Recent Developments Include Proposed Federal Acquisition Regulation Amendments And An Investigation Of Foreign Trade Zones
The United States continues to take several actions in connection with implementation of the United States-Mexico-Canada Agreement (“USMCA”), which entered into force on July 1, 2020. On December 13, 2021, the Department of Defense (“DoD”), the General Services Administration (“GSA”), and the National Aeronautics and Space Administration (“NASA”) jointly issued a Notice of Proposed Rulemaking (the “NPRM” or “Proposed Rule”) requesting comments about proposed modifications to the Federal Acquisition Regulation (“FAR”) in order to comply with the USMCA Implementation Act. Although many of the proposed modifications are technical in nature, certain aspects would make important changes to government contracting requirements with respect to Canada, as discussed below.
Separately, the Office of the U.S. Trade Representative (“USTR”) recently requested that the U.S. International Trade Commission (the “Commission” or “ITC”) conduct an investigation of U.S. foreign trade zones (“FTZs”) and similar programs in Canada and Mexico so as to inform USTR how such programs in Canada and Mexico “impact employment and the competitiveness of goods produced in FTZs in the United States.” Additional details on the scope of USTR’s request for a report are set forth below.
PROPOSED USMCA FAR AMENDMENTS AND REQUEST FOR COMMENTS
Canada is not a party to the Government Procurement provisions of USMCA (which only apply between Mexico and the United States). Accordingly, Canada’s relationship with the United States regarding government procurement is governed by the World Trade Organization (“WTO”) Government Procurement Agreement (“GPA”). DOD, GSA and NASA now propose necessary changes to the FAR.
In addition to proposing several technical changes to the regulations in order to codify replacement of the North American Free Trade Agreement (“NAFTA”) by USMCA, the NPRM proposes several key changes for Canada that will impact compliance obligations in certain government contracting situations. First, the proposal confirms that Canada is not a party to the government procurement chapter of the USMCA. Second, in light of the fact that Canada is not a party to USMCA’s government procurement provisions, the proposal adds Canada to the list of WTO GPA countries. The legacy NAFTA $25,000 threshold for Canada is removed and consistent with U.S. WTO GPA obligations, the following thresholds now apply: (1) a $50,000 threshold applies when the acquisition is for supplies, or for services involving the furnishing of supplies, and (2) an acquisition value threshold of $50,000 or more, but less than $182,000. Third, the NPRM proposes to increase the acquisition value threshold that is applicable to Canada for products requiring forced or indentured child labor contractor certifications from $25,000 to $182,000.
ustr requests AN investigation of NORTH AMERICAN ftzs BY THE ITC
Section 332 of the Tariff Act of 1930, 19 U.S.C. § 1332 (the “Act”), allows the President (through USTR) to request investigations by the Commission on a broad array of topics including “the administration and fiscal and industrial effects of the customs laws of” the United States. On December 14, 2021, USTR Katherine Tai requested assistance from the ITC to understand “the operation of U.S. FTZs and similar programs in Canada and Mexico, and whether and how policies and practices with respect to those respective FTZs and programs impact employment and the competitiveness of goods produced in FTZs in the United States.”
USTR requested that the ITC’s report contain the following specific information:
Data on the number of firms operating in FTZs
Data on FTZ employment
A list of the leading sectors/industries participating in FTZs
Data on shipments into FTZs and exports from FTZs
An overview of the current FTZ policies and practices in the United States, Canada, and Mexico (including details on FTZ tariff treatment and other impacts on “the cost-competitiveness of products of U.S. firms operating in FTZs.”)
Analysis of relative production costs in FTZs in the United States, Canada, and Mexico
Effects on U.S. employment (including industrial sectoral-specific information, where possible)
A review of recent literature on the effects of FTZs on U.S. firm competitiveness and production
Importantly, USTR instructed the Commission not to include an analysis of “duties imposed under U.S. trade remedy laws” (i.e., antidumping or countervailing duties), Section 301 of the Trade Act of 1974, as amended (e.g., the additional tariffs on certain Chinese-origin goods that were imposed by USTR beginning in 2018), or additional tariffs imposed by the United States on national security grounds under Section 232 of the Trade Expansion Act of 1962, as amended.1We note that the U.S. Department of Commerce recently opened a comment period on the Foreign-Trade Zone Application (which requires applicants to “include specific information on the customs-tariff related savings that result from zone procedures and the economic consequences of permitting such savings”) that could provide interested parties with the opportunity to file comments on the intersection between FTZs and trade remedies. Comments must be filed by February 22, 2022. USTR’s request also suggests that the Commission consider surveying “U.S. firms participating in FTZs” and “develop a broad record of information, through a hearing and/or other outreach, from firms that may be impacted by these policies.” USTR requested that the Commission complete the report within 16 months.
The United States continues to take multiple actions to implement USMCA obligations and to assess the potential impact of USMCA on key aspects of the U.S. economy, including FTZs. Affected companies that conduct business with federal purchasers should consider whether to participate in the USMCA-specific FAR rulemaking process that is being conducted by DoD, GSA, and NASA. Affected companies with operations in Canada also should take note of proposed changes to certain acquisition thresholds and other contracting matters, including contractor certifications as to forced or indentured child labor. Likewise, companies whose supply chains include FTZs and/or similar programs in Canada and Mexico should consider whether and how to participate in the forthcoming investigation by the ITC regarding the impact of FTZs on U.S. employment and competitiveness.