Posted by Barlow Keener

The Recovery Act included a “Made in America” requirement for all $787 billion of stimulus funding. Section 1605 of the Act provides that in a “public work” all “manufactured goods used in the project” must be “produced in the United States.” A Federal agency is authorized to waive the requirement if one of three conditions is met: a) Buy America is not in the public interest, b) manufactured goods are not produced in the U.S. in sufficient and reasonably available quantities, or c) the manufactured goods produced in the U.S. will increase the cost of the “overall project”  by more than 25%. If the agency waives the requirement under one of these three  exceptions, then the agency must provide a detailed reason for the waiver in the Federal Register. One additional broad exception is included in Section 1605 which mandates that Buy America be applied “in a manner consistent with the United States obligations under international agreements.”

With respect to the $7.2 billion of broadband Recovery Act funding, the debate about Buy America is increasing in volume. On one side of the debate, the Communications Workers of America (CWA) urged the NTIA to not grant a blanket waiver because jobs are being taken from telecommunications facilities throughout the U.S. including Alcatel-Lucent facilities in Andover, MA and Charlotte, NC. CWA notes that the OMB has issued guidelines interpreting the “international agreement” section of Buy America to include 51 countries with trade agreements. China is not on the list.

Some of the larger equipment vendors which rely considerably on the manufacture of equipment outside the U.S. have urged the NTIA to issue a “blanket waiver.” These companies include Cisco and Alcatel-Lucent which filed ex parte notes documenting their discussions with the NTIA. Alcatel-Lucent explained that because most of the broad funding would be spent on labor in building out fiber facilities, waiving the provision for the equipment such as routers and switches would not significantly hurt U.S. jobs. One good point made by Alcatel-Lucent is that even “innovations as the Apple iPhone and in-home routers like the Linksys WiFi router” would require waivers and that the equipment in Verizon’s FiOS and AT&T’s U-verse services would also require waivers. Cisco argued that the “globalized supply chain of the broadband equipment sector” means that the best equipment would not be available and would “significantly limit product and technology choices and could impair the ability of the programs to succeed.”

Alcatel-Lucent also pointed out that the OMB defined “public building or work” as  “a governmental entity” project. However, the broadband section of the Recovery Act leans heavily in favor of funding projects developed by governmental entities and not “private entities.”  Even for private entities to receive funding the entity must be deemed by rule making to be in the “public interest.”  Thus, the likelihood of a private entity receiving funding on its own without a governmental entity being involved is low.  Nevertheless there is a bright side for companies importing routers and switches into the U.S.  The OMB has decreed that goods made with foreign components are acceptable. OMB explained that there is no requirement regarding the origin of “components or subcomponents” as long as the “manufacturing” occurs in the U.S.

While Cisco and Alcatel-Lucent have presented persuasive arguments, it will be difficult for the NTIA to issue a blanket waiver in light of the CWA’s more persuasive political argument that the Recovery Act was intended to create jobs in the U.S. not outside the U.S.  Also, the OMB’s inclusion of 51 countries and explanation that “manufactured goods” do not include the origin of components or subcomponents eliminates much of the practical reasons for issuing the blanket waiver.  For example, as long as the chassis is made in the U.S. all the cards that are plugged into the chassis could be made in any country.

Politics and the 9% jobless economy – in some cities even 20% — may rule the day on the Buy America broadband issue.  But we will have to wait and see as the NTIA has yet to issue its guidelines for the first bid.