[Federal Register Volume 67, Number 72 (Monday, April 15, 2002)]
[Proposed Rules]
[Page 18161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9051]

[[Page 18161]]



48 CFR Part 225

Balance of Payments Program in Defense Supply Contracts

AGENCY: Department of Defense (DoD).

ACTION: Request for public comments.


SUMMARY: The Office of the Under Secretary of Defense (Acquisition, 
Technology, and Logistics) is seeking information that will assist it 
in evaluating a proposal to eliminate the application of the Balance of 
Payments Program (BOPP) to DoD procurements of supplies to be used 
overseas. An earlier document published in the Federal Register at 66 
FR 47155 on September 11, 2001, requested public comments on 
eliminating the application of the BOPP to construction contracts. 
Those comments are now being evaluated. Interested parties are invited 
to submit written comments or recommendations relative to eliminating 
the application of the BOPP to supply contracts. It is requested that 
the comments submitted provide specific examples of the benefits to be 
achieved by the elimination of BOPP or identify specific harm that 
would accrue as a result of the elimination of the BOPP preference in 
DoD supply contracts.

DATES: Comments must be received no later than June 14, 2002.

ADDRESSEES: Send all comments to Charles A. Zuckerman, Deputy Director, 
Defense Procurement, Foreign Contracting, OUSD(AT&L), 3060 Defense 
Pentagon, Washington, DC 20301-3060.

FOR FURTHER INFORMATION CONTACT: Susan M. Hildner, Procurement Analyst, 
Defense Procurement, Defense Systems Procurement Strategies, 
OUSD(AT&L), 3060 Defense Pentagon, Washington, DC 20301-3060, telephone 
(703) 695-4258, or e-mail to [email protected].

SUPPLEMENTARY INFORMATION: The BOPP was established by Secretary of 
Defense Robert S. McNamara in July 1962, when he directed the 
Secretaries of the Military Departments to hold each of their 
respective department's expenditures of appropriated funds outside the 
United States, its possessions, and Puerto Rico, to an absolute 
minimum. The BOPP coverage was incorporated in the Armed Services 
Procurement Regulation (ASPR), the predecessor to the Defense Federal 
Acquisition Regulation Supplement (DFARS) in July 1964. There is no 
statutory authority for the BOPP.
    The BOPP, as implemented, restricts the purchase of supplies that 
are not domestic end products, for use outside the United States, in 
procurements where the estimated cost is expected to exceed the 
simplified acquisition threshold. Its restrictions are similar to those 
of the Buy American Act (BAA). It uses the same definitions and 
evaluation procedures, including the application of a 50 percent factor 
to determine unreasonable cost. The BOPP was established as an interim 
measure to be used until the U.S. balance of payments deficit was 
corrected. However, 40 years later, the deficit continues even with the 
BOPP in place.
    The BOPP is waived for the 21 countries with which DoD has a 
reciprocal procurement Memorandum of Understanding (MOU). The countries 
include Australia, Austria, Belgium, Canada, Denmark, Egypt, Finland, 
France, Germany, Greece, Israel, Italy, Luxembourg, Netherlands, 
Norway, Portugal, Spain, Sweden, Switzerland, Turkey, and the United 
Kingdom. The BOPP is also waived for some foreign supplies and 
construction materials from 60 designated countries when the value of 
those procurements meets the threshold for application of the Trade 
Agreements Act (TAA). The Federal Acquisition Regulation (FAR) contains 
a listing of those countries in section 25.003. Additionally, under the 
Caribbean Basin Initiative, the United States Trade Representative has 
determined that, for acquisitions subject to the TAA, Caribbean Basin 
country end products must be treated as eligible products. An 
additional 23 countries are covered by the Caribbean Basin Initiative. 
These countries are also identified in FAR section 25.003. Under the 
provisions of the North American Free Trade Agreement, the BOPP is 
waived for Canada (who is already a designated country under the TAA) 
and Mexico. As a result, defense equipment procured under reciprocal 
procurement MOUs and eligible products in procurements subject to the 
TAA, receive equal consideration with domestic offers as a result of 
both the BAA and the BOPP being waived for these procurements. Given 
the extent to which these international agreements impact the 
application of the BOPP, few DoD supply procurements are subject to 
BOPP procedures.
    In addition to the implications of the waivers described above, the 
proposal to eliminate the application of the BOPP to DoD procurements 
is a recognition that the marketplace has changed considerably since 
the enactment of the BOPP. In today's market, U.S. manufacturers rely 
heavily on global sources, particularly in the commercial arena. DoD 
encourages its acquisition managers to buy commercially produced items 
rather than entering into long and expensive development projects. Just 
as in the BAA, contractors must certify that end products offered for 
public use are domestic end products that have been manufactured in the 
United States and cost of the domestic or qualifying country components 
exceeds 50 percent of the cost of all components. To do this, suppliers 
to DoD must determine, control, and track the source of components. In 
today's global economy, this has become an extremely difficult task and 
creates a disincentive for commercial companies to sell to DoD. 
Commercial vendors do not track the cost of items manufactured in a 
foreign country. Elimination of the application of the BOPP to DoD 
procurements for use outside the United States would allow DoD to 
procure more commercial items if the items were lower in cost and 
expand access to state-of-the-art commercial technology.
    The proposal to eliminate the application of the BOPP to DoD 
procurements of supplies to be used overseas recognizes both the 
limited usefulness of the BOPP and the international nature of today's 

Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.
[FR Doc. 02-9051 Filed 4-12-02; 8:45 am]