[Federal Register Volume 67, Number 146 (Tuesday, July 30, 2002)]
[Proposed Rules]
[Pages 49278-49280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19085]


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DEPARTMENT OF DEFENSE

48 CFR Parts 225 and 252

[DFARS Case 2002-D008]


Defense Federal Acquisition Regulation Supplement; Trade 
Agreements Act--Exception for U.S.-Made End Products

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for comments.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to implement the determination of the 
Under Secretary of Defense (Acquisition, Technology, and Logistics) 
that, for procurements subject to the Trade Agreements Act, it would be 
inconsistent with the public interest to apply the Buy American Act to 
U.S.-made end products that are substantially transformed in the United 
States.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before September 30, 2002, to be 
considered in the formation of the final rule.

ADDRESSES: Respondents may submit comments directly on the World Wide 
Web at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. As an 
alternative, respondents may e-mail comments to: dfars@acq.osd.mil. 
Please cite DFARS Case 2002-D008 in the subject line of e-mailed 
comments.
    Respondents that cannot submit comments using either of the above 
methods may submit comments to: Defense Acquisition Regulations 
Council, Attn: Ms. Amy Williams, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 
Defense Pentagon, Washington, DC 20301-3062; facsimile (703) 602-0350. 
Please cite DFARS Case 2002-D008.
    At the end of the comment period, interested parties may view 
public comments on the World Wide Web at http://emissary.acq.osd.mil/dar/dfars.nsf.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, (703) 602-0328.

SUPPLEMENTARY INFORMATION:

A. Background

    On March 14, 2002, the Under Secretary of Defense (Acquisition, 
Technology, and Logistics) (USD(AT&L)) determined that, for 
procurements subject to the Trade Agreements Act, it would be 
inconsistent with the public interest to apply the Buy American Act to 
U.S.-made end products that are substantially transformed in the United 
States. This determination expands the May 16, 1997, USD(AT&L) 
determination (presently implemented in DFARS Part 225) that it would 
be inconsistent with the public interest to apply the Buy American Act 
to U.S.-made information technology products in Federal Supply Group 70 
or 74. The March 14, 2002, determination is consistent with Federal 
Acquisition Regulation policy applicable to civilian agencies with 
regard to the treatment of U.S.-made end products.
    This proposed DFARS rule implements the March 14, 2002, USD(AT&L) 
determination. The rule will simplify evaluation of offers in 
acquisitions subject to the Trade Agreements Act, because it will no 
longer be necessary to determine if a U.S.-made end product is also a 
domestic end product, i.e., the cost of domestic components exceeds the 
cost of all components by more than 50 percent. Additionally, the 
provision at DFARS 252.225-7006, Buy American Act--Trade Agreements--
Balance of Payments Program Certificate, and the clause at DFARS 
252.225-7007, Buy

[[Page 49279]]

American Act--Trade Agreements--Balance of Payments Program, will no 
longer be necessary, because the provision at DFARS 252.225-7020, Trade 
Agreements Certificate, and the clause at DFARS 252.225-7021, Trade 
Agreements, will be appropriate for all acquisitions subject to the 
Trade Agreements Act. This rule also applies the March 14, 2002, 
USD(AT&L) determination to acquisitions subject to the Balance of 
Payments Program, since the Balance of Payments Program is an extension 
of the Buy American Act restrictions to acquisitions of supplies for 
overseas use.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    This rule may have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq. An initial regulatory 
flexibility analysis has been prepared and is summarized as follows:
    The objective of the rule is to avoid treating products 
substantially transformed in the United States less favorably than 
products substantially transformed in a designated, Caribbean Basin, or 
NAFTA country. Under existing DFARS policy, offers of domestic end 
products are given a 50 percent price evaluation preference over offers 
of U.S.-made end products for which the cost of foreign components 
exceeds the cost of domestic components by 50 percent or more. However, 
for acquisitions subject to the Trade Agreements Act, an end product of 
a designated, Caribbean Basin, or NAFTA country is exempt from 
application of the 50 percent evaluation factor, regardless of the 
source of the components. Therefore, a company might be encouraged to 
manufacture a product in a designated, Caribbean Basin, or NAFTA 
country rather than in the United States. This DFARS rule proposes to 
revise evaluation procedures for acquisitions subject to the Trade 
Agreements Act to eliminate the 50 percent price advantage that DoD 
presently gives to domestic end products over U.S.-made end products 
with foreign component content of 50 percent or more. Therefore, the 
cost incentive to manufacture components in the United States will be 
removed. However, for companies that provide U.S.-made end products 
containing foreign components, the incentive to move end product 
manufacturing facilities to a designated, Caribbean Basin, or NAFTA 
country will be reduced.
    A copy of the analysis may be obtained from the point of contact 
specified herein. DoD invites comments from small businesses and other 
interested parties. DoD also will consider comments from small entities 
concerning the affected DFARS subparts in accordance with 5 U.S.C. 610. 
Such comments should be submitted separately and should cite DFARS Case 
2002-D008.

C. Paperwork Reduction Act

    The rule will eliminate the requirement for offerors to track and 
document the origin of components of U.S.-made end products in 
acquisitions subject to the Trade Agreements Act. This will reduce by 
960 hours the annual paperwork burden requirements previously approved 
by the Office of Management and Budget under Control Number 0704-0229.

List of Subjects in 48 CFR Parts 225 and 252

    Government procurement.

Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.

    Therefore, DoD proposes to amend 48 CFR Parts 225 and 252 as 
follows:
    1. The authority citation for 48 CFR Parts 225 and 252 continues to 
read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 225--FOREIGN ACQUISITION


225.001  [Amended]

    2. Section 225.001 is amended by removing paragraph (3)(ii) and 
redesignating paragraph (3)(iii) as paragraph (3)(ii).


225.003  [Amended]

    3. Section 225.003 is amended as follows:
    a. In paragraph (4) by removing ``252.225-7007, Buy American Act--
Trade Agreements--Balance of Payments Program;''; and
    b. In paragraph (12), by removing ``252.225-7007. Buy Americn Act--
Trade Agreements--Balance of Payments Program;''.
    4. Section 225.103 is amended as follows:
    a. By redesignating paragraph (a)(1) as paragraph (a)(i); and
    b. By revising newly designated paragraph (a)(i)(B) to read as 
follows:


225.103  Exceptions.

    (a)(i) * * *
    (B) The Under Secretary of Defense (Acquisition, Technology, and 
Logistics) has determined that, for procurements subject to the Trade 
Agreements Act, it is inconsistent with the public interest to apply 
the Buy American Act to end products that are substantially transformed 
in the United States.
* * * * *
    5. Section 225.402 is revised to read as follows:


225.402  General.

    To estimate the value of the acquisition, use the total estimated 
value of end products subject to trade agreement acts (see 225.401-70).
    6. Section 225.502 is revised to read as follows:


225.502  Application.

    (b) Use the following procedures instead of the procedures in FAR 
25.502(b) for acquisitions subject to the Trade Agreements Act:
    (i) Consider only offers of U.S.--made, qualifying country, or 
eligible end products, except as permitted by 225.403.
    (ii) If price is the determining factor, award on the low offer.
    (c) Use the following procedures instead of those in FAR 25.502(c) 
for acquisitions subject to the Buy American Act or the Balance of 
Payments Program.
    (i) Treat offers of eligible end products under acquisitions 
subject to NAFTA as if they were qualifying country offers. As used in 
this section, the term ``nonqualifying country offer'' may also apply 
to an offer that is not an eligible offer under NAFTA.
    (ii) Except as provided in paragraph (c)(iii) of this section, 
evaluate offers by adding a 50 percent factor to the price (including 
duty) of each nonqualifying country offer (see 225.504(1)).
    (A) Nonqualifying country offers include duty in the offered price. 
When applying the factor, evaluate based on the inclusion of duty, 
whether or not duty is to be exempted. If award is made on the 
nonqualifying country offer and duty is to be exempted through 
inclusion of the clause at FAR 52.225-8, Duty-Free Entry, award at the 
offered price minus the amount of duty identified in the provision at 
252.225-7003, Information for Duty-Free Entry Evaluation (see 
225.504(1)(ii)).
    (B) When a nonqualifying country offer includes more than one line 
item, apply the 50 percent factor--
    (1) On an item-by-item basis; or
    (2) On a group of items, if the solicitation specifically provides 
for award on a group basis.
    (iii) When application of the factor would not result in the award 
of a

[[Page 49280]]

domestic end product, i.e., when no domestic offers are received (see 
225.504(3)) or when a qualifying or NAFTA country offer is lower than 
the domestic offer (see 225.504(2)), evaluate nonqualifying country 
offers without the 50 percent factor.
    (A) If duty is to be exempted through inclusion of the clause at 
FAR 52.225-8, Duty-Free Entry, evaluate the nonqualifying country offer 
exclusive of duty by reducing the offered price by the amount of duty 
identified in the clause at 252.225-7003, Information for Duty-Free 
Entry Evaluation (see 225.504(2)(ii) and (3)(ii)). If award is made on 
the nonqualifying country offer, award at the offered price minus duty.
    (B) If duty is not to be exempted, evaluate the nonqualifying 
country offer inclusive of duty (see 225.504(2)(i) and (3)(i)).
    (iv) If these evaluation procedures result in a tie between a 
nonqualifying country offer and a domestic offer, make award on the 
domestic offer.
    (v)(A) There are two tests that must be met to determine whether a 
manufactured item is a domestic end product--
    (1) The end product must have been manufactured in the United 
States; and
    (2) The cost of its U.S. and qualifying country components must 
exceed 50 percent of the cost of all of its components. This test is 
applied to end products only, and not to individual components.
    (B) Because of the component test, the definition of ``domestic end 
product'' is more restrictive than the definition for--
    (1) ``U.S.-made end product'' under trade agreements;
    (2) ``Domestically produced or manufactured products'' under small 
business set-asides or small business reservations; and
    (3) Products of small businesses under FAR part 19.


225.504  [Amended]

    7. Section 225.504 is amended by removing paragraph (4).


225.1101  [Amended]

    8. Section 225.1101 is amended as follows:
    a. In paragraph (2)(i) by removing ``252.225-7007, Buy American 
Act--Trade Agreements--Balance of Payments Program;'';
    b. By removing paragraph (3)(ii) and redesignating paragraphs 
(3)(iii) and (3)(iv) as paragraphs (3)(ii) and (3)(iii), respectively;
    c. By removing paragraphs (5) and (6) and redesignating paragraphs 
(7) through (14) as paragraphs (5) through (12), respectively;
    d. In newly designated paragraph (9), by removing ``when acquiring 
information technology products in Federal Supply Group 70 or 74'' and 
adding in its place ``if the acquisition is subject to the Trade 
Agreements Act''; and
    e. In newly designated paragraph (12), by removing ``252.225-7007, 
Buy American Act--Trade Agreements'Balance of Payments Program;''.
    9. Section 225.7501 is amended by revising paragraph (b)(1)(iii) to 
read as follows:


225.7501  Policy.

* * * * *
    (b) * * *
    (1) * * *
    (iii) For acquisitions subject to the Trade Agreements Act, is a 
U.S.-made end product; or
* * * * *

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


252.225-7006 and 252.225-7007  [Removed and Reserved]

    10. Sections 252.225-7006 and 252.225-7007 are removed and 
reserved.


252.225-7008  [Amended]

    11. Section 252.225-7008 is amended in the introductory text by 
removing ``225.1101(7)'' and adding in its place ``225.1101(5)''.


252.225-7009  [Amended]

    12. Section 252.225-7009 is amended in the introductory text by 
removing ``225.1101(8)'' and adding in its place ``225.1101(6)''.


252.225-7010  [Amended]

    13. Section 252.225-7010 is amended in the introductory text by 
removing ``225.1101(9)'' and adding in its place ``225.1101(7)''.


252.225-7020  [Amended]

    14. Section 252.225-7020 is amended in the introductory text by 
removing ``225.1101(10)'' and adding in its place ``225.1101(8)''.


252.225-7021  [Amended]

    15. Section 252.225-7021 is amended in the introductory text by 
removing ``225.1101(11)'' and adding in its place ``225.1101(9)''.


252.225-7035  [Amended]

    16. Section 252.225-7035 is amended in the introductory text and in 
Alternate I by removing ``225.1101(12)'' and adding in its place 
``225.1101(10)''.


252.225-7036  [Amended]

    17. Section 252.225-7036 is amended in the introductory text and in 
Alternate I introductory text by removing ``225.1101(13)'' and adding 
in its place ``225.1101(11)''.


252.225-7037  [Amended]

    18. Section 252.225-7037 is amended in the introductory text by 
removing ``225.1101(14)'' and adding in its place ``225.1101(12)''.

[FR Doc. 02-19085 Filed 7-29-02; 8:45 am]
BILLING CODE 5001-08-P