Federal Procurement: International Agreements Result in Waivers  
of Some U.S. Domestic Source Restrictions (26-JAN-05,		 
GAO-05-188).							 
                                                                 
Over the years, Congress has enacted a variety of laws designed  
to encourage federal agencies to purchase U.S. supplies and	 
services. These laws are commonly referred to as domestic	 
preference laws or domestic source restrictions. Perhaps the best
known of these laws is the Buy American Act, a 1933 law that	 
established a statutory preference for U.S. supplies and	 
construction materials. At the same time, Congress has approved a
number of international agreements that open certain government  
procurements to goods and services from countries that are	 
parties to those agreements. In addition, the Department of	 
Defense (DOD) has entered into reciprocal procurement memoranda  
of understanding (MOUs) with some of its foreign counterparts,	 
under which DOD may procure goods and services from those	 
countries. Congress asked us to determine the effect of 	 
international agreements on the applicability of U.S. domestic	 
source restrictions. In response, this report (1) identifies the 
current international trade agreements to which the U.S. is a	 
party that contain government procurement provisions, as well as 
the reciprocal defense procurement MOUs, and (2) describes how	 
these trade agreements and MOUs affect the applicability of	 
selected domestic source restrictions.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-188 					        
    ACCNO:   A15940						        
  TITLE:     Federal Procurement: International Agreements Result in  
Waivers of Some U.S. Domestic Source Restrictions		 
     DATE:   01/26/2005 
  SUBJECT:   Foreign trade agreements				 
	     Foreign trade policies				 
	     International agreements				 
	     International trade				 
	     International trade regulation			 
	     International trade restriction			 
	     Treaties						 
	     Buy national policy				 
	     Federal procurement				 
	     Federal procurement policy 			 
	     Defense procurement				 
	     Balance of Payments Program			 

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GAO-05-188

United States Government Accountability Office

GAO

                       Report to Congressional Requesters

January 2005

FEDERAL PROCUREMENT

    International Agreements Result in Waivers of Some U.S. Domestic Source
                                  Restrictions

GAO-05-188

[IMG]

January 2005

FEDERAL PROCUREMENT

International Agreements Result in Waivers of Some U.S. Domestic Source
Restrictions

What GAO Found

The U.S. is a party to several trade agreements that require each party's
goods and services to be given treatment comparable to domestic goods and
services in certain government procurements. These agreements include
three multilateral trade agreements, four bilateral free-trade agreements,
and three recently signed free-trade agreements that now await
congressional approval or entry into force. In addition, DOD has signed,
with its counterparts in 21 countries, reciprocal defense procurement MOUs
that typically call for the removal of barriers to procuring defense
supplies.

Together, current trade agreements result in the waiver of the Buy
American Act and DOD's Balance of Payments Program for certain products
from 45 countries. These waivers are authorized by the Trade Agreements
Act of 1979, and are limited to procurements that

o  are conducted by the federal entities covered by each agreement,

o  exceed dollar thresholds established in each agreement, and

o  involve specific categories of products.

For example, the waiver under the World Trade Organization's Government
Procurement Agreement, which covers 38 members including the United
States, allows eligible products from the other 37 members to compete on a
comparable basis with U.S.-made products for covered procurements of 80
U.S. federal agencies without regard to the Buy American Act or the
Balance of Payments Program. Likewise, waivers under the other trade
agreements allow eligible products from the countries involved to compete
in a comparable manner.

The defense procurement MOUs, based on a different legal mechanism, result
in the waiver of the Buy American Act and the Balance of Payments Program
for products originating in the 21 MOU countries. As with procurements
covered by the trade agreements, suppliers of these products compete on a
comparable basis with U.S. suppliers in DOD procurements.

Subject to several limited exceptions, neither the trade agreements nor
the MOUs affect the remaining domestic source restrictions GAO reviewed,
including the Cargo Preference Act of 1954 and those that apply solely to
DOD. In general, items covered by these other restrictions are
specifically exempted from the trade agreements.

                 United States Government Accountability Office

Contents

Letter

Results in Brief
Background
Numerous International Agreements Have Government

Procurement Provisions Trade Agreements and MOUs Result in Waivers of Some
Domestic Source Restrictions Agency Comments

1

2 3

4

8 10

Appendix I	U.S. Domestic Source Restrictions Included in This Report

Appendix II International Agreements

Appendix III Comments from the Department of Defense

Tables

Table 1: Countries Covered by Trade Agreements or MOUs Signed

with the U.S. 6 Table 2: Members Currently Covered under Agreement 14
Table 3: Members Currently Covered under Agreement 16 Table 4: NAFTA
Thresholds 17 Table 5: MOUs Signed between DOD and Its Counterparts in

21 Countries 23

Abbreviations

DOD Department of Defense
FAR Federal Acquisition Regulation
FTA Free Trade Agreement
GPA Government Procurement Agreement
MOU memorandum of understanding
OFPP Office of Federal Procurement Policy
PAN polyacrylonitrile
TAA Trade Agreements Act
USTR United States Trade Representative
WTO World Trade Organization

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office Washington, DC 20548

January 26, 2005

The Honorable Joseph I. Lieberman
Ranking Minority Member
Committee on Homeland Security and Governmental Affairs
United States Senate

The Honorable Russell D. Feingold
United States Senate

Over the years, Congress has enacted a variety of laws designed to
encourage federal agencies to purchase U.S. supplies and services. These
laws are commonly referred to as domestic preference laws or domestic
source restrictions. Perhaps the best known of these laws is the Buy
American Act,1 a 1933 law that established a statutory preference for
U.S. supplies and construction materials. At the same time, Congress has
approved a number of international agreements that open certain
government procurements to goods and services from countries that are
parties to those agreements. In addition, the Department of Defense
(DOD) has entered into reciprocal procurement memoranda of
understanding (MOUs) with some of its foreign counterparts, under which
DOD may procure goods and services from those countries.

You asked us to determine the effect of international agreements on the
applicability of U.S. domestic source restrictions. In response, this
report
(1) identifies the current international trade agreements to which the
U.S. is a party that contain government procurement provisions, as well as
the reciprocal defense procurement MOUs, and (2) describes how these
trade agreements and MOUs affect the applicability of selected domestic
source restrictions.

We identified trade agreements that contain government procurement
provisions and defense procurement MOUs by searching U.S. government
and World Trade Organization (WTO) databases and meeting with officials
from the Office of the United States Trade Representative (USTR), the
Office of Management and Budget's Office of Federal Procurement Policy
(OFPP), and DOD to validate the results of our searches. To identify

1 41 U.S.C. S:S: 10a-10d.

Results in Brief

domestic source restrictions, we also reviewed U.S. laws and regulations,
including the Federal Acquisition Regulation (FAR) and the Defense FAR
Supplement, and corroborated the results of our search with agency
officials. We focused our analysis on the following domestic source
restrictions: the Buy American Act and the Cargo Preference Act of 1954,2
both of which apply governmentwide, as well as the various statutory and
nonstatutory domestic source restrictions that apply solely to DOD, the
largest purchaser within the U.S. government.3 (See app. I for the list of
domestic source restrictions we reviewed.) Our analysis consisted of
determining the effect of the agreements and MOUs on the applicability of
the domestic source restrictions and is not intended to serve as a
detailed legal review of the relevant laws and regulations. We performed
the analysis based on our review of the agreements, MOUs, applicable laws
and regulations, and executive agency materials, as well as discussions
with agency officials. We conducted our work from May to December 2004 in
accordance with generally accepted government auditing standards.

The United States is currently a party to several trade agreements that
require each party's goods and services to be given treatment comparable
to domestic goods and services in certain government procurements. These
agreements include three multilateral trade agreements, four bilateral
free-trade agreements, and three recently signed free-trade agreements
that now await congressional approval or entry into force. In addition,
DOD has signed reciprocal defense procurement MOUs with its counterparts
in 21 countries. These MOUs typically call for the signatories to remove
barriers to the procurement of defense supplies. Appendix II summarizes
the various trade agreements and MOUs.

Together, the current trade agreements result in the waiver of the Buy
American Act and a DOD domestic source restriction known as the Balance of
Payments Program for 45 countries. This waiver is limited to those
procurements in excess of established dollar thresholds and to the
categories of products and the federal entities covered by each agreement.
For example, eligible products from the countries that are parties to the
World Trade Organization's Government Procurement Agreement

2 46 U.S.C. App. S: 1241.

3 According to fiscal year 2003 data from the Federal Procurement Data
System, DOD contracting represents approximately 70 percent of total
federal government-contracting dollars.

Background

(GPA)4 compete on a comparable basis with U.S.-made products in certain
U.S. procurements without regard to the Buy American Act and the Balance
of Payments Program. Similarly, for DOD procurements, the reciprocal
defense procurement MOUs result in the waiver of the Buy American Act and
the Balance of Payments Program for products originating in the 21 MOU
countries.5 Subject to several limited exceptions, neither the trade
agreements nor the MOUs affect the remaining domestic source restrictions
we reviewed, including the Cargo Preference Act of 1954 and those that
apply solely to DOD.

The Buy American Act restricts the U.S. government from purchasing
nondomestic end products,6 unless an exception applies. These exceptions
include

o  	where the cost of the domestic end product would be unreasonable
(which is determined by applying an evaluation factor that increases the
price of nondomestic offers in certain circumstances);7

o  	where domestic end products are not reasonably available in sufficient
commercial quantities of a satisfactory quality;

o  	where the agency head determines that a domestic preference would be
inconsistent with the public interest;

o  where the purchases are for use outside of the United States;

o  where the purchases are less than the micro purchase threshold; and

o  where the purchases are for commissary resale.

4 The official title of this agreement is the Agreement on Government
Procurement, but in the U.S., it is often referred to as the Government
Procurement Agreement.

5 DOD may waive the Buy American Act and the Balance of Payments Program,
on a case-by-case basis, for acquisitions from two MOU countries, Finland
and Austria.

6 According to the Federal Acquisition Regulation (FAR), a domestic end
product means an unmanufactured end product mined or produced in the
United States, or an end product manufactured in the U.S. if the cost of
its components that are mined, produced, or manufactured in the U.S.
exceeds 50 percent of the cost of all its components.

7 The FAR requires contracting officers to apply an upward price
adjustment to a nondomestic offer in supply procurements not subject to
the Trade Agreements Act. Contracting officers are to apply this
adjustment when a nondomestic offer is the lowest offer and a domestic
offer is the next lowest offer. Contracting officers apply a 6 percent
upward price adjustment where the lowest domestic offer is from a large
business and a 12 percent upward price adjustment where the lowest
domestic offer is from a small business. For DOD, the nondomestic price is
increased by 50 percent regardless of the size of the lowest domestic
offeror.

Congress has passed numerous additional domestic source restrictions,8
many of which apply to specific categories of procurements or to
particular federal agencies. For example, the Berry Amendment, originally
enacted in a 1941 defense appropriations act,9 requires DOD to procure
domestically produced or grown items, including food, clothing, fabrics,
specialty metals, and hand or measuring tools. Many of these laws,
especially the ones that apply to DOD, were enacted through annual
appropriations or authorization acts,10 although a number of these have
since been codified into permanent law. In addition, DOD has established a
number of policy-based source restrictions, including the Balance of
Payments Program,11 as well as some other policy-based domestic source
restrictions. (For a more detailed description of the domestic source
restrictions we reviewed in this report, see app. I.)

Over the years, the United States government has signed numerous
trade-related agreements and defense MOUs with foreign countries that call
for each party to waive buy-national laws or accord equal treatment among
the parties' covered goods and services in certain government
procurements. Currently, the U.S. is a party to seven trade agreements
that impose mutual nondiscriminatory procurement obligations

World Trade Organization's Government Procurement Agreement, World Trade
Organization's Agreement on Trade in Civil Aircraft,

o  North American Free Trade Agreement,

o  U.S.-Israel Free Trade Agreement,

o  U.S.-Chile Free Trade Agreement,

Numerous International Agreements Have Government Procurement

o  Provisions  o

8 Many of the domestic preference laws, including the Buy American Act,
establish requirements for a product's domestic content and do not
establish a separate requirement for the product's source or supplier.
Throughout this report, we use the term "domestic source restriction" for
all domestic preference laws or regulations, including those that control
a product's domestic content.

9 The Berry Amendment was subsequently codified into permanent law in
2001. See 10 U.S.C. S: 2533a.

10 For example, some DOD domestic source restrictions apply to
procurements of buses, chemical weapons antidotes, supercomputers, and
ballistic missile research and development.

11 While the Buy American Act applies to U.S. government purchases of
supplies and construction materials for use inside the U.S., the Balance
of Payments Program applies similar restrictions to DOD purchases of
supplies and construction materials for use outside of the U.S.

o  U.S.-Singapore Free Trade Agreement, and

o  U.S.-Australia Free Trade Agreement.

In addition, there are 21 DOD MOUs that typically require the signatories
to remove barriers to procurement of defense supplies or waive their
respective buy-national laws and regulations, to the extent permitted by
law, for covered defense procurements.

The GPA and the five Free Trade Agreements (FTAs) apply to certain
procurements of covered goods and services from the other member
countries. Each agreement contains its own list of covered federal
entities and establishes its own dollar thresholds. Some federal agencies,
such as the Federal Aviation Administration and the Transportation
Security Administration, have been excluded from some agreements. The
trade agreements are subject to a number of exceptions, including
contracts set aside for small businesses, contracts for national defense
purposes, and other specifically excluded services, such as
telecommunications, transportation, and research and development, as well
as certain agencyspecific goods. The Agreement on Trade in Civil Aircraft
applies to civil aircraft, aircraft components, and ground flight
simulators. The defense MOUs apply to all DOD purchases, including
military items, unless otherwise excluded for national security purposes.
(For a more detailed description of the trade agreements that are or will
shortly be in effect and the MOUs, see app. II.)

Table 1 shows the foreign countries that are covered by the trade
agreements and MOUs we identified. (An "X" denotes that the country is
covered by that agreement.)

Table 1: Countries Covered by Trade Agreements or MOUs Signed with the
U.S.

                      Country GPA Civil aircraft FTAs MOU

Aruba X

Australia X X

Austria X X X

Belgium X X X

Bulgaria X

Canada X X X X

Chile X

Chinese Taipei X

Cyprus X

Czech Republic X

Denmark X X X

Egypt X X

Estonia X X

Finland X X

France X X X

Georgia X

Germany X X X
Greece X X X
Hong Kong China X
Hungary X
Iceland X
Ireland X X
Israel X X X
Italy X X X
Japan X X
Korea X
Latvia X X
Liechtenstein X
Lithuania X X
Luxembourg X X X
Macau X
Malta X X

          Country               GPA    Civil aircraft       FTAs          MOU 
           Mexico                                            X      
        Netherlands           X              X                          X     
           Norway             X              X                          X     
           Poland             X                                     
          Portugal            X              X                          X     
          Romania                            X                      
         Singapore            X                              X      
      Slovak Republic         X                                     
          Slovenia            X                                     
           Spain              X              X                          X     
           Sweden             X              X                          X     
        Switzerland           X              X                          X     
           Turkey                                                       X     
       United Kingdom         X              X                          X     

Source: GAO analysis.

The U.S. has signed three additional free-trade agreements with Morocco,
Bahrain, and a group of Central American countries.12 The agreement with
Morocco has been approved by Congress and will go into effect on a future
date agreed between the Parties in an exchange of written notifications;
the agreements with Bahrain and the Central American countries are
awaiting congressional approval. Additional free-trade agreements are
under negotiation with Panama, Thailand, and the Andean countries of
Colombia, Ecuador, and Peru. Also, the U.S. has announced its intent to
negotiate free-trade agreements with the United Arab Emirates and Oman.

12 The Central American countries are Costa Rica, Dominican Republic, El
Salvador, Guatemala, Honduras, and Nicaragua.

Trade Agreements and MOUs Result in Waivers of Some Domestic Source
Restrictions

Together, the current trade agreements result in the waiver of the Buy
American Act and the Balance of Payments Program for certain products
originating in 45 countries. Similarly, the reciprocal defense procurement
MOUs result in the waiver of the Buy American Act and the Balance of
Payments Program for certain products from the 21 MOU countries. However,
the trade agreements and the MOUs rely on different legal bases for these
waivers.

The seven trade agreements require that each party's covered goods and
services receive treatment comparable to domestic goods and services in
government procurements to which the agreements apply. In order to
implement these requirements, the United States has waived, under the
authority of the Trade Agreements Act of 1979,13 "discriminatory
purchasing requirements" that would favor U.S. products over the
signatories' products in government procurements subject to the trade
agreements. For example, based on the obligations under the GPA, the U.S.
has waived the Buy American Act and the Balance of Payments Program for
eligible products from the countries that are covered by the agreement.
The waiver covers the purchases of eligible products by 80 U.S. federal
entities and applies to supply contracts above $175,000 and construction
contracts above $6,725,000.14 Similarly, for the six countries that are
signatories to the free trade agreements, the U.S. has waived the Buy
American Act and the Balance of Payments Program for eligible products
purchased by the federal entities specified in those agreements, based on
different dollar thresholds negotiated for each of the FTAs. The Agreement
on Trade in Civil Aircraft, on the other hand, results in waiver of the
Buy American Act for the signatories' government-directed purchases of
civil aircraft and components. The effect of these waivers is

13 The Trade Agreements Act (TAA) of 1979 (19 U.S.C. S:S: 2501-2518)
provides the President the authority to waive the Buy American Act and
other "discriminatory" provisions for eligible products from countries
that have signed an international trade agreement with the United States,
or that meet certain other criteria such as being a least developed
country. The President does not have the authority to waive any
requirement pertaining to a small business or minority business
preference. Under the TAA in acquisitions covered by the WTO GPA, agencies
may procure only U.S.-made or designated country end products or U.S. or
designated country services, unless offers for such end products or
services are either not received or are insufficient to fulfill the
requirements. This purchase restriction does not apply below the WTO GPA
threshold for supplies and services, even if the acquisition is covered by
an FTA.

14 The GPA also applies to certain service contracts above $175,000. These
remain unaffected by the Buy American Act and the Balance of Payments
Program waivers, since the Buy American Act and the Balance of Payments
Program do not apply to service contracts.

that the eligible products from the member countries compete on comparable
footing with U.S.-made products and are not subject to the upward price
adjustment during the bid evaluation process based on the Buy American Act
and the Balance of Payments Program.

The MOUs are not considered trade agreements as that term is used in the
Trade Agreements Act. Therefore, the 21 defense MOUs rely on a different
legal mechanism to waive the Buy American Act. That mechanism is the
"public interest" exception in the Buy American Act, where the head of the
agency may waive the Act when he or she determines that a domestic
purchasing preference is not in the public interest. DOD has made such a
determination for the MOU countries as well as a comparable determination
under the Balance of Payments Program. The effect of these waivers is that
the MOU country's products compete on comparable footing with U.S.
products in DOD procurements and are not subject to an upward price
adjustment during the bid evaluation process based on the Buy American Act
and the Balance of Payments Program. In addition, MOU country components
are considered comparable to domestic components for the purpose of
determining a manufactured "domestic end product" under the Buy American
Act.

On the other hand, other domestic source restrictions, such as the Cargo
Preference Acts and those enacted through defense authorization and
appropriations acts, are unaffected by the trade agreements because the
agreements specifically exclude the items covered by the source
restrictions. For example, the specialty metals restricted by the Berry
Amendment are expressly excluded from the trade agreements. The other
domestic source restrictions also are unaffected by the defense MOUs. This
is because the MOUs require DOD to waive buy national laws only to the
extent permitted by law, and DOD has no legal authority to waive these
other restrictions. The only exception to this is under 10 U.S.C. 2534,
which permits DOD to waive the restrictions in that statute on an annual
basis for MOU countries. DOD has used this waiver authority for certain
items manufactured in the United Kingdom. Other domestic source
restrictions contain exceptions15 or permit waivers on a case-by-case
basis independent of any MOU obligations.

15 While not considered a "waiver," an exception in the Berry Amendment
allows DOD to purchase from MOU countries specialty metals and chemical
warfare protective clothing produced outside the U.S.

Agency Comments 	We provided a draft of this report to DOD, OFPP, and USTR
for review. DOD stated that it has no comments (see DOD response in app.
III). OFPP and USTR provided only technical comments, which we
incorporated as appropriate.

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the
date of this report. We will then send copies of this report to interested
congressional committees; the United States Trade Representative; the
Administrator, Office of Federal Procurement Policy; and the Secretary of
Defense. We will also make copies available to others upon request. In
addition, this report will be available at no charge on the GAO Web site
at
http://www.gao.gov.

If you or your staffs have any questions regarding this report, please
contact me at (202) 512-4841; or John Neumann, Assistant Director, at
(202) 512-4645. Major contributors to this report were Shannon Baker-
Branstetter, Noah Bleicher, Lisa Simon, and John P.K. Ting.

William T. Woods
Director, Acquisition and Sourcing Management

Appendix I: U.S. Domestic Source Restrictions Included in This Report

We selected the following domestic source restrictions for this report:
the Buy American Act and the Cargo Preference Act of 1954, both of which
apply governmentwide, as well as various domestic source restrictions that
apply solely to DOD.

Source Restrictions Applicable Governmentwide

Buy American Act (41 U.S.C. S: 10a-10d)

The Buy American Act was enacted during the Great Depression in order to
create and preserve jobs for American workers. The Act covers the
acquisition of supplies and construction materials for use in the United
States. It requires that federal agencies procure domestically produced,
mined, or manufactured articles, supplies, and materials for use in the
United States, subject to a number of exceptions. These exceptions include
articles that would be unreasonably expensive if purchased domestically;
articles that are not mined, produced, or manufactured in the United
States in sufficient and reasonably available commercial quantities or are
not of a satisfactory quality; purchases for which the agency head
determines that a domestic preference would be inconsistent with the
public interest; purchases that are under the micro purchase threshold;
purchases that are for overseas use; or purchases that are for commissary
resale.

Cargo Preference Act of 1954 (46 U.S.C. App. S: 1241)

The Cargo Preference Act of 1954 requires that the government ship at
least 50 percent of the gross tonnage of government-owned,
governmentfinanced, or government contractor-owned supplies on U.S. flag
vessels. The Act also requires that any officer or employee of the United
States who travels on official business overseas or to or from any of the
possessions of the United States shall travel and transport his personal
effects on U.S. flag ships, where such ships are available, unless the
necessity of his or her mission requires the use of a ship under a foreign
flag.

Appendix I: U.S. Domestic Source Restrictions Included in This Report

Source Restrictions Applicable Solely to DOD

Cargo Preference Act of The Cargo Preference Act of 1904 requires DOD to
use U.S. government

1904 (10 U.S.C. S: 2631)	ships or U.S.-flag ships when it ships supplies
bought by the Army, Navy, Air Force or Marine Corps, subject to a number
of exceptions.

Balance of Payments Program

Under the Balance of Payments Program, DOD established a policy to acquire
only domestic end products for use outside the U.S. or domestic
construction materials for construction to be performed outside the U.S.
There are a number of exceptions, including, among others, where the cost
of the acquisition is at or below the simplified acquisition threshold;
where the acquisition is for certain listed products in FAR 25.104, DFARS
225.104(a)(iii), or DFARS 225.7501; where the contracting officer
determines that the requirement can best be filled by a foreign end
product or construction material; and where the cost of the domestic
construction material would exceed the cost of foreign construction
material by more than 50 percent.

                                Berry Amendment
                              (10 U.S.C. S: 2533a)

The Berry Amendment requires DOD to purchase certain items only if they
are "grown, reprocessed, reused, or produced in the United States."
Congress first passed the Berry Amendment in 1941 as part of the Fifth
Supplemental National Defense Appropriations Act. It was originally
enacted to ensure that U.S. troops wore uniforms and consumed food
products wholly produced in the U.S. Since 1941, Congress has restricted
the purchases of additional commodities through DOD appropriations acts.
The Berry Amendment, as codified in 2001, now applies to purchases above
the simplified acquisition threshold of food, clothing, tents, fabrics,
specialty metals, and hand or measuring tools. The law includes various
exceptions that waive the source restrictions in specific circumstances.
For example, the Berry Amendment does not apply to procurements in support
of combat or contingency operations. Another noteworthy exception in the
Berry Amendment allows DOD to purchase from MOU countries specialty metals
and chemical warfare protective clothing produced outside the U.S.

Appendix I: U.S. Domestic Source Restrictions Included in This Report

                               10 U.S.C. S: 2534

This provision requires DOD to procure various specified items from
U.S. and Canadian manufacturers only. Similar to the Berry Amendment,
section 2534 includes provisions that permit the Secretary of Defense to
waive the source restriction in certain situations. For example, the
Secretary of Defense can waive, on an annual basis, the section 2534
source restrictions if they would impede the procurement of defense items
under a particular MOU. Under this authority, DOD has issued a waiver for
certain items manufactured in the United Kingdom. Items covered under
section 2534 include

o  buses;

o  chemical weapons antidote;

o  	components for naval vessels (i.e., air circuit breakers, certain
anchor and mooring chains, gyrocompasses, electronic navigation chart
systems, steering controls, pumps, propulsion and machinery control
systems, and totally enclosed lifeboats); and

o  ball and roller bearings

Other Source Restrictions from Annual DOD Appropriations and Authorization
Acts

Restricted Goods

Restricted Services

Annual defense appropriations and authorization acts often restrict
certain DOD procurements to items manufactured in the U.S., items
manufactured in either the U.S. or Canada, or services performed by U.S.
firms. DFARS 225.70 lists items covered by these source restrictions, as
well as applicable waivers and exceptions. Items covered under this
category include

o  carbon, alloy, and armor steel plate;

o  supercomputers;

o  certain overseas military construction contracts;

o  certain overseas architect-engineer service contracts;

o  	certain research and development contracts in connection with a weapon
system or other military equipment; and

o  	certain research, development, test, and evaluation contracts in
connection with the Ballistic Missile Defense Program

DOD Policy-Based Source According to the DFARS, DOD policy currently
restricts certain

Restrictions 	procurements of ship propulsion shafts, periscope tubes,
ring forgings for bull gears, and polyacrylonitrile (PAN) carbon fiber.

                     Appendix II: International Agreements

WTO Government Procurement Agreement

Status 	Signed in April 1979 as part of the Tokyo Round of trade
negotiations and in force since January 1981; revised and expanded as part
of the Uruguay Round negotiations, which led to the formation of the WTO;
in force January 1996 as one of the WTO plurilateral agreements.1

Table 2: Members Currently Covered under Agreement

                                   Aruba  Hong Kong China      Netherlands    
                                 Austria            Hungary            Norway 
                                 Belgium            Iceland            Poland 
                                  Canada            Ireland     Portugal      
                                  Cyprus             Israel     Singapore     
                          Czech Republic              Italy   Slovak Republic 
                                 Denmark              Japan     Slovenia      
                                 Estonia              Korea             Spain 
                      European Community             Latvia      Sweden       
                                 Finland   Liechtenstein       Switzerland    
                                  France          Lithuania    United Kingdom 
                                 Germany     Luxembourg       United States   
                                  Greece              Malta 

                                 Source: USTR.

Provision Affecting Source "With respect to [procurements covered by the
GPA], each Party shall

Restrictions 	provide immediately and unconditionally to the products,
services and suppliers of other Parties offering products or services of
the Parties, treatment no less favorable than: (a) that accorded to
domestic products, services and suppliers; and (b) that accorded to
products, services and suppliers of any other Party."

1 Unlike most of the WTO Agreements, the Government Procurement Agreement
is a plurilateral agreement that allows each signatory to negotiate its
own coverage.

                     Appendix II: International Agreements

The GPA's provisions apply to 56 federal supply classification categories
when procured by 80 U.S. federal entities, subject to certain exclusions.
These exclusions include small and minority business set-asides,
procurements determined to be indispensable for national security or
national defense purposes, research and development, operation of certain
government or privately owned facilities used for government purposes,
public utility services including telecommunications, transportation,
dredging, and all services purchased in support of military forces
overseas. In addition, the GPA does not apply to certain categories of
procurements for some federal entities. Notably, the GPA does not apply to
DOD procurements of goods subject to DOD-specific domestic source
restrictions.

Implementation of The United States has waived "discriminatory purchasing
requirements"

Agreement 	for eligible products from the current parties to the GPA using
the authority of the Trade Agreements Act. FAR 25.4 implements this
agreement and further specifies that the Buy American Act is waived for
eligible products from parties to the GPA.

Acquisition Values	The GPA applies to supply contracts of $175,000 or
more, service contracts of $175,000 or more, and construction contracts of
$6,725,000 or more. These thresholds are adjusted approximately every 2
years.

Agreement on Trade in Civil Aircraft

    Status Signed in April 1979 (Tokyo Round); in-force since January 1980.

                     Appendix II: International Agreements

               Table 3: Members Currently Covered under Agreement

                                    Austria        Georgia       Malta        
                                    Belgium        Germany    Netherlands     
                                   Bulgaria         Greece       Norway       
                                     Canada        Ireland      Portugal      
                             Chinese Taipei          Italy      Romania       
                                    Denmark          Japan       Spain        
                                      Egypt         Latvia       Sweden       
                                    Estonia      Lithuania    Switzerland     
                         European Community   Luxembourg       United Kingdom 
                                     France          Macau      United States 

                                 Source: USTR.

Provision Affecting Source "Signatories shall not require airlines,
aircraft manufacturers, or other

Restrictions 	entities engaged in the purchase of civil aircraft . . . to
procure civil aircraft from any particular source, which would create
discrimination against suppliers from any Signatory."

Implementation of The United States has waived the application of the Buy
American Act for

Agreement 	procurement of aircraft and related articles meeting the
"substantial transformation" test of the Trade Agreements Act from
countries that are parties to the agreement. FAR 25.407 implements this
agreement and further specifies that the Buy American Act is waived for
civil aircraft and related articles from countries that are parties to the
agreement.

North American Free Trade Agreement

          Status Signed in December 1992; in-force since January 1994.

Countries Covered under Canada, Mexico, and the United States Agreement

                     Appendix II: International Agreements

Provision Affecting Source Restrictions

"With respect to [procurements covered by NAFTA], each Party shall accord
to goods of another Party, to the suppliers of such goods and to service
suppliers of another Party, treatment no less favorable than the most
favorable treatment that the Party accords to: (a) its own goods and
suppliers; and (b) goods and suppliers of another Party."

The NAFTA procurement provisions apply to covered procurements of 53 U.S.
federal entities, subject to certain exclusions. These exclusions include
small and minority business set-asides; procurements determined to be
indispensable for national security or national defense purposes; research
and development; information processing and related telecommunications
services; ship repair and maintenance; operation of certain
government-owned facilities; utilities; transportation and travel
services; and dredging. In addition, NAFTA's procurement provisions do not
apply to certain categories of procurements for some federal entities.
Notably, NAFTA does not apply to DOD procurements of goods subject to
DOD-specific domestic source restrictions.

Implementation of The United States has waived "discriminatory purchasing
requirements"

Agreement 	for eligible products from Canada and Mexico using the
authority of the Trade Agreements Act. FAR 25.4 implements this agreement
and further specifies that the Buy American Act is waived for eligible
products from Canada and Mexico.

Acquisition Values	NAFTA applies to contracts equal to or exceeding the
thresholds in table 4. These thresholds are adjusted approximately every 2
years.

Table 4: NAFTA Thresholds

Threshold for Threshold for Mexican eligibility Canadian eligibility

                             Goods $58,550 $25,000

                            Services $58,550 $58,550

                       Construction $7,611,532 $7,611,532

                    Source: Federal Acquisition Regulation.

                     Appendix II: International Agreements

U.S.-Israel Free Trade Agreement

            Status Signed in April 1985; in-force since August 1985.

Countries Covered under Israel and the United States Agreement

Provision Affecting Source "The United States shall waive all Buy National
restrictions with respect to

Restrictions 	government agency purchases . . . of $50,000 or more which
would be subject to the Agreement on Government Procurement [but for the
GPA's higher threshold]."

Implementation of The United States has waived "discriminatory purchasing
requirements"

Agreement 	for procurements covered by the U.S.-Israel Free Trade
Agreement using the authority of the Trade Agreements Act. FAR 25.406
implements this agreement and further specifies that the Buy American Act
is waived for procurements covered by this agreement, with the exception
of certain listed federal agencies, including DOD.

Acquisition Values	The U.S.-Israel Free Trade Agreement applies to
government agency purchases of $50,000 or more.

U.S.-Singapore Free Trade Agreement

            Status Signed in May 2003; in-force since January 2004.

Countries Covered under Singapore and the United States Agreement

                     Appendix II: International Agreements

Provision Affecting Source Restrictions

"The parties shall apply [certain listed provisions] of the GPA to all
government procurement." The GPA provisions referenced in the
U.S.-Singapore Agreement relate to mutually comparable treatment in
covered government procurements.

The procurement provisions of the U.S.-Singapore Free Trade Agreement
apply to the 80 U.S. federal entities covered by the GPA. Subject to
several minor exceptions, the Agreement applies to procurements of the
same goods and services expressed in the GPA and subject to the same
exclusions for procurements of certain categories of goods.

Implementation of The United States has waived "discriminatory purchasing
requirements"

Agreement 	for procurements covered by the U.S.-Singapore Free Trade
Agreement using the authority of the Trade Agreements Act. FAR 25.4
implements this agreement and further specifies that the Buy American Act
is waived for procurements covered by this Agreement.

Acquisition Values	The U.S.-Singapore Free Trade Agreement applies to
supply contracts of $58,550 or more, service contracts of $58,550 or more,
and construction contracts of $6,725,000 or more. These thresholds are
adjusted approximately every 2 years.

U.S.-Chile Free Trade Agreement

            Status Signed in June 2003; in-force since January 2004.

Countries Covered under Chile and the United States Agreement

Provision Affecting Source "With respect to any measure governing
procurement covered by [the U.S.-

Restrictions 	Chile Free Trade Agreement], each Party shall accord to the
goods and services of the other Party, and to the suppliers of the other
Party of such goods and services, treatment no less favorable than the
most favorable treatment the Party accords to its own goods, services, and
suppliers."

                     Appendix II: International Agreements

The procurement provisions of the agreement apply to 79 U.S. federal
entities, subject to certain exclusions. These exclusions include small
and minority business set-asides, as well as service contracts for
research and development, information processing and related
telecommunications services, ship repair and maintenance, operation of
certain governmentowned facilities, utilities, transportation, dredging,
and all services purchased in support of military forces overseas. In
addition, the agreement does not apply to certain categories of
procurements for some federal entities. Notably, it does not apply to DOD
procurements of goods subject to DOD-specific domestic source
restrictions.

Implementation of The United States has waived "discriminatory purchasing
requirements"

Agreement 	for procurements covered by the U.S.-Chile Free Trade Agreement
using the authority of the Trade Agreements Act. FAR 25.4 implements this
agreement and further specifies that the Buy American Act is waived for
procurements covered by this agreement.

Acquisition Values	The U.S.-Chile Free Trade Agreement applies to supply
contracts of $58,550 or more, service contracts of $58,550 or more, and
construction contracts of $6,725,000 or more. These thresholds are
adjusted approximately every 2 years.

U.S.-Australia Free Trade Agreement

            Status Signed in May 2004; in-force since January 2005.

Countries Covered under Australia and the United States Agreement

Provision Affecting Source "Each Party and its procuring entities shall
accord unconditionally to the

Restrictions 	goods and services of the other Party and to the suppliers
of the other Party offering the goods or services of that Party, treatment
no less favourable than the most favourable treatment the Party or the
procuring entity accords to domestic goods, services and suppliers."

                     Appendix II: International Agreements

The procurement provisions of this agreement apply to 79 U.S. federal
entities, subject to certain exclusions. These exclusions include small
and minority business set-asides, as well as service contracts for
research and development, basic telecommunications network and services,
ship repair and maintenance, operation of certain government-owned
facilities, utilities, transportation, dredging, and all services
purchased in support of military forces overseas. In addition, the
agreement does not apply to certain categories of procurements for some
federal entities. Notably, it does not apply to DOD procurements of goods
subject to DOD-specific domestic source restrictions.

Implementation of The United States has waived "discriminatory purchasing
requirements"

Agreement 	for procurements covered by the U.S.-Australia Free Trade
Agreement using the authority of the Trade Agreements Act. FAR 25.4
implements this agreement and further specifies that the Buy American Act
is waived for procurements covered by this agreement.

Acquisition Values	The U.S.-Australia Free Trade Agreement applies to
supply contracts of $58,550 or more, service contracts of $58,550 or more,
and construction contracts of $6,725,000 or more. These thresholds are
adjusted approximately every 2 years.

U.S.-Morocco Free Trade Agreement

Status 	Signed in June 2004; will enter into force on a date agreed
between the Parties in an exchange of written notifications.

Countries Covered under Morocco and the United States Agreement

Provision Affecting Source "With respect to any measure covered by [the
U.S.-Morocco Free Trade

Restrictions 	Agreement], each Party, including its procuring entities,
shall accord to the goods and services of the other Party, and to the
suppliers of the other Party of such goods and services, treatment no less
favorable than the

                     Appendix II: International Agreements

most favorable treatment the Party accords to its own goods, services, and
suppliers."

The procurement provisions of this agreement will apply to 79 U.S. federal
entities, subject to certain exclusions. These exclusions include small
and minority business set-asides, as well as service contracts for
research and development, basic telecommunications networks and services,
ship repair and maintenance, operation of certain government-owned
facilities, utilities, transportation, dredging, and all services
purchased in support of military forces overseas. In addition, the
agreement will not apply to certain categories of procurements for some
federal entities. Notably, it will not apply to DOD procurements of goods
subject to DOD-specific domestic source restrictions.

Implementation of This agreement has been approved by Congress and will
enter into force

Agreement 	on a date agreed between the Parties in an exchange of written
notifications. The government procurement provisions of the agreement are
reflected in the FAR by Federal Acquisition Circular 2001-27. 2

Acquisition Values	The agreement will apply to supply contracts of
$175,000 or more, service contracts of $175,000 or more, and construction
contracts of $6,725,000 or more. These thresholds will be adjusted
approximately every 2 years.

2 FAC 2001-27 indicates that the U.S.-Morocco Free Trade Agreement has
entered into force. As of January 14, 2005, the agreement has not yet
entered into force. As stated above, this will occur on a date agreed
between the Parties in an exchange of written notifications.

                     Appendix II: International Agreements

Reciprocal Procurement Memoranda of Understanding

     Table 5: MOUs Signed between DOD and Its Counterparts in 21 Countries

                Australia         France             Norway        
                 Austria          Germany           Portugal       
                 Belgium          Greece              Spain        
                 Canada           Israel             Sweden        
                 Denmark           Italy           Switzerland     
                  Egypt         Luxembourg           Turkey        
                 Finland        Netherlands         United Kingdom 

                                  Source: DOD.

Provision Affecting Source Although there is some variation in the scope
and coverage of the MOUs,

Restrictions 	they typically call for the removal of barriers to the
mutual procurement of defense articles; the evaluation of proposals of
defense items produced in each country without applying price
differentials under "buy national laws and regulations" to the extent
permitted by law; and the giving of full consideration to all qualified
sources in each country.

Implementation of According to DFARS 225.872-1, DOD has determined it is
inconsistent with

Agreement 	the public interest to apply the restrictions of the Buy
American Act or the Balance of Payments Program to products from the MOU
countries, except for products from Finland and Austria for which the
restrictions may be waived on a purchase-by-purchase basis.

Acquisition Values	Only 3 of the 21 MOUs have specified dollar thresholds.
They range from $25,000 to $100,000.

Appendix III: Comments from the Department of Defense

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