)

    Section 1048(b) also amends 49 U.S.C. 5323(j) by adding subsection 
(4), which provides that if a foreign country is party to an agreement 
with the United States under which the Buy America requirements are 
waived, and the foreign country violates the agreement by 
discriminating against U.S. goods, products from that country shall not 
be eligible for waivers under 49 U.S.C. 5323(j). FTA notes that there 
is currently no agreement between the United States and a foreign 
country which waives the Buy America requirements. FTA therefore 
considers this provision inoperative at the present time. FTA intends 
to amend 49 CFR 661.7 to add a new subsection that will reflect this 
statutory change, and seeks comment on whether its conclusion that 49 
U.S.C. 5323(j)(4) is not applicable at this time requires further 
discussion or expansion.

II. Amendments to Update and Clarify the Buy America Regulation

    FTA also seeks to update the regulation by removing provisions that 
are no longer applicable, and to clarify certain other provisions.

A. Definition of ``Component'' (Sec. 661.3)

    49 CFR Part 661, consistent with the Surface Transportation 
Assistance Act of 1982 (STAA) and the Surface Transportation and 
Uniform Relocation Assistance Act (STURAA), establishes separate 
requirements for manufactured products and for rolling stock. To be 
considered domestic, rolling stock must be assembled in the United 
States and 60 percent of its components, by cost, must be of U.S. 
origin. For a manufactured product to be considered domestic, all 
manufacturing processes must take place in the United States and all of 
its components must be of U.S. origin. In both cases, then, to 
determine compliance with the Buy America requirements, it is necessary 
to identify those parts of a product which may be considered 
components.
    Section 661.11, which sets out the separate requirements for 
rolling stock, defines, at subsection (e), component as ``any article, 
material, or supply, whether manufactured or unmanufactured, that is 
directly incorporated into the end product at the final assembly 
location.''
    However, many suppliers of manufactured products have pointed out 
to the FTA that neither section 661.3 (general definitions) nor section 
661.5 (requirements for manufactured products) contains a similar 
definition of component. They have therefore asked FTA for guidance in 
determining what constitutes a component of a manufactured product.
    FTA notes that the definition of component of subsection 661.11(e) 
parallels that of the Federal Acquisition Regulations implementing the 
Buy American Act of 1933 (49 U.S.C. Sec. 10a-d), which applies to 
manufactured products generally. FTA therefore considers that it is 
appropriate to apply this definition to components of manufactured 
products as well as to components of rolling stock. Accordingly, FTA 
proposes to add it to the definitions provision of the regulation, 
section 661.11(3).

B. Component Requirement for Manufactured Products (Sec. 661.5(d)(2))

    Section 165(b)(3) of the STAA, as amended by section 337 of STURAA, 
imposes domestic preference requirements on the subcomponents of 
components of rolling stock and associated equipment. No such similar 
statutory changes were made to section 165(a) for manufactured 
products. Therefore, the agency concluded that a manufactured product 
is of domestic origin if it is manufactured in the United States. In 
other words, in determining the origin of a component of a manufactured 
product governed by section 165(a), FTA will look only to where the 
product is manufactured, and will not look to the origin of the various 
materials included in the product during the manufacturing process.
    However, subsection 661.5(d)(2) of the regulation provides that for 
a manufactured product to be considered of U.S. origin, ``all items or 
material used in the product must be of United States origin.'' In 
FTA's experience, the language of this provision has often created the 
incorrect assumption that in determining the origin of a manufactured 
product, FTA will consider all of its material content, even at the 
subcomponent level and below. In order to correct this misperception, 
FTA proposes to amend subsection 661.5(d)(2) to state that for a 

[[Page 47443]]
manufactured product to be considered of domestic origin, all of its 
components must be of United States origin. This amended provision will 
also state that a component will be considered of U.S. origin if it is 
manufactured in the United States, regardless of the origin of its 
subcomponents.
C. Determination of Grandfathered Companies (Sec. 661.10)

    Section 337 of the STURAA provided for a gradual increase in the 
domestic content requirements for buses and other rolling stock from 50 
percent to 60 percent. Section 337(a)(2)(B) of STURAA stated that these 
revised requirements would not apply to any contract entered into prior 
to April 1, 1992, with any supplier or contractor or any successor in 
interest or assignee which had complied with the previous domestic 
content requirements. Section 661.10 of the regulation sets out the 
criteria for determining whether a company could qualify for 
grandfather treatment.
    Since the April 1, 1992, deadline has elapsed, and since there is 
little likelihood that contracts for rolling stock executed prior to 
that date are still outstanding, FTA will delete this grandfather 
provision from its Buy America regulation.

D. Domestic Content Requirements for Rolling Stock (Secs. 661.11(a)-
(d))

    As indicated above, section 337 of STURAA provided for a gradual 
increase in the domestic content for rolling stock from the previous 50 
percent level to 55 percent for contracts entered into after October 1, 
1989, and to 60 percent for contracts entered into after October 1, 
1991, and after April 1, 1992, for grandfathered companies. 49 CFR 
661.11 (b) and (c) implemented these statutory provisions. Since the 60 
percent domestic content requirement is now in effect for all contracts 
executed after April 1, 1992, FTA intends to delete subsections 661.11 
(b) and (c) and to amend subsection 661.11(a) to reflect this change. 
Subsections (k) and (n) will also be revised to indicate that the 60 
percent domestic content requirements also apply to components of 
rolling stock. The remaining subsections of 49 CFR 661.11 will be re-
numbered accordingly.

E. Request for Comments

    FTA requests comments on any of the amendments proposed today. In 
addition to those matters, FTA requests recommendations or proposals 
for other amendments which could further clarify the regulation or 
facilitate its implementation.

III. Regulatory Impacts

A. Executive Order 12866

    FTA has determined that this action is not significant under 
Executive Order 12866 or the regulatory policies and procedures of 
Department of Transportation regulatory policies and procedures. Since 
this final rule makes only technical amendments to current regulatory 
language, it is anticipated that the economic impact of this rulemaking 
will be minimal; therefore, a full regulatory evaluation is not 
required.

B. Regulatory Flexibility Act

    In accordance with 5 U.S.C. 603(a), as added by the Regulatory 
Flexibility Act, Pub. L. 96-354, FTA certifies that this rule will not 
have a significant impact on a substantial number of small entities 
within the meaning of the Act.

C. Paperwork Reduction Act

    This action does not contain a collection of information 
requirement for purposes of the Paperwork Reduction Act of 1980, 44 
U.S.C. 3501, et seq.

D. Executive Order 12612

    This action has been reviewed under Executive Order 12612 on 
Federalism and FTA has determined that it does not have implications 
for principles of Federalism that warrant the preparation of a 
Federalism Assessment. If promulgated, this rule will not limit the 
policy making or administrative discretion of the States, nor will it 
impose additional costs or burdens on the States, nor will it affect 
the States' abilities to discharge the traditional State governmental 
functions or otherwise affect any aspect of State sovereignty.

IV. List of Subjects in 49 CFR Part 661

    Buy America, Domestic preference requirement, Government contracts, 
Grant programs-Transportation, Mass transportation.

V. Proposed Amendments to 49 CFR Part 661

    Accordingly, for the reasons described in the preamble, it is 
proposed that Part 661 of Title 49 of the Code of Federal Regulations 
be amended as follows:

PART 661--[AMENDED]

    1. By revising the authority citation to read as follows:

    Authority: 49 U.S.C. 5323(j) (formerly Sec. 165, Pub. L. 97-424; 
as amended by sec. 337, Pub. L. 100-17 and sec. 1048, Pub. L. 102-
240); 49 CFR 1.51.

    2. By adding in alphabetical order a definition of ``Component'' to 
Sec. 661.3 to read as follows:


Sec. 661.3  Definitions.

* * * * *
    Component means any article, material, or supply, whether 
manufactured or unmanufactured, that is directly incorporated into the 
end product at the final assembly location.
* * * * *
    3. By revising Sec. 661.5 to read as follows:


Sec. 661.5  General requirements.

    (a) Except as provided in Secs. 661.7 and 661.11 of this part, no 
funds may be obligated by FTA for a grantee project unless all iron, 
steel, and manufactured products used in the project are produced in 
the United States.
    (b) All steel and iron manufacturing processes must take place in 
the United States, except metallurgical processes involving refinement 
of steel additives.
    (c) The steel and iron requirements apply to all items made 
primarily of steel and iron including, but not limited to, structural 
steel or iron, steel or iron beams and columns, running rail and 
contact rail. These requirements do not apply to steel or iron used as 
components or subcomponents of other manufactured products or rolling 
stock.
    (d) For a manufactured product to be considered produced in the 
United States:
    (1) All of the manufacturing processes for the product must take 
place in the United States; and
    (2) All of the components of the product must be of U.S. origin. A 
component is considered of U.S. origin if it is manufactured in the 
United States, regardless of the origin of its subcomponents.
    4. By adding new 661.7(h) to read as follows:


Sec. 661.7  Waivers.

* * * * *
    (h) The provisions of this section shall not apply to products 
produced in a foreign country if the Secretary, in consultation with 
the United States Trade Representative, determines that:
    (1) That foreign country is party to an agreement with the United 
States pursuant to which the head of an agency of the United States has 
waived the requirements of this section; and
    (2) That foreign country has violated the terms of the agreement by 
discriminating against products covered by this section that are 
produced in the United States and are covered by the agreement.

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Sec. 661.10  [Removed]

    5. By deleting Sec. 661.10.
    6. By revising Sec. 661.11 to read as follows:


Sec. 661.11  Rolling stock procurements.

    (a) The provisions of Sec. 661.5 do not apply to the procurement of 
buses and other rolling stock (including train control, communication, 
and traction power equipment), if the cost of components produced in 
the United States is more than 60 percent of the cost of all components 
and final assembly takes place in the United States.
    (b) The domestic content requirements in paragraph (a) of this 
section also apply to the domestic content requirements for components 
set forth in paragraphs (i),(j), and (l) of this section.
    (c) A component is any article, material, or supply, whether 
manufactured or unmanufactured, that is directly incorporated into an 
end product at the final assembly location.
    (d) A component may be manufactured at the final assembly location 
if the manufacturing process to produce the component is a separate and 
distinct activity from the final assembly of the end product.
    (e) A component is considered to be manufactured if there are 
sufficient activities taking place to advance the value or improve the 
condition of the subcomponents of that component; that is, if the 
subcomponents have been substantially transformed or merged into a new 
and functionally different article.
    (f) Except as provided in paragraph (k) of this section, a 
subcomponent is any article, material, or supply, whether manufactured 
or unmanufactured, that is one step removed from a component (as 
defined in paragraph (c) of this section) in the manufacturing process 
and that is incorporated directly into a component.
    (g) For a component to be of domestic origin, more than 60 percent 
of the subcomponents of that component, by cost, must be of domestic 
origin and the manufacture of the component must take place in the 
United States. If, under the terms of this part, a component is 
determined to be of domestic origin, its entire cost may be used in 
calculating the cost of domestic content of an end product.
    (h) A subcomponent is of domestic origin if it is manufactured in 
the United States.
    (i) If a subcomponent manufactured in the United States is exported 
for inclusion in a component that is manufactured outside the United 
States and it receives tariff exemptions under the procedures set forth 
in 19 CFR 10.11 through 10.24, the subcomponent retains its domestic 
identity and can be included in the calculation of the domestic content 
of an end product even if such a subcomponent represents less than 60 
percent of the cost of a particular component.
    (j) If a subcomponent manufactured in the United States is exported 
for inclusion in a component manufactured outside the United States and 
it does not receive tariff exemption under the procedures set forth in 
19 CFR 10.11 through 10.24, the subcomponent loses its domestic 
identity and cannot be included in the calculation of the domestic 
content of an end product.
    (k) Raw materials produced in the United States and then exported 
for incorporation into a component are not considered to be a 
subcomponent for the purpose of calculating domestic content. The value 
of such raw materials is to be included in the cost of the foreign 
component.
    (l) If a component is manufactured in the United States, but 
contains less than 60 percent domestic subcomponents, by cost, the cost 
of the domestic subcomponents and the cost of manufacturing the 
component may be included in the calculation of the domestic content of 
the end product.
    (m) For purposes of this section, except as provided in paragraph 
(o) of this section:
    (1) The cost of a component or a subcomponent is the price that a 
bidder or offeror must pay to a subcontractor or supplier for that 
component or subcomponent. Transportation costs to the final assembly 
location must be included in calculating the cost of a component. 
Applicable duties must be included in determining the cost of foreign 
components and subcomponents.
    (2) If a component or subcomponent is manufactured by the bidder or 
offeror, the cost of the component is the cost of labor and materials 
incorporated into the component or subcomponent, an allowance for 
profit, and the administrative and overhead costs attributable to that 
component or subcomponent under normal accounting principles.
    (n) The cost of a component of foreign origin is set at the time 
the bidder or offeror executes the appropriate Buy America certificate.
    (o) The cost of a subcomponent that retains its domestic identity 
consistent with paragraph (j) of this section shall be the cost of the 
subcomponent when last purchased, f.o.b. United States port of 
exportation or point of border crossing as set out in the invoice and 
entry papers or, if no purchase was made, the value of the subcomponent 
at the time of its shipment for exportation, f.o.b. United States port 
of exportation or point of border crossing, as set out in the invoice 
and entry papers.
    (p) In accordance with 49 U.S.C. 5323(j), labor costs involved in 
final assembly shall not be included in calculating component costs.
    (q) The actual cost, not the bid price, of a component is to be 
considered in calculating domestic content.
    (r) Final assembly is the creation of the end product from 
individual elements brought together for that purpose through 
application of manufacturing processes. If a system is being procured 
as the end product by the grantee, the installation of the system 
qualifies as final assembly.
    (s) An end product means any item subject to 49 U.S.C. 5323(j), 
that is to be acquired by a grantee, as specified in the overall 
project contract.
    (t) Train control equipment includes, but is not limited to, the 
following equipment:
    (1) Mimic board in central control.
    (2) Dispatcher's console.
    (3) Local control panels.
    (4) Station (way side) block control relay cabinets.
    (5) Terminal dispatcher machines.
    (6) Cable/cable trays.
    (7) Switch machines.
    (8) Way side signals.
    (9) Impedance bonds.
    (10) Relay rack bungalows.
    (11) Central computer control.
    (12) Brake equipment.
    (13) Brake systems.
    (u) Communication equipment includes, but is not limited to, the 
following equipment:
    (1) Radios.
    (2) Space station transmitter and receivers.
    (3) Vehicular and hand-held radios.
    (4) PABX telephone switching equipment.
    (5) PABX telephone instruments.
    (6) Public address amplifiers.
    (7) Public address speakers.
    (8) Cable transmission system cable.
    (9) Cable transmission system multiplex equipment.
    (10) Communication console at central control.
    (11) Uninterruptible power supply inverters/rectifiers.
    (12) Uninterruptible power supply batteries.
    (13) Data transmission system central processors.
    (14) Data transmission system remote terminals.
    (15) Line printers for data transmission system.

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    (16) Communication system monitor test panel.
    (17) Security console at central control.
    (v) Traction power equipment includes, but is not limited to the 
following:
    (1) Primary AC switch gear.
    (2) Primary AC transformers (rectifier).
    (3) DC switch gear.
    (4) Traction power console and CRT display system at central 
control.
    (5) Bus ducts with buses (AC and DC).
    (6) Batteries.
    (7) Traction power rectifier assemblies.
    (8) Distribution panels (AC and DC).
    (9) Facility step-down transformers.
    (10) Motor control centers (facility use only).
    (11) Battery chargers.
    (12) Supervisory control panel.
    (13) Annunciator panels.
    (14) Low voltage facility distribution switch board.
    1(5) DC connect switches.
    (16) Negative bus boxes.
    (17) Power rail insulators.
    (18) Power cables (AC and DC).
    (19) Cable trays.
    (20) Instrumentation for traction power equipment.
    (21) Connectors, tensioners, and insulators for overhead power wire 
systems.
    (22) Negative drainage boards.
    (23) Inverters.
    (24) Traction motors.
    (25) Propulsion gear boxes.
    (26) Third rail pick-up equipment.
    (27) Pantographs.
    (w) The power or third rail is not considered traction power 
equipment and is thus subject to the requirements of 49 U.S.C. 5323(j) 
and the requirements of Sec. 661.5.
    (x) A bidder on a contract for an item covered by 49 U.S.C. 5323(j) 
who will comply with section 165(b)(3) and regulations in this section 
is not required to follow the application for waiver procedures set out 
in Sec. 661.9. In lieu of these procedures, the bidder must submit the 
appropriate certificate required by Sec. 661.12.
    7. By adding Sec. 661.18 to read as follows:


Sec. 661.18  Intentional violations.
    Any person shall be ineligible to receive any contract or 
subcontract made with funds authorized under the Intermodal Surface 
Transportation Efficiency Act of 1991 pursuant to the debarment and 
suspension proceedings under part 29 of this title if it has been 
determined by a court or Federal agency that any person intentionally--
    (a) Affixed a label bearing a ``Made in America'' inscription, or 
an inscription with the same meaning, to a product not made in the 
United States, but sold in or shipped to the United States and used in 
projects to which this section applies, or
    (b) Otherwise represented that any such product was produced in the 
United States.

    Issued on: September 5, 1995.
Gordon J. Linton,
Administrator.
[FR Doc. 95-22499 Filed 9-11-95; 8:45 am]
BILLING CODE 4910-57-M