Breakout Session # 1 Joe Tasker, General Counsel, Information Technology Association of America

2. Potential Rise in Protectionism: Will Isolationism Make a Comeback? Breakout Session # 1 Joe Tasker, General Counsel, Information Technology Association of America Tom Abbott, Chair Government Contracts Practice, McKenna Long & Aldridge LLP Mary Ellen Fraser, Counsel, McKenna Long & Aldridge LLP July 27, 2006 1:45 – 2:45 pm

3. What is Causing the Renewed Interest? • Dubai Ports • Berry Amendment enforcement • Trade Agreements Act enforcement

4. Critical Public Laws • Buy American Act • Trade Agreements Act of 1979 • Berry Amendment

5. The Buy American Act, 41 U.S.C. § 10a-10d • Domestic preference for U.S. supplies and construction materials • Department of Defense vs. civilian agencies

6. The Buy American Act, 41 U.S.C. § 10a-10d • “Definitions” • Manufactured • End Product • Component

7. Trade Agreements Act of 197919 USC §§2511 et seq. • Tokyo Round GATT Agreement • Implements the “WTO Procurement Agreement” for the United States (originally the GATT Procurement Code) • Waives the Buy American Act for goods and services of “Designated Countries” • Includes 30+ WTO countries, NAFTA and other FTA’s, and LDC’s • Does not apply to “small purchases” (less than about $193,000 currently; exact amount in SDR’s) • At the “purchase order level”? Or at the “contract level”?

8. Trade Agreements Act of 197919 USC §§2511 et seq. Designated Countries • World Trade Organization Government Procurement Agreement  countries • Free Trade Agreement countries (Australia, Canada, Chile,  Mexico, Morocco, Singapore);  • Least developed countries   • Caribbean Basin Initiative countries WTO Countries include: Aruba, Austria, Belgium, Canada, Cyprus, Czech Republic,  Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary,  Iceland, Ireland, Israel, Italy, Japan, Korea (Republic of), Latvia,  Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway,  Poland, Portugal, Singapore, Slovak Republic, Slovenia, Spain, Sweden,  Switzerland, United Kingdom 

9. The Trade Agreements Act In Practice • Covers a vast amount of US government commercial procurement • Excludes many intelligence agencies and some defense, but includes Defense IT • “Eligible Products” of designated countries are • “Wholly made” in the country or • “Substantially transformed” there (using customs origin rules) • Offers of eligible products are treated the same as domestic offers, according to WTO principles • Ineligible products (origin other than designated country) cannot be offered • USTR is the “lead agency” by Executive Order

10. Current Issues for TAA • Big Gaps in the list of “Designated Countries” • Application of TAA to Services

11. Gaps in Coverage Three Major Countries Are Missing From the Designated Countries list for IT: China Malaysia Chinese Taipei (Taiwan)

12. Consider Notebook ComputersHTSUS 8471.30 – U.S. imports for consumption 2005

13. As A Result of the Gaps . . . • IT companies keep special production or “assembly” lines open for government customers in TAA countries at higher cost • Trade data suggest imports from Mexico, Canada and Singapore may be filling government orders • Commercial IT suppliers take care to keep close track of supply chains and changes in manufacturing locations • Verification for 3d Party Schedule Sellers is difficult • Justice Department Qui Tam and other enforcement actions have been announced with multimillion dollar settlements

14. Possible Solutions • China has agreed to “Start” negotiating WTO GPA Accession in December 2007 • Malaysia FTA in process and could be delivered to Congress December 2006 • Taiwan accession to WTO – and GPA – is due “soon” • Class Waivers? • OMB Rulemaking on “Impediments to Commercial Procurement”?

15. Application to Services Procurement • WTO Procurement Agreement applies generally to major sectors of “services” procurement • TAA applies to services by its terms • “Eligible product means . . . Product or service” 19 USC §2518(4)(A)(I)(ii) • FAR provisions define “origin” of offered services as “country of establishment” of the service provider

16. The Berry Amendment: What Is it? • Statutory prohibition on the Secretary of Defense for the purchase of • Food • Clothing • Tents, tarpaulins or covers • Cotton and other natural fiber products • Woven silk or woven silk blends • Spun silk yarn for cartridge cloth

17. The Berry Amendment: What Is It? • Synthetic fabric or coated synthetic fabric, including all textile fibers and yarns that are for use in such fabrics • Canvas products • Wool (whether in the form of fiber or yarn or contained in fabrics, materials or manufactured articles) • Any item of individual equipment (Federal Supply Class 8465) manufactured from or containing any of the fibers, yarns, fabrics or materials listed in this paragraph (a)

18. The Berry Amendment: What Is It? • Specialty metals, including stainless steel flatware, unless the metals were melted in steel manufacturing facilities located within the United States • Hand or measuring tools, unless the tools were produced in the United States

19. Who? • Defense contractors and subcontractors – all tiers • An exception to the Buy American Act does not relieve the Department of Defense contractor from compliance with the Berry Amendment.

20. Is There A Waiver Or An Exception? Yes, but . . . • Availability – When the appropriate Secretary makes a determination that satisfactory quality and sufficient quantity cannot be procured as and when needed. • Contingency operations – for food, specialty metals and hand or measuring tools. • Commissaries and Exchanges • Small Purchases • Specialty Metals and Chemical Warfare Protective Clothing

21. Withholds Berry Amendment is codified in 10 U.S.C. § 2533a; it is an “appropriations” statute. Thus, the Secretary of Defense is not prohibited from procuring the item, rather the Secretary is prohibited from using funds to procure the item. This is the legal basis for the “withholds”.

22. Specialty Metals “Specialty metals” means— • Steel— • With a maximum alloy content exceeding one or more of the following limits: manganese, 1.65 percent; silicon, 0.60 percent; or copper, 0.60 percent; or • Containing more than 0.25 percent of any of the following elements: aluminum, chromium, cobalt, columbium, molybdenum, nickel, titanium, tungsten, or vanadium;

23. Specialty Metals (ii) Metal alloys consisting of nickel, iron-nickel, and cobalt base alloys containing a total of other alloying metals (except iron) in excess of 10 percent; (iii) Titanium and titanium alloys; or (iv) Zirconium and zirconium base alloys.

24. Specialty Metals Exception - Specialty metal melted in Australia; Belgium; Canada; Denmark; Egypt; Germany; France; Greece; Israel; Italy; Luxembourg; Netherlands; Norway; Portugal; Spain; Sweden; Switzerland; Turkey; United Kingdom of Great Britain and Northern Ireland OR articles manufactured in these countries.

25. Berry Amendment, 10 U.S.C. § 2533a H.R. 5122 Section 831 • "Qualifying countries" would be narrowed in scope • Would apply the restrictions for specialty metals to all subcontracts at any tier • Would prohibit the use of payment withholds as a means to achieve compliance. • Would allow one time 'get free'

26. Berry Amendment, 10 U.S.C. § 2533a H.R. 5122 • Section 832 would establish a Strategic Materials Protection Board to develop and publish a list of items deemed to be critical to national security.

27. Berry Amendment, 10 U.S.C. § 2533a S. 2766 • Section 821 would remove hand and measuring tools from the requirement to buy certain articles from American sources. Section 822 • would provide exemptions for commercial items • would provide a dual use exemption • a de minimis standard