[Federal Register Volume 61, Number 24 (Monday, February 5, 1996)]
[Proposed Rules]
[Pages 4240-4246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2288]



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INTERNATIONAL DEVELOPMENT COOPERATION AGENCY

Agency for International Development

22 CFR Part 228


Rules on Source, Origin and Nationality for Commodities and 
Services Financed by the Agency for International Development

AGENCY: United States Agency for International Development (USAID), 
IDCA.

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: This proposed rule would add a new Part 228 to Title 22 of the 
CFR which would codify the rules on source, origin and nationality for 
commodities and services financed by USAID.

DATES: Comments on this proposed rule must be submitted on or before 
April 5, 1996.

ADDRESSES: Comments should be mailed to the Procurement Policy Division 
(M/OP/P), Office of Procurement, USAID, SA-14, Room 1600I, 320 21st 
Street, NW., Washington, DC 20523-1435.

FOR FURTHER INFORMATION CONTACT:
Kathleen J. O'Hara, Office of Procurement, Procurement Policy Division 
(M/OP/P), USAID, SA-14, Room 1600I, USAID, Washington, DC 20523-1435. 
Telephone (703) 875-1534, Facsimile (703) 875-1243.

SUPPLEMENTARY INFORMATION: This proposed rule would codify USAID's 
current rules (published as internal agency policy) on source, origin 
and nationality for commodities and services with a few changes which 
are explained below.
    USAID's rules currently include a limitation on the value of 
components from countries which are not authorized sources for 
procurement which may be included in a produced commodity. The total 
cost of such components to the producer of the commodity (delivered at 
the point of production of the commodity) may not exceed 50 percent of 
the lowest price (excluding the cost of ocean transportation and marine 
insurance) at which the supplier makes the commodity available for 
export sale (whether or not financed by USAID). As the U.S. economy has 
become more global, this requirement concerning componentry has become 
substantially more complex, and internal USAID audits have essentially 
found it to be impracticable to implement and enforce.
    Further, USAID has determined that the test of origin of the 
commodity (i.e., the requirement that a commodity be mined, grown, or 
produced in an authorized source country) provides sufficient assurance 
that economic benefits will accrue to the country from which the 
commodity is purchased. Therefore, for purposes of streamlining USAID 
rules, removing unnecessary compliance burdens for government 
contractors and ensuring that the government buys at the lowest 
available price, the componentry requirement has been deleted from this 
proposed rule.
    Additionally, this proposed rule specifically excludes the 
applicability of USAID's rules on nationality to commissions paid by 
suppliers, bonds and guarantees, and liability insurance under 
construction contracts, with the exception that no payments shall be 
made to suppliers designated as ineligible in Section 228.36 of the 
proposed regulation. These are considered miscellaneous services 
transactions, which can be commodity-related, but may also be related 
to contracts for professional, technical, or construction services. By 
the nature of the services involved, it is not considered practical to 
apply the nationality requirements to these services.
    Public comments on this proposed rule are welcome.
    USAID has determined that this proposed rule is not a significant 
regulatory action under Executive Order 12866. The proposed rule has 
been reviewed in accordance with the requirement of the Regulatory 
Flexibility Act. USAID has determined that the proposed rule would not 
have a significant economic impact on a substantial number of small 
entities, and, therefore, a Regulatory Flexibility Analysis is not 
required. There are no information collection requirements in this 
proposed rule as contemplated by the Paperwork Reduction Act.

Lists of Subjects in 22 CFR Part 228

    Commodity procurement, Grant programs--foreign relations, 
Administrative practice and procedures.
    Accordingly, Part 228 of Title 22 of the Code of Federal 
Regulations is proposed to be added, consisting of Subparts A through 
F, to read as follows:

PART 228--RULES ON SOURCE AND NATIONALITY FOR COMMODITIES AND 
SERVICES FINANCED BY USAID

Subpart A--Definitions and Scope of This Part

Sec.
228.01  Definitions.
228.02  Scope and application.
228.03  Identification of principal geographic code numbers.
Subpart B--Conditions Governing Source and Nationality of Commodity 
Procurement Transactions for USAID Financing
228.10  Purpose.
228.11  Source and origin of commodities.
228.12  Long-term leases.
228.13  Special source rules requiring procurement from the United 
States.
228.14  Nationality of suppliers of commodities.
Subpart C--Conditions Governing the Eligibility of Commodity-Related 
Services for USAID Financing
228.20  Purpose.
228.21  Ocean transportation.
228.22  Air transportation.
228.23  Eligibility of marine insurance.
228.24  Other delivery services.
228.25  Incidental services.
Subpart D--Conditions Governing the Nationality of Suppliers of 
Services for USAID Financing
228.30  Purpose.
228.31  Privately owned commercial suppliers.
228.32  Nonprofit organizations.
228.33  Foreign government-owned organizations.
228.34  Joint ventures.
228.35  Construction services from foreign-owned local firms.
228.36  Ineligible suppliers.
228.37  Nationality of employees under contracts or subcontracts for 
services.
228.38  Miscellaneous service transactions.
Subpart E--Conditions Governing Source and Nationality of Local 
Procurement Transactions for USAID Financing
228.40  Local procurement.

Subpart F--Waivers

228.50  General.
228.51  Commodities.
228.52  Suppliers of commodities.
228.53  Suppliers of services--privately owned commercial suppliers 
and nonprofit organizations.
228.54  Suppliers of services--foreign government-owned 
organizations.

[[Page 4241]]

228.55  Delivery services.
228.56  Authority to approve waivers.

    Authority: Sec. 621, Pub. L. 87-195, 75 Stat. 445 (22 U.S.C. 
2381), as amended; E.O. 12163 of Sept. 29, 1979, (3 CFR, 1979 Comp., 
p. 435).

Subpart A--Definitions and Scope of This Part


Sec. 228.01  Definitions.

    As used in this part, the following terms shall have the meanings 
indicated below:
    (a) Commodity means any material, article, supply, goods, or 
equipment.
    (b) Commodity-related services means delivery services and/or 
incidental services.
    (c) Component means any good that goes directly into the production 
of a produced commodity.
    (d) Cooperating country means the country receiving the USAID 
assistance subject to this part 228.
    (e) Delivery means the transfer to, or for the account of, an 
importer of the right to possession of a commodity, or, with respect to 
a commodity-related service, the rendering to, or for the account of, 
an importer of any such service.
    (f) Delivery service means any service customarily performed in a 
commercial export transaction which is necessary to effect a physical 
transfer of commodities to the cooperating country. Examples of such 
services are the following: export packing, local drayage in the source 
country (including waiting time at the dock), ocean and other freight, 
loading, heavy lift, wharfage, tollage, switching, dumping and 
trimming, lighterage, insurance, commodity inspection services, and 
services of a freight forwarder. ``Delivery services'' may also include 
work and materials necessary to meet USAID marking requirements.
    (g) Implementing document means any document, including a letter of 
commitment, issued by USAID which authorizes the use of USAID funds for 
the procurement of services or commodities and/or commodity related 
services, and which specifies conditions which apply to such 
procurement.
    (h) Incidental services means the installation or erection of 
USAID-financed equipment, or the training of personnel in the 
maintenance, operation and use of such equipment.
    (i) Mission means the USAID Mission or representative in a 
cooperating country.
    (j) Origin means the country where a commodity is mined, grown or 
produced. A commodity is produced when, through manufacturing, 
processing, or substantial and major assembling of components, a 
commercially recognized new commodity results that is significantly 
different in basic characteristics or in purpose or utility from its 
components.
    (k) Services means the performance of identifiable tasks, rather 
than the delivery of an end item of supply.
    (l) Source means the country from which a commodity is shipped to 
the cooperating country, or the cooperating country if the commodity is 
located therein at the time of the purchase. Where, however, a 
commodity is shipped from a free port or bonded warehouse in the form 
in which received therein, ``source'' means the country from which the 
commodity was shipped to the free port or bonded warehouse.
    (m) State means the District of Columbia or any State, 
Commonwealth, territory or possession of the United States.
    (n) Supplier means any person or organization, governmental or 
otherwise, who furnishes services, commodities and/or commodity related 
services financed by USAID.
    (o) United States means the United States of America, any State(s) 
of the United States, the District of Columbia, and areas of U.S. 
associated sovereignty, including commonwealths, territories and 
possessions.
    (p) USAID means the U.S. Agency for International Development or 
any successor agency, including when applicable, each U.S.AID Mission 
abroad.
    (q) USAID Geographic Code means a code in the USAID Geographic Code 
Book which designates a country, a group of countries, or an otherwise 
defined area. The principal USAID geographic codes are described in 
Sec. 228.03.
    (r) USAID/W means the USAID in Washington, DC 20523, including any 
office thereof.


Sec. 228.02  Scope and application.

    This part is applicable to goods and services financed with USAID 
project and program funds. The appropriate implementing documents will 
indicate the authorized sources of procurement. Whenever this part 228 
is applicable, those terms and conditions which are in effect on the 
date of issuance of the contract or placement of an order will govern 
for all procurements under that contract or order.


Sec. 228.03  Identification of principal geographic code numbers.

    The USAID Geographic Code Book sets forth the official description 
of all geographic codes used by USAID in authorizing or implementing 
documents, to designate authorized source countries or areas. The 
following are summaries of the principal codes:
    (a) Code 000--The United States: The United States of America, any 
State(s) of the United States, the District of Columbia, and areas of 
U.S.-associated sovereignty, including commonwealths, territories and 
possessions.
    (b) Code 899--Free World: Any area or country, except the 
cooperating country itself and the following countries: Afghanistan, 
Libya, Vietnam, Cuba, Cambodia, Laos, Iraq, Iran, North Korea, Syria 
and the People's Republic of China.
    (c) Code 935--Special Free World: Any area or country in the Free 
World, including the cooperating country.
    (d) Code 941--Selected Free World: The United States and any 
independent country in the Free World, except the cooperating country 
itself and the following: Albania, Andorra, Angola, Armenia, Austria, 
Australia, Azerbaijan, Bahamas, Bahrain, Belgium, Bosnia and 
Herzegovina, Bulgaria, Byelarus, Canada, Croatia, Cyprus, Czech 
Republic, Denmark, Estonia, Finland, France, Gabon, Georgia, Germany, 
Greece, Hong Kong, Hungary, Iceland, Ireland, Italy, Japan, Kazakhstan, 
Kuwait, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, 
Macedonia*, Malta, Moldova, Monaco, Mongolia, Montenegro*, Netherlands, 
New Zealand, Norway, Poland, Portugal, Qatar, Romania, Russia, San 
Marino, Saudi Arabia, Serbia*, Singapore, Slovak Republic, Slovenia, 
South Africa, Spain, Sweden, Switzerland, Taiwan*, Tajikistan, 
Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, 
Uzbekistan, and Vatican City.

    * Has the status of a ``Geopolitical Entity'', rather than an 
independent country.

Subpart B--Conditions Governing Source and Nationality of Commodity 
Procurement Transactions for USAID Financing


Sec. 228.10  Purpose.

    Sections 228.11 through 228.14 set forth the rules governing the 
eligible source of commodities and nationality of commodity suppliers 
for USAID financing. These rules may be waived in accordance with the 
provisions in subpart F of this part.


Sec. 228.11  Source and origin of commodities.

    (a) The source and origin of a commodity shall be a country or 
countries authorized in the 

[[Page 4242]]
implementing document by name or by reference to a USAID geographic 
code.
    (b) Any component from a non-Free World country makes the commodity 
ineligible for USAID financing.
    (c) When the commodity being purchased is a kit (e.g., scientific 
instruments, tools, or medical supplies packaged as a single unit), the 
kit will be considered a produced commodity.
    (d) When spare parts for vehicles or equipment are purchased, each 
separate shipment will be considered a produced commodity, rather than 
each individual spare or replacement part. The parts must be packed in 
and shipped from an eligible country.
    (e) When a package installation is procured as a single entity, 
USAID may determine that the installation as a whole should be 
considered a produced commodity.


Sec. 228.12  Long-term leases.

    Any commodity obtained under a long-term lease agreement is subject 
to the source and origin requirements of this subpart B. For purposes 
of this subpart B, a long-term lease is defined as a single lease of 
more than 180 days, or repetitive or intermittent leases under a single 
project or program within a one-year period totalling more than 180 
days, for the same type of commodity.


Sec. 228.13  Special source rules requiring procurement from the United 
States.

    (a) Agricultural commodities and products thereof must be procured 
in the United States domestic price is less than parity, unless the 
commodity cannot reasonably be procured in the United States in 
fulfillment of the objectives of a particular assistance program under 
which such commodity procurement is to be financed. (22 U.S.C. 2354)
    (b) Motor vehicles must be manufactured in the United States to be 
eligible for USAID financing. Also, any vehicle to be financed by USAID 
under a long-term lease or where the sale is to be guaranteed by USAID 
must be manufactured in the United States. (22 U.S.C. 2396) For 
purposes of this section, motor vehicles are defined as self-propelled 
vehicles with passenger carriage capacity, such as highway trucks, 
passenger cars and buses, motorcycles, scooters, motorized bicycles and 
utility vehicles. Also, for purposes of this section, a long-term lease 
is defined as a single lease of more than 180 days, or repetitive or 
intermittent leases under a single project or program within a one-year 
period totalling more than 180 days. In addition to the above 
requirements, passenger cars, light trucks, vans, minivans and utility 
vehicles must be manufactured by either Chrysler, Ford or General 
Motors and bear their nameplates, brand names or logos, to be eligible 
for financing by USAID. The nameplate, brand name or logo requirements 
do not apply when vehicles are procured under a source waiver.
    (c) Pharmaceutical products must be manufactured in the United 
States in order to be eligible for USAID financing.


Sec. 228.14  Nationality of suppliers of commodities.

    (a) The rules on nationality of suppliers of commodities relate 
only to the suppliers, and not to the commodities they supply. The 
nationality of the supplier is an additional eligibility criterion to 
the rules on source, origin and componentry.
    (b) A supplier providing commodities must fit one of the following 
categories for the transaction to be eligible for USAID financing:
    (1) An individual who is a citizen or a lawfully admitted permanent 
resident of a country or area included in the authorized geographic 
source code, except as provided in paragraph (c) of this section;
    (2) A corporation or partnership organized under the laws of a 
country or area included in the authorized geographic source code and 
with a place of business in such country;
    (3) A controlled foreign corporation (within the meaning of section 
957 et seq. of the Internal Revenue Code) as attested by current 
information on file with the Internal Revenue Service of the United 
States (on IRS Form 959, 2952, 3646, or on substitute or successor 
forms) submitted by shareholders of the corporation; or
    (4) A joint venture or unincorporated association consisting 
entirely of individuals, corporations, or partnerships which are 
eligible under either paragraph (b) (1), (2) or (3) of the section.
    (c) Citizens of any country or area, or firms or organizations 
located in, organized under the laws of, or owned in any part by 
citizens or organizations of any country or area not included in 
Geographic Code 935 are ineligible for financing by USAID as suppliers 
of commodities. Limited exceptions to this rule are:
    (1) Individuals lawfully admitted for permanent residence in the 
United States are eligible, as individuals or owners, regardless of 
their citizenship; and
    (2) The USAID Deputy Assistant Administrator for Management (DAA/M) 
may authorize the eligibility of organizations having minimal ownership 
by citizens or organizations of non-Geographic Code 935 countries.

Subpart C--Conditions Governing the Eligibility of Commodity-
Related Services for USAID Financing


Sec. 228.20  Purpose.

    Sections 228.21 through 228.25 set forth the rules governing the 
eligibility of commodity-related services, both delivery services and 
incidental services, for USAID financing. These rules may be waived in 
accordance with the provisions in subpart F of this part. The rules on 
delivery services apply whether or not USAID is also financing the 
commodities being transported. In order to be identified and eligible 
as incidental services, such services must be connected with a USAID-
financed commodity procurement.


Sec. 228.21  Ocean transportation.

    The eligibility of ocean transportation services is determined by 
the flag registry of the vessel.
    (a) When the authorized source for procurement is Geographic Code 
000 (U.S.A.), USAID will finance ocean transportation only on U.S. flag 
vessels.
    (b) When the authorized source for procurement is Geographic Code 
941 (selected Free World), USAID will finance ocean transportation on 
vessels under flag registry of the United States, other countries in 
Geographic Code 941, and the cooperating country.
    (c) When commodities whose eligibility is restricted to Geographic 
Code 000 are purchased under agreements which authorize Geographic Code 
941 for the procurement of all other commodities, USAID will finance 
the ocean transportation in accordance with paragraph (b) of this 
section.
    (d) USAID will finance costs incurred on vessels under flag 
registry of any Geographic Code 899 (Free World) country if the costs 
are part of the total cost on a through bill of lading that is paid to 
a carrier for initial carriage on a vessel which is eligible in 
accordance with paragraphs (a), (b) or (c) of this section.


Sec. 228.22  Air transportation.

    (a) The eligibility of air transportation is determined by the flag 
registry of the aircraft. The term ``U.S.'' flag air carrier'' means 
one of a class of air carriers holding a certificate under Section 401 
of the Federal Aviation Act of 1958 (49 U.S.C. 1371) authorizing 
operations between the United States or its territories and one or more 
foreign countries.

[[Page 4243]]

    (b) For air transport financed under USAID grants, there is a U.S. 
Government statute that requires the use of U.S. flag air carriers for 
all international air travel and transportation, unless such service is 
not available. When U.S. flag air carriers are not available, any 
Geographic Code 935 flag air carrier may be used.
    (c) Different requirements may be authorized in the implementing 
document if the transaction is financed under a USAID loan.
    (d) The Comptroller General's memorandum (B-138942), dated March 
31, 1981, entitled ``Revised Guidelines for Implementation of the Fly 
America Act'', established criteria for determining when U.S. flag air 
carriers are unavailable. See 48 CFR 47.403-1, or USAID Optional 
Standard Provision on ``Air Travel and Transportation'' for grants and 
cooperative agreement.
    (e) While the Comptroller General's memorandum does not establish 
specific criteria for determining when freight service is unavailable, 
it is USAID's policy that such service is not available when the 
following criteria are met:
    (1) When no U.S. flag air carrier provides scheduled air freight 
service from the airport serving the shipment's point of origin and a 
non-U.S. flag carrier does;
    (2) When the U.S. flag air carrier(s) serving the shipment's point 
of origin decline to issue a through air waybill for transportation at 
the shipment's final destination airport;
    (3) When use of a U.S.-flag air carrier would result in delivery to 
final destination at least seven days later than delivery by means of a 
non-U.S. flag carrier;
    (4) When the total weight of the consignment exceeds the maximum 
weight per shipment which the U.S. flag air carrier will accept and 
transport as a single shipment and a non-U.S. flag air carrier will 
accept and transport the entire consignment as a single shipment;
    (5) When the dimensions (length, width, or height) of one or more 
of the items of a consignment exceed the limitations of the U.S. flag 
aircraft's cargo door opening, but do not exceed the acceptable 
dimensions for shipment on an available non-U.S. flag scheduled air 
carrier.


Sec. 228.23  Eligibility of marine insurance.

    The eligibility of marine insurance is determined by the country in 
which it is ``placed''. Insurance is ``placed'' in a country if payment 
of the insurance premium is made to, and the insurance policy is issued 
by, an insurance company office located in that country. Eligible 
countries for placement are governed by the authorized geographic code. 
However, if Geographic Code 941 is authorized, the cooperating country 
is also eligible to provide such services, unless the implementing 
document specified otherwise based on the following:
    (a) If a cooperating country discriminates against marine insurance 
companies authorized to do business in any State of the United States, 
then all USAID-financed goods for that country must be insured in the 
United States against marine risk. The term ``authorized to do business 
in any State of the United States'' means that foreign-owned insurance 
companies licensed to do business in the United States (by any State) 
are treated the same as comparable U.S.-owned companies.
    (b) The prima facie test of discrimination is that a cooperating 
country takes actions which hinder private importers in USAID-financed 
transactions from making cost, insurance and freight (C.I.F.) or cost 
and insurance (C.&I.) contracts with United States commodity suppliers, 
or which hinder importers in instructing such suppliers to place marine 
insurance with companies authorized to do business in the United 
States.
    (c) When discrimination is found to exist and the cooperating 
country fails to correct the discriminatory practice, USAID requires 
that all commodities procured with USAID funds be insured in the United 
States against marine loss. The decision of any cooperating country to 
insure all public sector procurements locally with a government-owned 
insurance agency is not considered discrimination.


Sec. 228.24  Other delivery services.

    No source or nationality rules apply to other delivery services, 
such as export packing, loading, commodity inspection services, and 
services of a freight forwarder. Such services are eligible in 
connection with a commodity which is financed by USAID.


Sec. 228.25  Incidental services.

    Source and nationality rules do not apply to suppliers of 
incidental services specified in a purchase contract relating to 
equipment. However, citizens or firms of any country not included in 
USAID Geographic Code 935 are ineligible to supply incidental services, 
except that individuals lawfully admitted for permanent residence in 
the U.S. are eligible regardless of their citizenship.

Subpart D--Conditions Governing the Nationality of Suppliers of 
Services for USAID Financing


Sec. 228.30  Purpose.

    Sections 228.31 through 228.37 set forth the nationality rules 
governing the eligibility for USAID financing of services which are not 
commodity-related. These rules may be waived in accordance with the 
provisions in subpart F of this part.


Sec. 228.31  Privately owned commercial suppliers.

    (a) A supplier providing services must fit one of the following 
categories to be eligible as a contractor (personal services 
contractors are not included under the term ``contractor'' in this 
section) or as a subcontractor. In the case of the categories described 
in paragraphs (a)(2) (i) and (ii) of this section, the certification 
requirements in paragraph (b) of this section must be met.
    (1) The supplier is an individual who is a citizen of and whose 
principal place of business is in a country or area included in the 
authorized geographic code, or a non-U.S. citizen lawfully admitted for 
permanent residence in the United States whose principal place of 
business is in the United States;
    (2) The supplier is a privately owned commercial (i.e., for profit) 
corporation or partnership that is incorporated or legally organized 
under the laws of a country or area included in the authorized 
geographic code, has its principal place of business in a country or 
area included in the authorized geographic code, and meets the criteria 
set forth in either paragraph (a)(2) (i) or (ii) of this section.
    (i) The corporation or partnership is more than 50 percent 
beneficially owned by individuals who are citizens of a country or area 
included in the authorized geographic code or non-U.S. citizens 
lawfully admitted for permanent residence in the United States. In the 
case of corporations, ``more than 50 percent beneficially owned'' means 
that more than 50 percent of each class of stock is owned by such 
individuals; in the case of partnerships, ``more than 50 percent 
beneficially owned'' means that more than 50 percent of each category 
of partnership interest (e.g., general, limited) is owned by such 
individuals. (With respect to stock or interest held by companies, 
funds or institutions, the ultimate beneficial ownership by individuals 
is controlling.)
    (ii) The corporation or partnership:
    (A) Has been incorporated or legally organized in the United States 
for more 

[[Page 4244]]
than 3 years prior to the issuance date of the invitation for bids or 
request for proposals,
    (B) Has performed within the United States administrative and 
technical, professional, or construction services, similar in 
complexity, type and value to the services being contracted (under a 
contract, or contracts, for services) and derived revenue therefrom in 
each of the 3 years prior to the date described in the paragraph 
(a)(2)(i)(A) of this section,
    (C) Employs United States citizens and non-U.S. citizens lawfully 
admitted for permanent residence in the United States in more than half 
its permanent full-time positions in the United States and more than 
half of its principal management positions, and
    (D) Has the existing technical and financial capability in the 
United States to perform the contract.
    (3) The supplier is a joint venture or an unincorporated 
association consisting entirely of individuals, corporations, 
partnerships, or nonprofit organizations which are eligible under 
paragraphs (a) or (b) of this section or Sec. 228.32.
    (b) A duly authorized officer of a firm or nonprofit organization 
shall certify that the participating firm or nonprofit organization 
meets either the requirements of paragraphs (a)(2)(i) or (ii) of this 
section or Sec. 228.32. In the case of corporations, the certifying 
officer shall be the corporate secretary. With respect to the 
requirements of paragraph (a)(2)(i) of this section, the certifying 
officer may presume citizenship on the basis of the stockholders' 
record address, provided the certifying officer certifies, regarding 
any stockholder (including any corporate fund or institutional 
stockholder) whose holdings are material to the corporation's 
eligibility, that the certifying officer knows of no fact which might 
rebut that presumption.


Sec. 228.32  Nonprofit organizations.

    (a) Nonprofit organizations, such as educational institutions, 
foundations, and associations, must meet the criteria listed in this 
section and the certification requirement in Sec. 228.31(b) to be 
eligible as contractors or subcontractors for services. Any such 
institution must:
    (1) Be organized under the laws of a country or area included in 
the authorized geographic code;
    (2) Be controlled and managed by a governing body, a majority of 
whose members are citizens of countries or areas included in the 
authorized geographic code; and
    (3) Have its principal facilities and offices in a county or area 
included in the authorized geographic code.
    (b) International agricultural research centers and such other 
international research centers as may be, from time to time, formally 
listed as such by the USAID Assistant Administrator, Global Bureau, are 
considered to be of U.S. nationality.


Sec. 228.33  Foreign government-owned organizations.

    Firms operated as commercial companies or other organizations 
(including nonprofit organizations other than public educational 
institutions) which are wholly or partially owned by foreign 
governments or agencies thereof are not eligible for financing by USAID 
as contractors or subcontractors, except if their eligibility has been 
established by a waiver approved by USAID in accordance with 
Sec. 228.54. This does not apply to foreign government ministries or 
agencies.


Sec. 228.34  Joint ventures.

    A joint venture or unincorporated association is eligible only if 
each of its members is eligible in accordance with Sec. 228.31, 
Sec. 228.32, or Sec. 228.33.


Sec. 228.35  Construction services from foreign-owned local firms.

    (a) When the estimated cost of a contract for construction services 
is $5 million or less and only local firms will be solicited, a local 
corporation or partnership which does not meet the test in 
Sec. 228.31(b)(1) for eligibility based on ownership by citizens of the 
cooperating country (i.e., it is a foreign-owned local firm) will be 
eligible if it is determined by USAID to be an integral part of the 
local economy. However, such a determination is contingent on first 
ascertaining that no United States construction company with the 
required capability is currently operating in the cooperating country 
or, if there is such a company, that it is not interested in bidding 
for the proposed contract.
    (b) A foreign-owned local firm is an integral part of the local 
economy provided:
    (1) It has done business in the cooperating country on a continuing 
basis for not less than three years prior to the issuance date of 
invitations for bids or requests for proposals to be financed by USAID;
    (2) It has a demonstrated capability to undertake the proposed 
activity;
    (3) All, or substantially all, of its directors of local 
operations, senior staff and operating personnel are resident in the 
cooperating country;
    (4) Most of its operating equipment and physical plant are in the 
cooperating country.


Sec. 228.36  Ineligible suppliers.

    Citizens of any country or area not included in Geographic Code 
935, and firms and organizations located in, organized under the laws 
of, or owned in any part by citizens or organizations of any country or 
area not included in Geographic Code 935 are ineligible for financing 
by USAID as suppliers of services, or as agents in connection with the 
supply of services. The limited exceptions to this rule are:
    (a) Individuals lawfully admitted for permanent residence in the 
United States are eligible, as individuals or owners, regardless of 
their citizenship, and
    (b) The USAID Deputy Assistant Administrator for Management (DAA/M) 
may authorize the eligibility of organizations having minimal ownership 
by citizens or organizations of non-Geographic Code 935 countries.


Sec. 228.37  Nationality of employees under contracts or subcontracts 
for services.

    (a) The rules set forth in Secs. 228.31 through 228.36 do not apply 
to the employees of contractors or subcontractors. Such employees must, 
however, be citizens of countries included in Geographic Code 935 or, 
if they are not, have been lawfully admitted for permanent residence in 
the United States.
    (b) When the contractor on a USAID-financed construction project is 
a United States firm, at least half of the supervisors and other 
specified key personnel working at the project site must be citizens or 
permanent legal residents of the United States. Exceptions may be 
authorized by the USAID Mission in writing if special circumstances 
exist which make compliance impractical.


Sec. 228.38  Miscellaneous service transactions.

    This section sets forth rules governing certain services which may 
be considered commodity-related, but may also relate to contracts for 
professional, technical, or construction services.
    (a) Commissions. The nationality rules in subparts C and D of this 
part, with the exception of Sec. 228.36, do not apply to the payment of 
commissions by suppliers. A commission is defined as any payment or 
allowance by a supplier to any person for the contribution which the 
person has made to securing the sale or contract for the supplier or 
which that person makes to securing on a continuing basis similar sales 
or contracts for the supplier.

[[Page 4245]]

    (b) Bonds and guarantees. The nationality rules in subparts C and D 
of this part, with the exception of Sec. 228.36, do not apply to surety 
companies, insurance companies or banks who issue bonds or guarantees 
under USAID-financed contracts.
    (c) Liability insurance under construction contracts. The 
nationality rules in subparts C and D of this part, with the exception 
of Sec. 228.36, do not apply to firms providing liability insurance 
under construction contracts.

Subpart E--Conditions Governing Source and Nationality of Local 
Procurement Transactions for USAID Financing


Sec. 228.40  Local procurement.

    Local procurement in the cooperating country involves the use of 
appropriated funds to finance the procurement of goods and services 
supplied by local businesses, dealers or producers, with payment 
normally being in the currency of the cooperating country. Unless 
otherwise specified in an implementing document, or a waiver is 
approved by USAID in accordance with subpart F of this part, local 
procurement is eligible for USAID financing only in the following 
situations:
    (a) Locally available commodities of U.S. origin, which are 
otherwise eligible for financing, if the value of the transaction is 
estimated not to exceed the local currency equivalent of $100,000 
(exclusive of transportation costs).
    (b) Commodities of Geographic Code 935 origin if the value of the 
transaction does not exceed $5,000.
    (c) Professional services contracts estimated not to exceed the 
local currency equivalent of $250,000.
    (d) Construction services contracts, including construction 
materials required under the contract, estimated not to exceed the 
local currency equivalent of $5,000,000.
    (e) Under a fixed-price construction contract of any value, the 
U.S. prime contractor may procure locally produced goods and services 
under subcontracts.
    (f) The following commodities and services which are only available 
locally:
    (1) Utilities, including fuel for heating and cooking, waste 
disposal and trash collection;
    (2) Communications--telephone, telex, facsimile, postal and courier 
services;
    (3) Rental costs for housing and office space;
    (4) Petroleum, oils and lubricants for operating vehicles and 
equipment;
    (5) Newspapers, periodicals and books published in the cooperating 
country;
    (6) Other commodities and services (and related expenses) that, by 
their nature or as a practical matter, can only be acquired, performed, 
or incurred in the cooperating country, e.g., vehicle maintenance, 
hotel accommodations, etc.

Subpart F--Waivers


Sec. 228.50  General.

    USAID may expand the authorized source in order to accomplish 
project or program objectives by processing a procurement source 
waiver. When a waiver is processed to include a new source, procurement 
is not limited to the added source, but may be from any country 
included in the authorized source. All waivers must be in writing.


Sec. 228.51  Commodities.

    (a) Waiver criteria. Any waiver must be based upon one of the 
criteria listed below. Waivers to Geographic Code 899 or Code 935 which 
are justified under paragraph (a) (2) or (3) of this section may only 
be authorized on a case-by-case basis.
    (1) Commodities required for assistance are of a type that are not 
produced in and available for purchase in the United States, and for 
waivers to Code 899 or Code 935, also not in the cooperating country, 
or any country in Code 941.
    (2) It is necessary to permit procurement in a country not 
otherwise eligible in order to meet unforeseen circumstances, such as 
emergency situations.
    (3) It is necessary to promote efficiency in the use of United 
States foreign assistance resources, including to avoid impairment of 
foreign assistance objectives.
    (4) For waivers to authorize procurement from Geographic Code 941 
or the cooperating country:
    (i) For assistance other than commodity import programs, when the 
lowest available delivered price from the United States is reasonably 
estimated to be 50 percent or more higher than the delivered price from 
a country or area including in Geographic Code 941 or the cooperating 
country.
    (ii) For assistance other than commodity import programs, when the 
estimated cost of U.S. construction materials (including transportation 
and handling charges) is at least 50 percent higher than the cost of 
locally produced materials.
    (iii) For commodity import programs or similar sector assistance, 
an acute shortage exists in the United States for a commodity generally 
available elsewhere.
    (iv) Persuasive political considerations.
    (v) Procurement in the cooperating country would best promote the 
objectives of the foreign assistance program.
    (vi) Such other circumstances as are determined to be critical to 
the success of project objectives.
    (b) Additional requirements. A waiver to authorize procurement from 
outside the United States of agricultural commodities, motor vehicles, 
or pharmaceuticals (see Sec. 228.13, ``Special source rules requiring 
procurement from the United States,'') must also meet requirements 
established in USAID directives on commodity eligibility.


Sec. 228.52  Suppliers of commodities.

    Geographic code changes authorized by waiver with respect to the 
source of commodities automatically apply to the nationality of their 
suppliers. A waiver to effect a change in the geographic code only with 
respect to the nationality of the supplier of commodities, but not in 
the source of the commodities, may be sought if the situation requires 
it based on the appropriate criteria in Sec. 228.51.


Sec. 228.53  Suppliers of services--privately owned commercial 
suppliers and nonprofit organizations. Waiver criteria.

    Any waiver must be based upon one of the criteria listed in this 
section. Waivers to Geographic Code 899 or Code 935 which are justified 
under paragraphs (b) or (c) of this section may only be authorized on a 
case-by-case basis.
    (a) Services required for assistance are of a type that are not 
available for purchase in the United States, and for waivers to Code 
899 or Code 935, also not in the cooperating country, or any country in 
Code 941.
    (b) It is necessary to permit procurement in a country not 
otherwise eligible in order to meet unforeseen circumstances, such as 
emergency situations.
    (c) It is necessary to promote efficiency in the use of United 
States foreign assistance resources, including to avoid impairment of 
foreign assistance objectives.
    (d) For waivers to authorize procurement from Geographic Code 941 
or the cooperating country:
    (1) There is an emergency requirement for which non-USAID funds are 
not available and the requirement can be met in time only from 
suppliers in a country or area not included in the authorized 
geographic code.

[[Page 4246]]

    (2) No suppliers from countries or areas included in the authorized 
geographic code are able to provide the required services.
    (3) Persuasive political considerations.
    (4) Procurement of locally available services would best promote 
the objectives of the foreign assistance program.
    (5) Such other circumstances as are determined to be critical to 
the achievement of project objectives.


Sec. 228.54  Suppliers of services--foreign government-owned 
organizations.

    A waiver to make foreign government-owned organizations, described 
in Sec. 228.33, eligible for financing by USAID must be justified on 
the basis of the following criteria:
    (a) The competition for obtaining a contract will be limited to 
cooperating country firms/organizations meeting the criteria set forth 
in Sec. 228.31 or Sec. 228.32.
    (b) The competition for obtaining a contract will be open to firms 
from countries or areas included in the authorized geographic code and 
eligible under the provisions of Sec. 228.31 or Sec. 228.32, and it has 
been demonstrated that no U.S. firm is interested in competing for the 
contract.
    (c) Services are not available from any other source.
    (d) Foreign policy interests of the United States outweigh any 
competitive disadvantage at which United States firms might be placed 
or any conflict of interest that might arise by permitting a foreign 
government-owned organization to compete for the contract.


Sec. 228.55  Delivery services.

    (a) Ocean transportation. A waiver to expand the flag eligibility 
requirements to allow the use of vessels under flag registry of the 
cooperating country, Geographic Code 941, 899 or 935 countries may be 
authorized when:
    (1) It is necessary to assure adequate competition in the shipping 
market in order to obtain competitive pricing, particularly in the case 
of bulk cargoes and large cargoes carried by liners;
    (2) Eligible vessels provide liner service, only by transshipment, 
for commodities that cannot be containerized, and vessels under flag 
registry of countries to be authorized by the waiver provide liner 
service without transshipment;
    (3) Eligible vessels are not available, and cargo is ready and 
available for shipment, provided it is reasonably evident that delaying 
shipment would increase costs or significantly delay receipt of the 
cargo;
    (4) Eligible vessels are found unsuitable for loading, carriage, or 
unloading methods required, or for the available port handling 
facilities;
    (5) Eligible vessels do not provide liner service from the port of 
loading stated in the procurement's port of export delivery terms, 
provided the port is named in a manner consistent with normal trade 
practices; or
    (6) Eligible vessels decline to accept an offered consignment.
    (b) Air transportation. The preferences for use of United States 
flag air carriers or for use of United States, other Geographic Code 
941 countries, or cooperating country flag air carriers are not subject 
to waiver. Other free world air carriers may be used only as provided 
in Sec. 228.05(b).


Sec. 228.56  Authority to approve waivers.

    The authority to approve waivers of established policies on source, 
origin and nationality are delegated authorities within USAID, as set 
forth in its Handbooks.

    Dated: December 6, 1995.
Michael D. Sherwin,
Deputy Assistant Administrator for Management.
[FR Doc. 96-2288 Filed 2-2-96; 8:45 am]
BILLING CODE 6116-01-M