Cross-­‐Border  Markets:  Evaluating  the  Effect  of  U.S.  Domestic  Content  Requirements  on  the  U.S.-­‐Canada  Economic  Partnership    

       

WSHDC-­‐RFP-­‐004                  

                   

September  15,  2017              

Submitted  by    

The  Trade  Partnership  1701  K  Street,  NW  

Suite  575  Washington,  DC    20006  

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 EXECUTIVE  SUMMARY    

This  study  examines  the  effect  of  U.S.  domestic  content  requirements  on  the  U.S.-­‐Canada  economic  partnership.  We  examine  the  impacts  by  conducting  in-­‐depth  interviews  with  officials  at  companies  with  significant  cross-­‐border  trade  where  domestic  content  requirements  do  (e.g.,  Buy  America  or  Buy  American  rules)  or  could  (e.g.,  proposed  rule  requiring  U.S.  steel  in  pipelines)  shape  supply  chains.  We  also  spoke  to  U.S.  government  agencies  whose  procurement  is  subject  to  such  rules.  We  found:    U.S.  domestic  content  requirements  can  impact  U.S.  companies  by  limiting  sourcing  options  and  increasing  product  costs,  both  of  which  negatively  impact  U.S.  jobs  and  competitiveness.    

• Buy  America  requirements  can  prevent  companies  from  purchasing  some  inputs  from  preferred  suppliers,  even  if  few  alternative  U.S.  suppliers  exist.  

• Many  U.S.  manufacturing  jobs  exist  in  spite,  not  because,  of  domestic  content  requirements.  • Domestic  content  requirements  can  create  additional  compliance  costs  for  companies  

selling  similar  products  to  both  commercial  and  federally  funded  projects.  • Taking  additional  steps  to  comply  with  domestic  content  requirements  can  increase  the  

price  of  goods  significantly  without  leading  to  a  similar  increase  in  U.S.  jobs.    Proposed  domestic  content  changes  that  could  prevent  companies  from  sourcing  from  Canada  would  disrupt  existing  supply  chains  and  harm  many  U.S.  businesses,  particularly  in  the  short  term.    

• The  current  inability  of  U.S.  producers  to  supply  key  materials  (e.g.,  aluminum)  makes  whole  industries  reliant  upon  imports  from  Canada.  

• Extensive  co-­‐production  occurs  between  U.S.  and  Canadian  facilities,  meaning  that  some  products  cross  the  border  multiple  times  before  final  sale.  

• Imposing  new  or  more  restrictive  domestic  content  requirements  between  the  United  States  and  Canada  could  interrupt  longstanding  manufacturing  processes  and  threaten  jobs  and  investments  in  both  countries.    

 Government  agencies  impacted  by  U.S.  domestic  content  requirements  typically  procure  goods  and  services  from  companies  that  are  longstanding  suppliers  and  know  what  is  expected  of  them,  so  the  compliance  burden  falls  on  contractors  while  the  extra  cost  burden  falls  on  (unknowing)  taxpayers.  

• Contracting  authorities  view  compliance  with  Buy  America  requirements  as  a  “standard  operating  procedure”  because  an  industry  has  grown  up  specifically  to  meet  them.  

• Requests  for  domestic  content  waivers  are  rare  since  engineers  and  contractors  design  projects  with  the  rules  in  mind.  

• Following  the  “well  worn”  path  of  using  the  same  designs,  materials,  and  suppliers  can  slow  projects  and  increase  their  costs,  but  in  ways  that  are  impossible  to  quantify.  

• Failure  to  obtain  a  Buy  America  waiver  in  instances  when  it  is  necessary  can  cost  local  agencies  significant  amounts  of  time  and  money.  

• New  programs  in  several  states  now  allow  local  projects  to  avoid  rules  such  as  Buy  America,  but  there  is  minimal  evidence  that  such  opportunities  are  being  utilized.      

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I.   INTRODUCTION    

For  nearly  85  years,  the  United  States  has  maintained  “Buy  America”  and  “Buy  American”  programs  requiring  that  certain  Federal  and/or  state  or  local  government  funded  products  or  purchases  meet  domestic  content  requirements.1  In  certain  limited  cases,  local  content  requirements  can  be  waived.2  These  requirements  have  been  amended  and  adapted  over  time.  2017  has  seen  a  number  of  new  proposals  that  would  extend  domestic  content  preferences,  either  de  jure  (e.g.,  proposal  to  require  U.S.  “melted  and  poured”  steel  for  domestic  pipeline  projects)  or  de  facto  (e.g.,  Section  232  national  security  investigations  that  could  prevent  imports  altogether).        Given  the  popularity  of  domestic  content  proposals  and  their  growing  prominence  in  political  rhetoric  in  2017,  one  might  assume  that  ample  evidence  existed  substantiating  the  benefits  of  such  provisions,  or  at  least  the  limited  costs.  Yet  few  studies  solidly  quantify  the  benefits  or  costs  of  domestic  content  policies.  When  asked  about  the  impacts  on  them,  companies  and  government  procurement  agencies  alike  generally  can  provide  anecdotal  –  or  at  least  hypothetical  –  examples  of  why  such  programs  may  increase  costs,  but  few  can  provide  any  data  that  could  be  used  to  quantify  overall  impacts.  The  reason  is  quite  simple:  neither  companies  nor  agencies  have  an  incentive  to  collect  or  analyze  the  information.      For  contracting  agencies,  the  Buy  America  rules  are  always  back-­‐of-­‐mind:  engineers  design  projects  using  only  readily  sourced  materials  that  comply;  contractors  submit  bids  using  only  those  compliant  materials,  and  agencies  only  select  winning  bids  from  the  pool  of  proposals  that  meet  the  domestic  content  requirements.  As  a  result,  agencies  do  not  consider  if  a  project  could  be  designed  more  efficiently;  built  more  cost-­‐effectively  with  other  materials,  or  finished  sooner.    Companies  similarly  are  not  incentivized  to  “think  outside  the  box”  about  ways  to  deliver  low-­‐cost,  high-­‐value  results  for  projects  subject  to  federal  funding  restraints.  Companies  compete  in  one  market  for  projects  subject  to  content  requirement  rules,  and  in  a  different  market  for  commercial  projects.  Even  when  companies  could  use  imported  materials  to  complete  projects  faster  or  in  a  more  cost-­‐effective  manner,  they  do  not  bother  to  submit  a  bid  that  would  include  those  inputs.      In  each  case,  reviewing  or  submitting  non-­‐compliant  bids  would  be  a  waste  of  time  and  resources.  So  while  many  can  give  examples  of  why  rules  likely  raise  costs,  actual  quantification  is  rare.  This  research  confirmed  past  research,  by  The  Trade  Partnership  and  others,  of  the  difficulties  associated  with  quantifying  the  impacts  of  U.S.  domestic  content  requirements.  As  far  back  as  2001,  respondents  to  surveys  about  Buy  America’s  impact  yielded  the  conclusion  “Since  this  regulation  has  been  around  so  long  and  all  vendors  are  familiar  with  the  requirements,  it’s  really  not  a  problem  or  an  issue.”3  A  2008  U.S.  Government  Accountability  Office  (GAO)  report  on  federal  highway  funding  found  that  no  reviewed  studies  attempted  to  quantify  the  costs  of  Buy  America  program  requirements.  A  Federal  Highway  Administration  (FWHA)  report  identified  major  potential  costs,  such  as  “higher  iron  and  steel  prices,  higher  overall  project  costs,  reduced  bidding  competition,  and  project  delays,”  but  did  not  attempt  to  quantify  them.  In  a  survey  of  state  Departments  of  Transportation  (DOTs),  five  of  51  respondents  said  “the  Buy  America  program  factored  into  their  decision  to  use  nonfederal  funds”  for  specific  projects.4    

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More  recently,  the  FHWA  requested  comments  on  two  proposed  nationwide  Buy  America  waivers  in  late  2016.4  The  request  included  the  following  question:  “Does  your  agency  or  company  track  costs  associated  with  the  administrative  or  compliance  efforts  associated  with  the  Buy  America  requirements?”  DOTs  from  15  states  answered  the  question  directly,  but  not  one  reported  tracking  specific  costs.  Among  the  14  agencies  that  directly  answered  the  question,  none  responded  yes.5    Several  reports  released  in  2017  attempted  to  quantify  overall  costs  (as  opposed  to  company-­‐specific  costs).  One  study  found  that  returning  potential  savings  from  higher  government  purchases  of  imports  in  the  form  of  a  tax  cut  could  generate  $22  billion  in  economic  activity  and  support  over  300,000  net  jobs,  but  job  losses  in  many  manufacturing  sectors.6  Another  study  showing  U.S.  metro  cars  cost  34  percent  more  than  foreign  metro  cars  on  average  concluded  “Buy  America  policies  almost  certainly  contribute  to  higher  infrastructure  costs  in  the  U.S.,  but  it  is  hard  to  gauge  just  how  much.”7  Finally,  a  2017  Congressional  Research  Service  report  on  Buy  America’s  effects  found:  “Empirical  evidence  on  the  economic  benefits  or  costs  of  domestic  content  laws  is  largely  lacking.”8    Given  the  constraints  to  quantifying  the  costs  of  U.S.  domestic  content  requirements,  this  report  focuses  on  agency  and  company  case  studies  affected  by  local  content  restrictions  in  four  ways:      

• Companies  impacted  by  existing  U.S.  domestic  content  requirements;  • Companies  potentially  impacted  by  proposed  U.S.  domestic  content  requirements;  • Companies  with  extensive  U.S.-­‐Canada  co-­‐production  at  risk  of  supply  chain  disruptions,  and  • Agencies  impacted  by  existing  U.S.  domestic  content  requirements.  

 Each  case  study  is  based  on  interviews  with  individuals  at  the  contracting  agency  or  company.  Interviewees  held  a  number  of  roles  related  to  supply  chains,  procurement,  operations,  engineering,  sales,  compliance,  communications,  and  public  affairs.  For  most  company  case  studies,  multiple  employees  across  functions  played  a  role  in  collecting  the  information  presented.  The  conclusions  reflect  information  obtained  from  available  literature,  the  profiled  companies  and  contracting  agencies,  as  well  as  others  that  agreed  to  interviews  only  on  background.    1  “Buy  American”  laws  and  provisions  typically  regulate  direct  federal  government  spending  (e.g.,  The  Buy  American  Act  of  1933,  Trade  Agreements  Act,  Berry  Amendment).  “Buy  America”  laws  and  provisions  typically  regulate  indirect  federal  government  spending,  such  as  grant  funds  to  state  and  local  governments  (e.g.,  many  relating  to  transportation  spending).  They  often  define  what  it  means  to  be  produced  or  manufactured  in  the  United  States  in  different  ways.  2  For  example,  Buy  America  requirements  can  be  waived  if  it  is  determined  that  the  purchase  meeting  the  restrictions  would  be  inconsistent  with  the  public  interest,  that  the  materials  are  not  produced  in  the  United  States  in  sufficient  quantities  or  of  a  satisfactory  quality,  or  that  the  inclusion  of  domestic  materials  will  raise  the  cost  of  the  overall  project  by  more  than  25  percent.  3    Transit  Cooperative  Research  Program,  Legal  Research  Digest,  “Guide  to  Federal  Buy  America  Requirements,”  September  2001,  http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_lrd_17.pdf        4  See  for  example  U.S.  Government  Accountability  Office,  “Federal-­‐Aid  Highways:  Federal  Requirements  for  Highways  May  Influence  Funding  Decisions  and  Create  Challenges,  but  Benefits  and  Costs  Are  Not  Tracked,”  GAO-­‐09-­‐06,  December  2008,  http://www.gao.gov/assets/290/284235.pdf    5  “Buy  America  Nationwide  Waiver  Notification  for  Commercially  Available  Off-­‐the-­‐Shelf  (“COTS”)  Products  with  Steel  or  Iron  Components  and  for  Steel  Tie  Wire  Permanently  Incorporated  in  Precast  Concrete  Product,”  https://www.regulations.gov/docket?D=FHWA-­‐2016-­‐0028    6  Peter  B.  Dixon,  Maureen  T.  Rimmer,  and  Robert  G.  Waschik,  “Macro,  Industry  and  Regional  Effects  of  Buy  America(n)  Programs:  USAGE  Simulations,”  April  2017,  http://www.copsmodels.com/ftp/workpapr/g-­‐271.pdf    7  Philip  Rossetti,  Jacqueline  Varas,  and  Brianna  Fernandez,  “Buy  America  Regulations  May  Raise  Cost  of  Subsidized  Infrastructure,”  July  2017,  https://www.americanactionforum.org/research/buy-­‐america-­‐regulations-­‐may-­‐raise-­‐cost-­‐subsidized-­‐infrastructure      8  Congressional  Research  Services,  “Effects  of  Buy  America  on  Transportation  Infrastructure  and  U.S.  Manufacturing:  Policy  Options,”  July  2017,  https://fas.org/sgp/crs/misc/R44266.pdf    

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III.   LIST  OF  CASE  STUDIES  (SEQUENTIAL)    Companies  impacted  by  existing  U.S.  domestic  content  requirements    Evraz  North  America  Heico  Wire  Group  Ontario  Trap  Rock    Companies  potentially  impacted  by  proposed  U.S.  domestic  content  requirements    Molson  Coors  Dana  Incorporated  Welded  Tube    Companies  with  extensive  U.S.-­‐Canada  co-­‐production  at  risk  of  any  supply  chain  disruptions    Fiat  Chrysler  Automotive    General  Electric    Agencies  impacted  by  existing  U.S.  domestic  content  requirements    Ohio  Department  of  Transportation  Multnomah  County  (Oregon)  Bridge  Section  Secondary  Research:  States  Introduce  Programs  to  Increase  Local  Procurement  Flexibility  (Slowly)          

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Evraz  North  America  is  a  leading  producer  of  engineered  steel  products  for  rail,  energy  and  industrial  end  markets.  Headquartered  in  Chicago,  Illinois,  Evraz  has  six  production  sites  in  the  United  States  (Portland,  Oregon;  Pueblo,  Colorado)  and  Canada  (Regina,  Saskatchewan;  Calgary,  Camrose,  and  Red  Deer,  Alberta).  Evraz  employs  about  1,500  people  in  the  United  States  and  1,800  in  Canada,  with  jobs  at  one  facility  depending  greatly  on  the  success  of  others.    Take  Evraz  Oregon  Steel  in  Portland,  which  employs  about  400  people  and  is  one  of  the  only  plate  mills  in  the  western  United  States.  The  facility  produces  steel  plate  and  coil  that  are  sold  for  a  wide  variety  of  uses,  including  for  military  and  defense  purposes,  U.S.  shipbuilding,  and  railcar  manufacturing.  In  some  cases  it  is  exported  back  to  Canada.  Evraz  Oregon  Steel  can  produce  steel  plate  up  to  11-­‐feet  wide  and  5-­‐inches  thick  and  coil  up  to  10-­‐feet  wide  and  5/8-­‐inches  thick.          There  are  no  steel  mills  west  of  the  Rocky  Mountains  that  produce  the  steel  “slabs,”  and  transportation  costs  from  slab  producers  in  the  eastern  United  States  can  be  prohibitively  high  for  shipping  25-­‐ton  steel  slabs.  As  such,  nearly  all  of  Evraz  Oregon  Steel’s  products  –  and  the  corresponding  jobs  –  rely  upon  slab  imported  from  Evraz’s  facility  in  Regina,  Saskatchewan  or  from  overseas.    

Company:  Evraz  North  America  Headquarters:  Chicago,  Illinois    Key  points    • Evraz  Oregon  Steel’s  jobs  exist  

in  spite,  not  because,  of  Buy  America  rules  and  it  estimates  that  60  more  workers  could  be  hired  if  steel  products  using  Canadian  slab  qualified  for  federally  funded  projects.    

• Extending  Buy  America-­‐type  rules  for  “melted  and  poured”  steel  to  private  pipelines  would  have  negative  impacts  on  Evraz,  both  in  the  United  States  and  Canada,  and  on  Evraz’s  U.S.  customers.    

• Since  there  are  no  U.S.  steel  slab  makers  west  of  the  Rocky  Mountains,  Evraz  Oregon  Steel’s  products  rely  upon  steel  slabs  imported  from  Canada.    

Rolling  mill  at  Evraz  Oregon  Steel  in  Portland;  Photo  credit:  Evraz  North  America  

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U.S.  domestic  content  requirements  such  as  the  American  Iron  and  Steel  (AIS)  provisions  in  Buy  America  hurt  Evraz  Oregon  Steel’s  ability  to  compete  for  projects  and  grow  its  Oregon  workforce.  Because  the  slabs  are  “melted  and  poured”  in  Canada,  Evraz  Oregon  Steel’s  derivative  products  are  ineligible  for  use  in  many  federally  funded  projects,  including  local  projects  such  as  recent  roadwork  on  Interstate  5  near  Portland.  Evraz’s  jobs  in  Portland  exist  in  spite,  not  because,  of  Buy  America  rules.  Evraz  believes  it  could  hire  60  more  workers  in  Portland  if  “Buy  America”  steel  products  using  Canadian  slab  qualified  for  federally  funded  projects.      Evraz  is  the  largest  producer  of  large  diameter  pipeline  pipes  and  the  only  company  in  North  America  making  both  steel  and  such  pipes.  As  such,  Evraz  would  be  uniquely  impacted  by  extending  the  AIS  provisions  for  federally  funded  projects  to  private  pipeline  projects,  as  proposed  by  the  Trump  administration.  Evraz  believes  any  effort  to  restrict  Canadian  pipe  from  private  projects  would  harm  investments  in  both  Canada  and  the  United  States.        This  holds  true  for  Evraz’s  mill  in  Colorado,  which  manufactures  oil  drilling  pipe  and  other  downstream  products  from  100  percent  U.S.-­‐produced  steel.  The  negative  impacts  on  Canadian  operations  would  more  than  offset  any  potential  gains  at  Evraz  Rocky  Mountain  Steel.  Since  investment  decisions  are  made  on  a  North  America-­‐wide  basis,  rules  meant  to  promote  U.S.  pipe  manufacturing  instead  could  force  the  cancellation  of  planned  investments  in  the  United  States.      For  the  oil  and  gas  industry  in  particular,  the  border  between  the  United  States  and  Canada  is  increasingly  “thin.”  For  example,  Evraz  produces  pipeline  pipes  in  both  countries;  its  customers  lay  pipe  in  both  countries,  and  their  customers  transport  oil  from  western  Canada  to  refineries  in  Indiana  and  Illinois.      National  Fuel  Gas  Company  –  an  Evraz  pipeline  customer  based  in  Williamsport,  New  York  –  reported  that  access  to  Canadian  pipeline  pipe  was  critical  for  increasing  the  number  of  capable  sourcing  options.  Only  a  quarter  of  its  steel  pipe  comes  from  Canada,  but  an  inability  to  purchase  such  pipe  likely  would  lead  to  higher  prices  and  less  availability,  particularly  in  the  short  term.  It  could  take  18  months  or  more  to  qualify  a  new  supplier  and  order  pipe  for  a  planned  project  start,  so  cutting  off  supply  from  Canadian  producers  like  Evraz  could  require  the  company  to  delay  project  starts  and  buy  from  lower-­‐tier  suppliers  without  a  proven  track  record  of  high-­‐quality,  on-­‐time  deliveries.    Policies  that  minimize  impediments  to  trade  between  the  United  States  and  Canada  support  jobs  up  and  down  the  supply  chain  in  both  countries.  However,  the  opposite  is  also  true:  policies  that  create  additional  barriers  to  bilateral  trade  hinder  job  growth  at  Evraz  in  both  the  United  States  and  Canada.    

“We  know  that  Buy  America  policies  already  reduce  the  number  of  steel  manufacturing  jobs  we  have  in  Portland.  Extending  them  to  private  pipelines  could  have  a  similar  impact  in  Pueblo.”  -­‐  Brian  Kristofic,  Director  –  Trade  and  Government  Affairs  at  Evraz  North  America  

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Recycling  

Scrap  from  Minnesota  and  nearby  U.S.  states  makes  its  way  to  a  recycling  facility  North  Dakota,  one  of  16  Evraz  recycling  facilities  in  the  western  United  States  and  Canada.  Two  out  of  every  three  pounds  of  steel  in  the  United  States  is  manufactured  from  recycled  ferrous  scrap.  

Steelmaking  

Scrap  metal  is  converted  to  liquid  steel  in  two  electric  arc  furnaces  (EAFs)  in  Regina,  Saskatchewan,  and  then  cast  into  slabs.  Some  slabs  are  rolled  into  coil.  Making  steel  with  EAFs  emit  up  to  79%  less  CO2,  and  it  is  infinitely  recyclable.  Evraz’s  steel  contains  95  percent  recycled-­‐metal  content.  

Slab  Rolling  

Steel  slabs  are  rolled  into  plate  in  Portland,  Oregon.  About  half  of  the  plate’s  value-­‐added  comes  from  the  conversion  process.      

Line  Pipe  Manufacturing  

Steel  coil  is  turned  into  line  pipe  for  oil  and  natural  gas  in  Camrose  and  Red  Deer,  Alberta.  

Customers  

Evraz  Oregon  Steel  supplies  local  employers  like  railcar  manufacturer  Greerbrier  Companies  and  shipbuilder  Vigor  Marine.      

Customers  

Evraz  Camrose  and  Red  Deer  supply  line  pipe  for  oil  and  gas  transmission  lines  laid  in  both  the  U.S.  (e.g.,  Illinois,  Wisconsin)  and  Canada.  

 

Headquarters  

Recycling  centers  

Electric  arc  furnaces  (and  other  operations)  

Steel  product  manufacturing  facilities  

 EVRAZ  NORTH  AMERICA’S  INTEGRATED  U.S.  AND  CANADIAN  PRODUCTION  

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The  Heico  Wire  Group,  based  in  Irwindale,  California,  includes  both  Davis  Wire  and  National  Standard.  It  is  the  largest  consumer  of  wire  rod  in  western  North  America  and  employs  650  people  in  plants  in  California,  Washington,  Oklahoma,  and  Michigan.  It  is  a  subsidiary  of  The  Heico  Companies  LLC,  a  holding  company  based  in  Chicago,  Illinois  with  a  diversified  portfolio  of  over  35  businesses  involved  in  manufacturing,  construction  and  industrial  services.        Heico  purchases  the  vast  majority  of  its  raw  materials  –  wire  rod  –  from  domestic  U.S.  producers,  but  generally  purchases  25  to  30  percent  from  international  sources.  In  Canada,  it  sources  rod  from  Ivaco  Rolling  Mills,  another  Heico  Companies  subsidiary,  and  has  purchased  rod  from  non-­‐affiliated  Canadian  companies  as  well.  

           According  to  Bob  Moffitt,  Vice  President  of  Purchasing  for  Heico  Wire  Group,  the  company  considers  a  range  of  advantages  and  disadvantages  when  deciding  whether  to  buy  domestic  or  imported  wire  rod.  In  these  considerations,  Heico  views  sourcing  from  Canada  as  the  same  as  sourcing  from  domestic  mills:  prices  are  similar,  small  shipments  are  available  by  rail,  there  is  minimal  damage  from  overseas  transport,  and  the  company  does  not  need  to  deal  with  distance  issues  such  as  time  zones,  languages,  and  travel  times.  Sourcing  from  Canada  increases  Heico’s  supplier  choices,  but  Buy  America  rules  take  that  choice  away.    

Company:  Heico  Wire  Group  Headquarters:  Irwindale,  California    Key  points    • Buy  American  and  similar  rules  

can  limit  sourcing  options,  raise  costs,  and  create  compliance  challenges  related  to  inventory.      

• From  a  quality  and  ease-­‐of-­‐business  standpoint,  sourcing  from  Canada  is  “basically  the  same”  as  sourcing  from  American  mills.    

• 25  to  30  percent  of  Heico’s  raw  materials  –  wire  rod  –  come  from  foreign  sources,  including  a  sister  company  in  Canada.    

 

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Lower  prices  are  the  biggest  advantage  of  sourcing  wire  rod  from  outside  of  North  America,  despite  the  fact  that  imports  from  overseas  require  larger  purchase  orders,  which  increase  inventory  costs,  and  are  more  likely  to  be  damaged,  meaning  Heico  needs  to  write  off  a  lot  more  product  as  unusable.  Savings  often  result  from  “blending”  material  costs,  or  using  a  mix  of  imported  and  domestic  materials  to  bring  down  the  average  cost.  For  example,  if  a  given  amount  of  imported  wire  rod  costs  $100  and  the  same  amount  of  domestic  rod  costs  $200,  the  average  cost  can  be  lowered  to  $150  –  making  the  products  manufactured  from  the  steel  much  more  competitive.  Once  again,  Buy  America  rules  can  eliminate  those  potential  savings      The  benefits  of  blended  costs  are  particularly  acute  for  products  made  from  low-­‐  grade  steel.  Heico  manufactures  aluminum  conductor  steel-­‐reinforced  cable  (ACSR),  the  structural  component  of  a  type  of  high-­‐capacity,  high-­‐strength  stranded  conductor  used  in  overhead  power  lines.  Materials  for  the  highly  technical  product  tend  to  be  the  same  price  regardless  of  the  source,  so  potential  benefits  from  cost  blending  are  minimal.  However,  Heico  also  manufactures  wire  mesh  for  reinforcing  concrete.  On  a  technical  level,  mesh  can  be  made  from  the  lowest-­‐cost  (i.e.,  imported)  wire  rod,  but  Buy  America  rules  result  in  using  some  of  the  more  expensive  materials  instead.          Finally,  Heico  faces  challenges  associated  with  storing,  tagging,  and  marking  products  based  on  the  various  U.S.  regulations,  including  Buy  America.  Certain  Heico  products  may  be  manufactured  from:      

1) U.S.  steel  that  is  drawn,  galvanized,  and  woven  in  the  United  States;    2) imported  steel  that  is  drawn,  galvanized,  and  woven  in  the  United  States,  or    3) imported  galvanized  wire  that  is  woven  in  the  United  States.    

 Additionally,  since  multiple  coils  are  welded  together  during  the  drawing  process,  it  is  possible  for  a  domestic  coil  to  be  welded  to  an  imported  coil  –  producing  a  continuous  wire  from  both  U.S.  and  foreign  steel.  Heico  can  ensure  Buy  America  compliance  for  customers  that  request  in  advance  without  any  issues.  It  is  able  to  trace  the  steel  source  and  manufacturing  through  its  quality  assurance  system  to  prove  compliance,  as  well  as  provide  mill  test  reports.  Yet  it  is  only  now  beginning  to  address  the  costs  associated  with  compliance  for  its  general  inventory.    In  short,  rules  such  as  Buy  America  limit  Heico’s  potential  sources  for  high-­‐quality,  highly  technical  materials  from  Canada  and  low-­‐cost,  commodity-­‐grade  materials  from  other  countries,  while  also  driving  up  compliance  costs.  All  of  these  contribute  to  higher  costs  for  commercial  and  taxpayer-­‐funded  projects  alike.            

 

“We  prefer  to  buy  U.S.  steel  for  multiple  reasons,  but  made  a  strategic  decision  years  ago  to  import  25  to  30  percent  of  our  materials.  Buy  America  rules  can  raise  material  costs,  compliance  costs,  or  both,  with  the  end  result  being  higher  prices  and  less  competitive  products.”    -­‐  Bob  Moffitt,  Vice  President  of  Purchasing  for  Heico  Wire  Group  

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1

Ontario  Trap  Rock  (OTR)  is  a  specialty  aggregate  quarry  located  near  Sault  Ste.  Marie,  Ontario.  Its  1,000-­‐acre  site  contains  more  than  80  million  tons  of  diabase,  a  hard  and  durable  rock  used  for  rail  ballast,  rock  wool  insulation,  high-­‐quality  asphalt,  concrete  and  industrial  mineral  applications.      Given  its  location  and  high  transportation  costs  for  heavy  materials  such  as  aggregates,  OTR  is  a  competitive  supplier  to  the  Great  Lakes  region.  Its  serves  customers  –  typically  Class  I,  Regional,  and  Shortline  Railroads  in  Illinois,  Indiana,  Michigan,  and  Ohio  –  through  11  U.S.  ports  (see  map).  OTR  is  a  particularly  important  supplier  for  those  states,  none  of  which  has  quarries  able  to  provide  similar  diabase  aggregates.      The  Federal  Railroad  Administration  (FRA)  and  the  Federal  Transit  Authority  (FTA)  consider  OTR  rail  ballast  (i.e.,  the  stone  under  and  between  rail  ties)  “manufactured  products”  for  Buy  America  purposes.  So  freight  and  transit  customers  such  as  Amtrak  and  Norfolk  Southern  cannot  use  imported  rail  ballast  on  federally  funded  projects  without  a  Buy  America  waiver.  As  a  supplier  to  either  general  contractors  or  sub-­‐contractors,  OTR  does  not  have  the  ability  to  request  a  Buy  America  waiver  itself.  At  the  same  time,  customers  that  might  request  a  waiver  on  its  behalf  have  said  the  project  would  be  complete  before  a  waiver  decision  could  be  made.      To  comply  with  Buy  America  rules,  OTR  has  shipped  larger  rock  to  the  United  States  for  processing  into  the  final  product,  but  this  has  major  cost  impacts.  After  accounting  for  additional  transportation  costs,  crushing  and  screening  costs,  and  extra  waste,  the  price  increases  by  as  much  as  50  to  60  percent.  A  large  portion  of  this  increase  is  due  to  the  fact  that  about  25  percent  of  crushed  rock  is  unusable.      

Company:  Ontario  Trap  Rock    Headquarters:  Sault  Ste.  Marie,  Ontario,  Canada    Key  points    • Chicago  Transit  Authority  paid  

up  to  $3  million  extra  for  rail  ballast  on  a  single  project  because  of  Buy  America  rules.    

• Crushing  Canadian  rock  in  the  United  States  to  meet  Buy  America  rules  adds  costs,  but  not  jobs.    

• Buy  America  rules  make  rail  projects  in  the  Great  Lakes  region  more  expensive,  though  no  local  quarries  can  provide  the  materials.      

 

Ontario  Trap  Rock  quarry  in  Sault  Ste.  Marie,  Ontario;  Photo  credit:  Ontario  Trap  Rock  

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Ontario  Trap  Rock  Mine     U.S.  Ports  Served    

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 For  example,  OTR  provided  100,000  tons  diabase  for  projects  in  Detroit  in  2015  and  2016.  Crushing  the  rock  in  Detroit  instead  of  in  Canada  added  about  $1.5  million  in  cost  for  the  same  amount  of  finished  product  from  the  same  quarry.  Importantly,  the  extra  spending  does  not  create  additional  U.S.  jobs;  it  just  changes  the  tasks.  The  same  workers  that  normally  would  handle  the  finished  product  from  Canada  also  would  be  responsible  for  operating  the  crushing  equipment  used  to  make  Buy  America  compliant  product.      Despite  the  increased  cost  of  U.S.  processing,  OTR’s  prices  in  areas  like  Detroit  remain  competitive  because  materials  otherwise  would  need  to  be  shipped  from  quarries  in  central  Wisconsin  or  Missouri.  Water  transportation  across  the  Great  Lakes  has  both  financial  and  environment  advantages  over  transportation  by  rail  or  truck.  Shipping  costs  via  rail  from  Wisconsin  can  be  up  to  quadruple  the  price  of  vessel  transportation  from  Bruce  Mines,  Ontario  to  Detroit.      Similarly,  the  Chicago  Transit  Authority  (CTA)  required  about  200,000  tons  of  materials  for  its  Red  Line  South  Reconstruction  Project  several  years  ago.  It  ultimately  shipped  in  material  from  Georgia  and  South  Carolina  that  could  have  been  purchased  from  Canada  for  as  much  as  $15  per  ton  less.  In  other  words,  CTA  paid  an  up  to  $3  million  extra  for  the  rocks  between  and  under  the  rail  ties  because  of  Buy  America  provisions.    Both  the  Detroit  and  CTA  examples  show  that  Buy  America  rules  can  have  a  significant  impact  on  the  cost  of  publicly  funded  projects  without  any  corresponding  jobs  benefits.  Paying  more  than  necessary  for  some  projects  limits  agencies’  ability  to  move  ahead  with  other  projects  that  could  boost  the  local  economy.    

 GREAT  LAKES  SHIPPING  ADVANTAGES  DELIVER  LOW-­‐COST  MATERIALS  NOT  OTHERWISE  AVAILABLE  

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Molson  Coors,  headquartered  in  Denver,  Colorado,  has  a  brewing  heritage  that  goes  back  over  140  years  in  the  United  States.  The  company  recently  became  the  sole  owner  of  MillerCoors  and  solidified  its  position  as  the  only  U.S.-­‐based  global  brewer.  Molson  Coors  has  nearly  8,400  employees  in  the  United  States  and  18,000  worldwide,  and  is  responsible  for  iconic  American  brands  such  as  Coors  Light  and  Miller  Lite  as  well  as  national  craft  brands  such  as  Blue  Moon  and  Leinenkugel’s.  Like  many  American  brewers,  Molson  Coors  packages  and  sells  a  large  share  of  its  beer  in  aluminum  cans.      Because  the  United  States  does  not  produce  enough  primary  aluminum  to  meet  the  large  and  growing  demand  to  make  cansheet,  many  brewers  rely  on  global  supply  chains  for  key  raw  materials.  When  it  comes  to  primary  aluminum,  Canada  is  far  and  away  the  top  source,  accounting  for  approximately  66%  of  U.S.  primary  aluminum  imports  each  year  since  2008.          Just  how  much  canned  beer  is  sold  in  the  United  States?  According  to  the  Beer  Institute,  American  brewers  sold  107.7  million  barrels  of  beer  in  cans  in  2016,  which  accounted  for  51.9  percent  of  total  U.S.  beer  sales  by  volume.  That  works  out  to  about  35.6  billion  12-­‐ounce  cans  –  or  nearly  150  cans  of  beer  for  every  U.S.  adult  over  21  years  old!  And  the  importance  of  beer  cans  has  grown  significantly  since  2008,  when  domestic  brands  sold  the  equivalent  of  34.0  billion  cans  of  beer  and  accounted  for  48.2  percent  of  total  U.S.  sales.    

Company:  Molson  Coors    Headquarters:  Denver,  Colorado    Key  points    • An  ongoing  “Section  232”  

aluminum  investigation  could  lead  to  increased  costs  for  Molson  Coors  –  and  ultimately  its  customers  –  despite  no  national  security  applications  for  cansheet-­‐grade  aluminum.        

• Workers  at  plants  throughout  the  United  States  play  a  role  in  turning  primary  aluminum  from  Canada  into  beer  cans  for  Molson  Coors.    

• Because  the  United  States  does  not  produce  enough  primary  aluminum  to  meet  growing  demand  for  cansheet,  many  brewers  rely  on  imports  of  key  raw  materials  from  Canada.    

The  MillerCoors  brewery  in  Colorado;  Photo  credit:  Molson  Coors    

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Source:  Beer  Institute,  National  Packing  Mix  Report    

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For  Molson  Coors  brands  such  as  Coors  Light  and  Miller  Lite,  can  volume  (as  a  percent  of  annual  sales)  is  higher  than  the  national  average.  Considering  that  aluminum  represents  the  largest  single  cost  in  a  can  of  beer,  the  price  and  supply  of  aluminum  are  very  important  to  Molson  Coors.        Molson  Coors  illustrates  both  the  importance  of  Canadian  aluminum  for  American  brewers  and  the  complexities  of  the  supply  chain.  Canadian  aluminum  is  key  but  the  company  is  frequently  several  steps  removed  from  any  direct  importing.  Instead,  imported  primary  aluminum  ingots  are  combined  with  ingots  made  from  recycled  used  beverage  cans  (UBCs)  before  further  processing  at  U.S.  facilities  for  companies  such  as  Novelis  Corporation  and  Ball  Corporation  (see  graphic).      Aluminum  cansheet  tends  to  be  highly  recycled:  more  than  75  percent  of  the  input  material  of  cansheet  comes  from  recycled  UBCs,  though  some  of  those  also  come  from  Canada.  Amazingly,  a  recycled  UBC  may  be  back  on  the  shelves  as  a  new  product  in  as  little  as  60  days.  The  primary  aluminum  plays  a  key  role  in  ensuring  the  technical  integrity  of  new  cans,  with  some  cans  components  requiring  a  greater  share  of  primary  aluminum  than  others.    The  U.S.  government  recently  launched  a  “Section  232”  investigation  into  the  aluminum  industry  that  could  impact  U.S.  beverage  producers  and  other  aluminum  users,  supplier  countries  like  Canada,  and  ultimately  consumers.  The  Section  gives  broad  discretion  to  levy  tariffs  and  other  trade  restrictions  if  imports  are  found  to  undermine  domestic  aluminum  production  in  a  way  that  hurts  national  security.  Cansheet  and  the  primary  aluminum  used  to  make  it  have  no  national  security  applications,  but  the  wide  scope  of  the  investigation  means  remedies  (i.e.,  tariffs  or  quotas)  designed  to  force  companies  to  buy  American  aluminum  could  increase  the  cost  of  can  sheet.      So  what  would  happen  if  the  Administration  imposes  trade  actions  on  imported  primary  aluminum?  On  a  technical  level,  it  is  not  yet  possible  to  produce  cansheet  from  100%  recycled  UBCs.  New  smelters  might  emerge,  but  high-­‐volume,  low-­‐value  producers  such  as  cansheet  manufacturers  

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Rio  Tinto  Aluminum  transforms  bauxite  into  alumina,  then  alumina  into  primary  aluminum  ingots  in  facilities  in  Saguenay,  Quebec.  

Novelis  recycles  used  beverage  cans  (UBCs)  and  casts  ingots  for  cansheet  in  Berea,  Kentucky  and  Greensboro,  Georgia.  

Novelis  manufactures  cansheet  from  a  mixture  of  recycled  UBCs  and  primary  aluminum  in  Russellville,  Kentucky  and  applies  coatings  to  rolled  aluminum  sheets  for  can  lids  in  Warren,  Ohio.  

Ball  Corporation  manufactures  and  labels  cans  in  Golden,  Colorado.  

Molson  Coors  brews  beer  and  fills  the  cans  in  Golden,  Colorado  for  distribution  throughout  the  United  States  and  beyond.  

 FROM  BAUXITE  TO  BEER  CAN:  COMPANIES  AND  PLANTS  THAT  PLAY  A  ROLE  IN  THE  SUPPLY  CHAIN  

“When  looking  at  the  cost  of  a  can  of  beer,  the  aluminum  is  the  largest  percentage  of  that  total  cost.  Combined  with  the  fact  that  cans  represent  the  majority  of  beer  sales,  any  impact  to  the  cost  or  supply  of  aluminum  is  tremendously  significant  to  the  company.”  -­‐  Global  Senior  Category  Manager,  Metals  at  Molson  Coors  

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would  be  competing  with  high  value-­‐added  producers  for  limited  quantities  of  domestic  primary  aluminum.  The  cost  of  cans  for  end  users  like  Molson  Coors  would  likely  increase,  requiring  tough  decisions  related  to  pricing,  packaging,  and  other  operational  issues.      Though  an  outright  ban  on  Canadian  aluminum  seems  unlikely,  less  draconian  steps  could  still  result  in  higher  prices  and  leave  tens  of  millions  of  people  crying  in  their  (now  more  expensive)  beer.      

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Dana  Incorporated  is  a  global  provider  of  high  technology  driveline,  sealing,  and  thermal-­‐management  products.  Founded  in  1904,  today  the  Maumee,  Ohio-­‐based  company  employs  about  29,000  workers  in  34  countries,  including  about  7,500  in  the  United  States  and  780  in  Canada.  Its  customers  include  virtually  every  major  vehicle  manufacturer  as  well  as  industrial  equipment  producers.      Canada  plays  an  important  role  in  Dana’s  global  manufacturing  capabilities:  it  produces  automotive  thermal  acoustical  protective  shields  in  Chatham,  Ontario  and  heat  exchangers  such  as  oil  coolers,  as  well  as  materials  used  to  make  such  products,  in  Cambridge,  Mount  Forest,  and  Oakville,  Ontario.  The  heat  exchanger  facilities  were  part  of  Long  Manufacturing,  which  was  acquired  by  Dana  in  1998,  and  are  now  part  of  Dana’s  Power  Technologies  Products  Group.    Dana  imports  certain  aluminum  materials  and  components  from  Canada.  One  such  product,  plated  clad  aluminum  brazing  sheet  that  was  developed  internally  at  Dana’s  Oakville  technology  center,  is  very  specialized  and  not  available  from  domestic  U.S.  manufacturers.  The  proprietary  “fluxless”  process  is  considered  a  competitive  advantage  in  the  design  and  manufacturing  of  many  of  the  heat  exchanger  products  that  Dana  supplies  allowing  Dana  to  provide  exceptional  value  to  its  end  customers.    

Company:  Dana  Incorporated    Headquarters:  Maumee,  Ohio    Key  points    • Cutting  off  access  to  Canadian  

materials  would  negatively  impact  Dana’s  manufacturing  workers  in  Michigan  and  Tennessee.    

• U.S.  manufacturing  jobs  at  Dana  rely  on  materials  created  in,  and  imported  from,  its  Canadian  facilities.    

• Canada  plays  an  important  role  in  Dana’s  global  R&D  and  manufacturing  capabilities.      

 

Dana  manufactures  oil  coolers  (pictured  above)  in  the  United  States  with  specialized  materials  from  Canada.  

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While  this  research  breakthrough  occurred  in  Canada,  there  are  significant  benefits  for  Dana’s  U.S.  operations  as  well  as  other  U.S.  suppliers.  For  Dana,  these  specialized  materials  are  used  to  manufacture  automotive  components  at  its  facilities  in  St.  Clair,  Michigan  and  Paris,  Tennessee,  as  well  as  a  Dana  facility  in  Mexico.  Products  from  these  facilities  are  sold  to  OEMs  in  the  United  States,  Canada,  and  Mexico  as  well  as  exported  throughout  the  world.      If  Dana  could  not  import  these  materials  from  the  Canadian  producer  it  might  be  required  to  discontinue  the  business  entirely  or  shift  production  of  the  downstream  product  to  another  country  –  and  import  the  finished  product.  This  would  have  negative  impacts  on  Dana’s  U.S.  workers  using  the  material  to  manufacture  heat  exchanger  products  in  Michigan  and  Tennessee.      It  is  not  just  Dana’s  downstream  production  that  benefits  from  the  imports  from  Canada.  Dana  purchases  a  significant  volume  of  the  raw  aluminum  from  U.S.  producers  and  exports  it  to  Canada  for  the  explicit  purpose  of  making  the  brazing  sheet  for  re-­‐import.  Those  American  aluminum  suppliers  also  could  be  harmed  if  Dana  either  discontinued  –  or  was  forced  to  shift  production  –  of  this  specialized  product  line.      Finally,  these  imports  from  Canada  benefit  Dana’s  customers,  which  include  virtually  all  major  automotive  OEMs  in  North  America,  and  car  owners  themselves.  The  Canadian  brazing  sheet  helps  extend  the  life  and  improve  performance  of  products  responsible  for  cooling  transmission  oil,  engine  oil,  and  batteries.  Everyone  wins  when  auto  parts  last  longer  and  operate  more  efficiently.        The  brazing  sheet  is  just  one  of  Dana’s  advanced  technology  projects  with  Canadian  ties.  Dana’s  global  research  and  development  center  for  heat  exchangers  is  located  in  Oakville,  Ontario.  Dana  has  a  large  group  of  dedicated  and  experienced  researchers  and  development  engineers  which  support  development  of  new  heat  exchanger  products  that  are  manufactured  in  plants  throughout  Dana’s  global  network  including  the  heat  exchanger  plants  in  Michigan  and  Tennessee.  Many  of  the  new  products  developed  in  Oakville  are  manufactured  in  the  US  plants.      Throughout  its  100-­‐plus  year  history,  Dana’s  focus  on  innovation  has  helped  differentiate  it  from  competitors  through  performance,  materials,  and  processes.  Some  of  these  recent  breakthroughs  have  occurred  not  just  at  Dana’s  Canadian  facilities,  but  also  in  collaboration  with  other  Canadian  companies,  to  the  benefit  of  American  workers  up  and  down  the  supply  chain.        

 “Essentially  we  operate  in  North  America  as  part  of  a  regionally  integrated  supply  chain  and  so  do  our  customers.  We  regularly  move  material  and  components  between  the  United  States,  Canada,  and  Mexico.  These  products  often  cross  the  border  several  times  before  ultimately  being  sold  to  customer  plants  located  in  all  three  countries.”      -­‐  Joseph  Heckendorn,  Director  of  International  Trade  at  Dana  

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Company:  Welded  Tube  USA  Headquarters:  Lackawanna,  New  York    Key  points    • Any  new  domestic  content  

requirements  on  pipes  would  disrupt  Welded  Tube’s  supply  chain  and  negatively  impact  continued  growth  in  New  York.    

• The  jobs  at  Welded  Tube’s  Lackawanna  plant  are  wholly  dependent  on  cross-­‐border  trade  between  the  United  States  and  Canada.    

• U.S.-­‐Canada  linkages  extend  throughout  the  company’s  material  procurement,  production,  and  sales.    

Oil  country  tubular  goods  casing  pipe;  Photo  credit:  Welded  Tube  

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Welded  Tube  is  an  Ontario-­‐based  producer  of  steel  pipe  and  tube  that  supplies  both  the  Energy  Tubular  and  Industrial  products  market.  It  owns  and  operates  five  manufacturing  and  finishing  facilities  in  Canada  and  the  United  States,  including  a  109,000  square  foot  production  facility  on  45-­‐acres  in  Lackawanna,  New  York  that  opened  in  2013.  The  Lackawanna  plant,  just  south  of  Buffalo,  employs  150  workers  and  is  capable  of  producing  up  to  350,000  tons  of  oil  country  tubular  goods  (OCTG)  casing  pipe  tube  annually.    Currently,  all  the  OCTG  casing  pipe  rolled  in  New  York  is  shipped  back  to  sister  plants  owned  by  Welded  Tube  in  Ontario  for  further  processing  and/or  finishing.  Only  then  can  it  be  sold  to  customers  in  the  United  States  and  Canada  who  use  this  OCTG  pipe  for  onshore  drilling  for  oil  and  gas,  making  the  jobs  at  Welded  Tube’s  New  York  facility  wholly  dependent  on  cross-­‐border  trade  between  the  United  States  and  Canada.    The  linkages  between  Welded  Tube’s  U.S.  and  Canadian  facilities  extend  throughout  the  supply  chain,  from  materials  procurement  to  production  to  sales.      Procurement  –  Welded  Tube  purchases  steel  coil  from  U.S.  and  Canadian  based  steel  mills  based  on  grade,  size,  price  and  availability.  It  generally  sources  coils  from  approved  mills  in  Ohio,  Michigan  and  Ontario,  though  it  occasionally  purchases  from  other  U.S.  sources  as  well.  Essential  to  final  processing,  

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U.S.  made  pipe  from  Lackawanna  is  threaded  with  collars,  protectors,  and  lubricants.  Welded  Tube’s  Canadian  facilities  import  these  directly  from  U.S.  suppliers.    Production  –  In  addition  to  the  Lackawanna  plant,  Welded  Tube  has  four  other  pipe  mills  in  its  Concord,  Ontario  facility  capable  of  producing  300,000  tons  of  pipes  per  year.  The  plants  in  Concord  make  Hollow  Structural  Sections  (HSS),  Mechanical,  and  Roll-­‐Over  Protective  Structure  (ROPS)  structural  pipes  for  both  the  U.S.  and  Canadian  markets.  Additionally,  one  mill  is  capable  of  supplying  OCTG  casing  or  green  tubes  as  required  when  Lackawanna  is  unable  to  support  the  business  needs.        The  Lackawanna  mill  and  the  one  mill  in  Concord  manufacture  OCTG  pipe  with  the  same  diameter  –  4.500  to  9.625  inches  –  but  with  a  few  differences.  Most  importantly,  the  New  York  plant  can  produce  slightly  thicker  pipe  for  more  demanding  applications.  Since  its  inception  in  September  2013,  Lackawanna  has  already  produced  1,000,000  pipes  and  recently  added  more  crews  to  keep  up  with  the  growing  demand  of  its  products.  Through  recent  investments  at  Lackawanna,  casing  pipe  is  now  also  sent  to  another  Welded  Tube  facility  in  Port  Colborne,  Ontario  for  threading,  augmenting  the  finishing  capacity  already  in  place  at  Welland.  Welded  Tube  plans  to  continue  expanding  the  Lackawanna  property  so  it  can  finish  and  ultimately  thread  products  there  without  sending  them  back  to  Canada.    Sales  –  Welded  Tube  sells  its  products  to  customers  in  both  the  United  States  and  Canada,  either  directly  or  through  distributors  as  in  the  case  of  OCTG.  In  the  United  States,  OCTG  pipe  is  generally  sold  for  oil  and  gas  drilling  in  Colorado,  Wyoming,  North  Dakota,  Ohio,  Oklahoma,  Pennsylvania,  and  West  Virginia.  In  Canada  drilling  activity  is  confined  to  Alberta,  Saskatchewan,  and  British  Columbia.  The  company  ships  about  600  truckloads  a  month  into  the  northeast  United  States  and  100  railcars  per  month  for  destinations  greater  than  500  miles  from  its  finishing  facility  in  Welland,  Ontario.  Each  truck  load  carries  anywhere  from  1,500  to  2,500  feet  of  pipe,  depending  on  the  diameter,  whereas  railcars  hold  four  times  this  amount.    OCTG  casing  is  not  subject  to  any  U.S.  domestic  content  requirements.  Should  OCTG  casing  or  other  pipe  products  made  by  Welded  Tube  be  subject  to  domestic  content  requirements,  it  would  disrupt  Welded  Tube’s  current  supply  chain  and  negatively  impact  Welded  Tube’s  continued  growth  in  Lackawanna.    

“There  is  already  a  commercial  and  historical  preference  for  “domestically  made  pipe”;  just  no  formal  or  legal  provisions.  Our  customers  consider  both  Canadian-­‐  and  U.S.-­‐made  pipe  to  fit  this  description.  Creating  new  barriers  to  trade  between  the  United  States  and  Canada  would  hurt  our  supply  chain  and  be  detrimental  to  our  expansion  plans  at  our  Lackawanna  facility.”      -­‐  Jeff  Hanley,  Welded  Tube's  Vice  President  Sales,  Energy  Tubulars  

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Fiat  Chrysler  Automobiles  (FCA)  is  one  of  the  largest  automakers  in  the  world  based  on  total  annual  vehicle  sales.  The  FCA  North  American  operations  (FCA  US)  are  headquartered  in  Auburn  Hills,  Michigan.  There  the  company  designs,  engineers,  manufactures  and  sells  or  distributes  vehicles  under  the  Chrysler,  Dodge,  Jeep®,  Ram,  FIAT,  and  Alfa  Romeo  brands,  as  well  as  the  SRT  performance  designation.  The  company  also  distributes  Mopar  and  Alfa  Romeo  parts  and  accessories.      FCA  employs  nearly  68,700  workers  in  the  United  States  and  Canada,  including  more  than  49,000  hourly  employees  at  29  manufacturing  plants.  Production  in  the  two  countries  complements  each  other.  The  U.S.  assembly  plants  are  dedicated  to  producing  SUVs  and  trucks,  while  the  Canadian  assembly  plants  exclusively  produce  minivans  and  large  cars.  For  example,  the  Jeep  Wrangler,  Jeep  Grand  Cherokee,  and  Dodge  Durango  are  only  produced  in  the  United  States,  while  the  Chrysler  Pacifica,  Dodge  Charger,  and  Dodge  Grand  Caravan  are  solely  produced  in  Canada.      Extensive  manufacturing  operations  in  both  the  United  States  and  Canada  result  in  large  flows  of  intra-­‐company,  cross-­‐border  trade.  Annually,  the  FCA  plants  in  the  United  States  purchase  almost  $3  billion  in  parts  from  Canada  and  the  Canadian  plants  purchase  almost  $3.5  billion  in  parts  from  the  United  States.  The  company’s  U.S.-­‐Canadian  trade  is  even  higher  when  its  Tier  1-­‐4  suppliers  in  both  countries  are  included.    

Company:  FCA  US  LLC  Headquarters:  Auburn  Hills,  Michigan    Key  points    • Annually,  Canadian  plants  

purchase  $3.5  billion  from  the  United  States,  while  U.S.  plants  purchase  $3  billion  in  parts  from  Canadian  suppliers.        

• The  Toledo,  Ohio-­‐built  Jeep  Wrangler  and  the  Brampton,  Ontario-­‐built  Dodge  Charger  demonstrate  the  importance  of  U.S.-­‐Canada  trade  for  automotive  supply  chains.    

• FCA’s  production  in  the  United  States  and  Canada  complements  each  other,  with  each  country  dedicated  to  producing  certain  models.      

 

A  Dodge  Charger  in  production  at  the  Brampton  Assembly  Plant  in  Ontario,  Canada;  Photo  credit:  FCA  US  

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Much  of  the  cross-­‐border  trade  is  in  parts  and  components,  since  assembly  in  one  country  often  depends  on  parts  manufactured  in  the  other.  Two  examples  of  this  cross-­‐border  manufacturing  relationship  would  be  the  Jeep  Wrangler  and  the  Dodge  Charger.    Jeep  Wranglers  have  been  produced  in  Toledo,  Ohio,  for  more  than  70  years.  Among  the  Canadian  parts  and  components  incorporated  into  the  Wrangler  are  Cosma  (Magna)  stampings  and  Goodyear  tires,  all  sourced  from  plants  in  Ontario.  In  total,  FCA  US  sources  over  $250  million  in  components  from  Canadian  suppliers  for  the  2-­‐  and  4-­‐door  Wrangler.  Additionally,  U.S.-­‐built  engines  installed  in  the  Wrangler  contain  content  from  Canadian  suppliers  including  Magna,  Stackpole  and  Schaeffler.              Conversely,  the  Dodge  Charger  is  built  in  Canada  with  a  significant  number  of  parts  from  the  United  States.  The  Charger  is  produced  in  Brampton,  Ontario,  alongside  the  Chrysler  300  and  Dodge  Challenger.  The  Brampton  facility  employs  almost  3,800  workers  and  since  2005,  it  has  produced  more  than  1.2  million  Chargers,  sold  throughout  the  United  States,  Canada,  and  the  world.      Chargers  assembled  in  Ontario  use  numerous  parts  from  U.S.  plants,  including  3.6-­‐liter  Pentastar  engines  from  the  FCA  US  Trenton  Engine  Plant  in  Trenton,  Michigan,  and  eight-­‐speed  transmissions  from  the  Company’s  Kokomo  Transmission  Plant  in  Kokomo,  Indiana.    In  2016,  FCA  US  exported  over  $700  million  in  engines  and  transmissions  from  the  U.S.  to  Brampton  for  production  of  the  three  large  sedans.    The  inter-­‐country  flow  of  parts  between  the  United  States  and  Canada,  as  well  as  Mexico,  has  contributed  to  FCA’s  success.  Because  of  the  U.S.-­‐Canada  Auto  Pact,  the  U.S.-­‐Canada  Free  Trade  Agreement  and  finally,  the  North  American  Free  Trade  Agreement  (NAFTA),  FCA’s  supply  chain  has  become  increasingly  integrated  across  all  three  markets,  making  its  vehicles  more  competitive  in  North  America  and  globally.  Any  changes  to  the  NAFTA  that  impede  the  free  flow  of  vehicles  and  parts  between  the  United  States,  Canada,  and  Mexico  could  adversely  affect  FCA,  its  suppliers,  and  the  thousands  of  workers  they  employ  across  North  America.  

The  U.S.-­‐built  Jeep  Wrangler  includes  Cosma  stampings  from  Ontario;  Goodyear  tires  from  Ontario,  and  U.S.-­‐built  engines  with  content  from  Canadian  suppliers.    

FCA  US  sourced  over  $250  million  from  Canadian  suppliers  for  the  Toledo,  Ohio-­‐built  2-­‐  and  4-­‐door  Jeep  Wranglers.    

The  Canadian-­‐built  Dodge  Charger  includes  3.6-­‐liter  Pentastar  engines  from  the  FCA  US  Trenton  Engine  Plant  in  Michigan  and  8-­‐speed  transmissions  from  the  FCA  US  Kokomo  Transmission  Plant  in  Indiana.    

FCA  US  exported  over  $700  million  in  engines  and  transmissions  from  the  United  States  to  its  Brampton,  Ontario  plant  in  2016.    

 U.S.-­‐CANADIAN  CO-­‐PRODUCTION  IN  ACTION  

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General  Electric  is  an  iconic  American  company  with  over  100,000  employees,  180  manufacturing  sites,  and  15,000  suppliers  in  the  United  States.  GE  exports  about  $20  billion  annually,  making  it  one  of  the  largest  U.S.  exporters.  Canada  is  not  just  a  top  export  market;  it  is  a  key  part  of  GE’s  integrated  supply  chain  in  North  America.  Overall,  GE  employs  about  6,500  workers  at  its  operations  in  Canada  ranging  from  R&D  and  testing  to  manufacturing  to  sales  to  servicing.      GE’s  U.S.-­‐Canada  trade  is  significant:  GE’s  internal  trade  between  the  United  States  and  Canada  is  about  $3  billion.  The  majority  of  this  trade  was  intra-­‐company  between  GE  operations  on  different  sides  of  the  border.  Yet  these  figures  barely  scratch  the  surface  of  the  importance  of  co-­‐production  taking  place  between  the  United  States  and  Canada    GE  Aviation  helps  illustrate  the  benefits  of  integrated  U.S.-­‐Canada  supply  chains.  Based  in  Cincinnati,  Ohio,  GE  Aviation  has  more  than  80  locations  in  12  countries  that  develop,  manufacture,  assemble,  repair,  and  overhaul  jet  engines  for  commercial  and  military  applications.  About  25,000  of  GE  Aviation’s  45,000  employees  are  in  the  United  States,  several  thousand  work  at  GE  Aviation’s  facilities  in  Canada.      All  GE  jet  engines  undergo  final  assembly  in  the  United  States.  Much  of  this  works  takes  place  at  manufacturing  and  final  testing  facilities  in  Evandale  and  Peebles,  Ohio.  Yet  before  they  can  go  through  final  tests  and  be  installed  into  aircraft,  GE  Aviation  facilities  in  Bromont,  Quebec  and  Winnipeg,  Manitoba  play  a  key  role.    

Company:  General  Electric    Headquarters:  Boston,  Massachusetts    Key  points    • GE’s  U.S.-­‐Canada  trade  is  

significant,  with  intra-­‐company  trade  accounting  for  the  majority  of  the  $3  billion  total.    

• GE  Aviation  helps  illustrate  the  benefits  of  integrated  supply  chains,  with  U.S.  and  Canadian  facilities  collaborating  every  step  from  R&D  to  sales.    

• Growing  demand  for  GE  engines  has  meant  significant  investments  at  home  and  abroad,  to  the  benefit  of  U.S.  and  Canadian  workers  alike.  

A  GE  engine  jet  prepares  for  testing  in  Winnipeg,  Manitoba,  Canada;  Photo  credit:  General  Electric  

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GE  AVIATION:  U.S-­‐CANADIAN  COLLABORATION  EVERY  STEP  FROM  R&D  TO  SALES    Research  &  Development  –  GE  engineers  throughout  the  United  States,  along  with  colleagues  in  Bromont  and  other  countries,  participate  in  the  R&D  process  for  new  models.  Bromont  in  particular  has  a  team  working  to  advance  the  use  of  robotics  in  aviation  manufacturing.      

Testing  –  GE’s  facility  in  Peebles  tests  for  qualities  such  as  thrust,  fuel  efficiency,  and  emissions,  as  well  as  an  engine’s  ability  to  ingest  objects  such  as  hail,  dust,  and  even  birds.  The  Winnipeg  facility  takes  advantage  of  cold  Canadian  winters  to  test  new  models’  ability  to  endure  the  harshest  weather  conditions.    

Analytics  –  GE’s  Winnipeg  testing  center  collects  massive  amounts  of  data  that  are  analyzed  in  Milwaukee,  Wisconsin.  The  insights  into  how  engines  withstand  ice  build-­‐up  –  which  rely  on  cross-­‐border  data  flows  –  help  guide  future  R&D.        

Production  –  GE  assembles  engines  in  the  United  States  from  components  manufactured  domestically,  from  Canadian  facilities  like  Bromont,  as  well  as  other  countries.      

Sales  –  GE  engines  may  be  exported  to  Canada  directly  or  indirectly.  GE  “Passport”  engines  will  be  exported  directly  to  Bombadier’s  Canadian  production  facilities  to  power  its  forthcoming  Global  7000  and  Global  8000  business  jets.  Air  Canada’s  decision  to  purchase  Boeing  jets  with  GE  engines  represent  indirect  exports  to  Canada.    

Support  –  GE  also  provides  engine  support  services,  both  in  the  United  States  and  abroad.  For  example,  Air  Canada  signed  a  20-­‐year  agreement  for  maintenance  and  repairs  of  the  122  LEAP-­‐1B  engines  powering  the  Boeing  737  MAX  

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 The  Bromont  facility  specializes  in  manufacturing  compressor  components  and  other  engine  parts.  In  particular,  it  produces  engines  blades  that  are  shipped  to  Ohio  for  final  assembly.  The  Bromont  facility  also  is  home  to  a  Global  Robotics,  Automation  and  Instrumentation  R&D  Centre,  launched  in  2013,  that  develops  advanced  robotic  processes,  software  applications  and  intellectual  property  for  export  to  GE  Aviation  facilities  around  the  world.    The  Winnipeg  facility  is  home  to  GE’s  Aircraft  Engine  Testing,  Research  and  Development  Centre,  where  all  new  engine  models  must  undergo  cold-­‐weather  testing.  The  six-­‐year  old  facility’s  specialty  is  ice  certification  testing,  and  throughout  the  process  GE  engineers  capture  high-­‐speed  photography  to  determine  exactly  how  ice  builds  up  on  an  engine's  fan  blades  and  spinner.    The  collaboration  between  GE  Aviation’s  U.S.  and  Canadian  operations  exist  throughout  an  engines’  product  cycle.  According  to  Karan  Bhatia,  VP  of  Government  Affairs  and  Policy,  GE  “Integrated  supply  chains  combine  the  relative  strengths  of  each  country  to  make  the  overall  products  more  competitive,  thus  winning  sales  globally  and  growing  jobs  in  both  countries.”        That  has  been  true  of  late:  growing  demand  for  GE  engines  has  meant  significant  investments  at  home  and  abroad.  In  early  2017,  GE  Aviation  announced  $4.3  billion  in  U.S.  investments,  including  building  or  upgrading  plants  in  Alabama,  Indiana,  Mississippi,  New  Hampshire,  and  North  Carolina.  At  the  same  time,  it  announced  $1.1  billion  in  non-­‐U.S.  investments,  including  $238  million  to  modernize  the  Bromont  facility.  The  Winnipeg  facility  received  a  $26  million  upgrade  in  late  2015.    Yet  competition  to  produce  next-­‐generation  engines  will  only  grow.  Competitors  in  China  and  the  European  Union  have  both  large  internal  markets  and  supply  chains  from  which  they  can  draw  a  varied  range  of  skill  levels  and  resources.  Collaboration  with  Canada,  as  well  as  Mexico,  is  important  for  GE  Aviation’s  continued  ability  to  compete  globally.      

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District  12  of  the  Ohio  Department  of  Transportation  (ODOT)  is  responsible  for  maintaining  the  Interstate  transportation  system  in  the  Cleveland  area.  Oversight  for  roads  and  bridges  means  that  ODOT  works  on  many  federally  funded  projects  subject  to  Buy  America  provisions.      According  to  Randall  Over,  who  recently  retired  after  18  years  as  the  District  Construction  Engineer  for  ODOT  District  12  (and  23  years  at  ODOT  overall),  contracting  agencies  such  as  ODOT  rarely  have  trouble  meeting  Buy  America  requirements  –  or  even  have  a  need  to  request  Buy  America  waivers.  There  are  still  potential  costs,  but  longstanding  project  design  and  construction  processes  make  them  impossible  to  quantify.      From  the  contracting  agency  perspective,  Buy  America  compliance  is  not  difficult  because  transportation  projects  have  standard  components  that  are  sourced  over  and  over.  An  industry  exists  to  supply  Buy  America-­‐compliant  components  and  “the  path  is  well  worn.”  Thus,  if  certain  components  are  readily  sourced  from  two  or  three  companies,  projects  are  designed  to  use  those  components.  In  other  words,  engineers  design  projects  around  the  Buy  America-­‐compliant  materials  instead  of  seeking  the  best-­‐possible  design.      After  the  design  stage,  the  burden  of  compliance  falls  on  contractors.  State  DOTs  must  resolve  any  waiver  issues  before  accepting  a  bid,  so  when  Buy  America  waivers  are  sought,  they  tend  to  be  for  smaller  components  from  Mexico  and  Asia,  or  for  specifically  engineered  products  such  as  lift  bridges.    

Agency:  Ohio  Department  of  Transportation  Projects:  Repairs  to  Willow  Avenue  Bridge;  I-­‐90  bridge  replacement    Outcome:  No  waiver  granted;  no  waiver  requested    Key  points    • Buy  America  rules  can  slow  

down  and/or  increase  project  costs,  but  in  ways  that  are  impossible  to  quantify.    

• Contracting  agencies  rarely  ask  for  Buy  America  waivers  because  projects  are  designed  to  use  readily  sourced,  compliant  materials.    

• When  truly  necessary,  the  waiver  process  can  move  quickly.    

Interstate  90/Innerbelt  Bridge  in  Cleveland;  Photo  credit:  Chuck  Crow,  The  Plain  Dealer  

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A  DOT  representative  from  another  state  echoed  many  of  these  comments,  reiterating:  1)  waivers  rarely  are  requested  because  an  industry  exists  to  meet  the  current  standards;  2)  changing  domestic  content  rules  likely  would  have  minimal  impacts  on  contracting  agencies  since  contractors  are  expected  to  meet  whatever  rules  may  apply,  and  3)  opening  up  procurement  policies  could  result  in  lower  product  costs  and  faster  delivery,  but  it  is  unclear  how  to  quantify  the  potential  savings.    

2

The  waiver  process  can  move  quickly.  Recently  ODOT  requested  a  Buy  America  waiver  for  emergency  repairs  to  the  Willow  Avenue  Lift  Bridge.  Waivers  cannot  be  approved  by  the  Ohio  DOT  –  they  need  sign-­‐off  from  the  Federal  Highway  Administration  (FHWA)  after  publication  in  the  Federal  Register  and  the  opportunity  for  public  comment.  Nevertheless,  the  process  for  the  Willow  Avenue  waiver  took  only  a  few  months  and  occurred  in  parallel  with  design  and  construction.  As  such,  it  did  not  impact  the  ability  to  deliver  the  emergency  project.        The  Willow  Avenue  repair  was  a  special  case:  the  bearings  used  in  the  bridge  were  popular  in  the  1950s  and  1960s  but  are  no  longer  used  in  new  bridges.  The  chosen  supplier  (Timken)  had  the  distinct  advantage  of  owning  the  original  bearing  designs,  which  included  housings  manufactured  in  Canada  and  bearings  made  in  the  United  States  from  U.S.  and  German  materials.  An  engineering  firm  determined  that  other  suppliers  would  need  to  reverse  engineer  the  bearings  and  conservatively  estimated  it  could  take  a  Buy  America-­‐compliant  supplier  “up  to  1  year  to  procure.”  Given  the  emergency  repair  situation,  Timken’s  ability  to  deliver  the  product  in  26  weeks  outweighed  the  fact  that  it  could  not  meet  Buy  America  rules,  and  it  received  the  waiver.    Even  though  the  Willow  Avenue  project  waiver  happened  quickly,  Buy  America  rules  can  slow  and/or  increase  the  cost  of  projects,  but  in  ways  that  are  impossible  to  quantity.  Buy  America  provisions  prevent  agencies  and  contractors  from  “thinking  outside  the  box”  when  trying  to  deliver  quick,  cost-­‐effective  projects.  For  example,  ODOT  recently  completed  the  largest  bridge  projects  in  its  history:  replacing  a  1959  truss  arch  bridge  with  two  nearly  identical  spans  over  the  Cuyahoga  River  on  Interstate  90  into  downtown  Cleveland.  The  five-­‐year  effort  cost  more  than  $500  million.      Part  way  through  building  the  second  span,  ODOT  decided  to  assess  the  viability  of  finishing  the  project  before  its  scheduled  October  2016  completion  date.  ODOT  hoped  to  shorten  the  project  by  about  six  months  so  the  bridge  would  be  open  for  the  Republican  National  Convention  that  July.  It  requested  cost  estimates  from  the  contract  team  for  that  purpose,  but  ran  into  issues  with  accelerating  the  steel  fabrication,  which  must  occur  domestically  from  steel  “melted  and  poured”  in  the  United  States  because  of  Buy  America  rules.      However,  all  regional  steel  fabricators  were  fully  committed  and  could  not  deliver  components  sooner.  Project  managers  looked  into  shipping  the  steel  as  far  as  Florida  for  fabrication  but  transportation  costs  to  ship  materials  south  and  back  were  prohibitively  high,  so  ODOT  opted  against  early  completion.  It  is  impossible  to  know  whether  steel  fabricators  in  nearby  Ontario  could  have  completed  the  work  faster  or  cheaper  –  Buy  America  rules  meant  that  no  one  could  consider  regional  fabricators  in  Canada.      The  limiting  nature  of  domestic  procurement  requirements  impacts  everything  from  design  to  bidding  to  mid-­‐construction  adjustments,  while  the  standard  operating  procedures  followed  by  companies  and  agencies  to  ensure  compliance  prevent  quantification  of  compliance  costs.      

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Multnomah  County,  Oregon,  which  includes  Portland,  has  the  distinction  of  being  the  Oregon’s  largest  county  by  population  and  smallest  by  territory.  Its  Bridge  Section  maintains  six  main  bridges  –  four  movable  and  two  fixed  –  crossing  the  Willamette  River.  Since  bridge  upgrades  and  repairs  are  eligible  for  federal  highway  funding,  the  Bridge  Section  often  must  comply  with  Buy  America  rules.      Multnomah  County  is  in  the  middle  of  three  major  bridge  projects.  The  Burnside  Bridge  requires  the  most  work:  the  concrete  is  cracked  and  crumbling;  the  electrical  system  and  the  parts  that  raise  the  bridge  need  upgrades,  and  the  steel  framework  on  the  bridge  is  rusting.  The  County  also  must  replace  the  eight-­‐foot  diameter  steel  wheels  that  help  the  Broadway  Bridge  open  and  close  (after  more  than  100  years  of  use)  as  well  as  a  failing  deck  on  Morrison  Bridge  lift  span.      However,  each  of  these  projects  ran  into  problems  related  to  Buy  America  requirements  and  the  inability  to  obtain  waivers  in  a  timely  manner.  Many  of  the  Buy  America  issues  result  from  the  fact  that  these  are  “movable”  bridges  with  big  motors,  programmable  logic  controllers  (PLCs),  and  motor  drives  that  control  things  such  as  speed  for  when  the  bridges  lift  to  allow  boats  to  pass.      For  example,  the  motor  drives  cost  tens  of  thousands  of  dollars  each.  Maybe  $50  of  that  is  the  cost  of  steel,  but  global  manufacturers  such  as  Allen-­‐Bradley  generally  either  cannot  (or  will  not)  determine  the  source  of  such  small  quantities  of  steel,  so  Buy  America  waivers  were  necessary.      

Agency:  Multnomah  County    (Oregon)  Bridge  Section    Projects:  Repairs  to  Burnside,  Broadway,  and  Morrison  Bridges  Outcome:  No  waiver  granted    Key  points    • The  inability  to  identify  the  

origin  for  small  amounts  of  steel  components  will  cost  Multnomah  County  millions  of  dollars  and  delay  necessary  upgrades.  

 • Multnomah  County  was  unable  

to  obtain  Buy  America  waivers  for  three  ongoing  bridge  repairs.    

• The  County  had  to  redesign  the  projects  and  then  start  a  new  project  for  the  repairs  not  eligible  for  federal  funding.    

The  Burnside  Bridge  over  the  Willamette  River;  Photo  credit:  Multnomah  Country,  Burnside  Bridge  Photo  Gallery  

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Multnomah  County  started  working  with  the  Oregon  Department  of  Transportation  (ODOT)  and  a  local  Federal  Highway  Administration  (FHWA)  representative  on  a  waiver  in  January  2016.  Technically,  each  bridge  project  was  separate  –  and  involved  different  design  consultants  –  but  the  county  worked  with  the  consultants  to  combine  the  waiver  requests.      If  the  waiver  had  been  approved,  costs  would  have  been  minimal.  However,  that  waiver  was  never  approved.  It  was  not  denied  either;  the  FWHA  simply  did  not  move  ahead  on  steps  required  for  approval.  In  fact,  the  FWHA  has  not  approved  a  single  waiver  since  October  2016.    As  a  result,  Multnomah  County  must  take  a  number  of  additional  steps,  and  expend  additional  resources,  to  move  ahead  with  necessary  repairs:      1. Prevent  Immediate  Fallout  –  The  County  had  to  work  with  consultants  to  scrub  all  references  to  

non-­‐compliant  components  for  the  three  projects.  It  did  not  want  all  three  projects  held  up  over  the  waiver  issue,  so  it  set  aside  the  “problem”  repairs  and  moved  ahead  only  with  the  Buy  America-­‐compliant  aspects.  Much  of  this  work  will  be  completed  in  fall  2017.    

2. Minimize  Delays  –  The  systems  for  which  domestic  components  could  not  be  sourced  were  installed  between  2001  and  2005  and  some  device  lines  are  no  longer  eligible  for  support.  While  they  are  becoming  less  reliable  with  age,  they  also  are  harder  to  repair  when  things  go  wrong.  So  the  County  is  combining  the  three  separate  projects  into  one  new  project  that  it  hopes  to  complete  in  2018,  a  year  later  than  expected.  This  requires  staff  to  work  with  consultants  on  a  new  design,  after  which  the  county  will  need  to  re-­‐start  the  bidding  and  contracting  process.      

3. Prioritize  Funding  –  On  federally  funded  projects,  localities  generally  pay  only  10  percent  of  project  costs.  Without  either  domestically  available  products  or  a  Buy  America  waiver,  the  county  must  pay  for  100  percent  of  the  project.  The  cost  is  expected  to  be  several  million  dollars  –  all  because  a  few  hundred  dollars  of  steel  components  are  from  an  unknown  origin.  Other  projects  deemed  “non-­‐emergency,”  such  as  brake  repairs  that  also  were  included  in  the  initial  Buy  America  waiver  request,  may  need  to  be  delayed  until  the  County  has  more  available  funds.  

 How  could  the  process  be  made  better?  According  to  Jon  Henrichsen,  Multnomah  County’s  Bridge  Services  Manager,  excluding  whole  categories  of  products  with  small  components,  such  as  computers,  would  solve  many  of  the  issues  faced.  Additionally,  excluding  specialty  products  not  manufactured  in  the  United  States,  such  as  certain  brakes  or  bearings,  would  also  help  smooth  the  process.  

“We  must  move  ahead  with  these  repairs,  even  if  it  costs  the  county  more  money.  Our  goal  is  to  minimize  the  potential  negative  impacts  that  not  receiving  the  Buy  America  waiver  could  have  on  the  ability  to  do  other  programs  in  the  future.”    -­‐  Jon  Henrichsen,  Multnomah  County  Bridge  Services  Manager  

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STATES  INTRODUCE  PROGRAMS  TO  INCREASE  LOCAL  PROCUREMENT  FLEXIBILITY  (SLOWLY)    

In  recent  years,  a  number  of  states  have  introduced  new  programs  that  provide  local  agencies  with  greater  flexibility  for  funding  local  transportation  projects.  The  programs  –  called  federal  fund  exchanges  (FFEs),  federal  fund  purchases  (FFPs),  or  simply  federal  fund  “swaps”  –  allow  counties  to  trade  federal  transportation  dollars  for  state  transportation  dollars,  usually  at  a  discounted  rate  (e.g.,  counties  get  90  cents  of  state  funds  for  every  $1  of  forgone  federal  funds).        Kansas  was  the  first  state  to  create  its  FFE  in  2010.  Kansas  Department  of  Transportation  (KDOT)  cites  eliminating  “costly  and  time-­‐consuming  requirements  of  federal-­‐aid  projects”  like  Buy  America  among  the  potential  benefits.  In  a  sample  cost  comparison  with  potential  savings  (reproduced  on  next  page),  KDOT  estimated  a  locally  funded  bridge  project  could  cost  20  percent  less  than  a  federally  funded  one,  including  a  7.5  percent  savings  on  construction,  including  materials.1        Other  states  that  followed  primarily  are  in  the  Midwest,  including  Indiana,  Minnesota,  Nebraska,  Ohio,  Oregon,  and  South  Dakota.  Iowa  passed  similar  legislation  in  February  2017.  Iowa  Senate  Transportation  Committee  Chairman  Tim  Kapucian  said  the  goal  was  to  reduce  costs  associated  with  paperwork  and  federal  rules:  "I  want  more  dollars  for  projects  and  to  get  more  work  done."2    Yet  neither  Kansas  state  nor  county  transportation  officials  nor  contractors  could  not  provide  data  on,  or  examples  of,  counties  that  used  FFE  moneys  to  buy  foreign  steel.  Procedural,  educational,  and  commercial  issues  all  contribute  to  the  lack  of  potential  case  studies  quantifying  costs.      Procedural  Issues:  At  the  state  level,  KDOT  promotes  the  ability  to  avoid  federal  mandates,  but  its  refund  process  for  counties  does  not  involve  questions  about  material  origins  or  cost  savings;  just  whether  they  met  the  terms  of  agreement  (e.g.,  spent  money  on  intended  use).      Educational  Issues:  The  Public  Works  Director/County  Engineer  for  a  large  county  that  has  used  FFEs  for  multiple  bridge  products  was  not  aware  of  the  ability  to  use  foreign  steel.  In  fact,  they  said  it  had  never  crossed  their  mind.  FFEs  helped  lower  design  costs  and  eliminate  red  tape  related  to  inspection  and  oversight  processes.      Commercial  Issues:  The  Public  Works  Director/County  Engineer  for  another  county  said  despite  bid  specifications  exempting  projects  from  Buy  American  requirements  for  steel,  contractors  still  used  U.S.  steel  and  products  fabricated  from  it  in  every  locally  funded  project.  A  contractor  that  works  on  both  KDOT  and  FFE  projects  elaborated:  since  most  local  contractors  tend  to  buy  the  same  grade  of  steel  from  the  same  1  or  2  local  steel  suppliers  –  and  most  big  projects  will  require  Buy  American  compliance  –  purchasing  foreign  steel  introduces  the  risk  of  having  leftover,  non-­‐compliant  steel.      1  Kansas  Department  of  Transportation,  Bureau  of  Local  Projects,  Federal  Fund  Exchange  (FFE),  Training  and  Cost  Comparison  Documents,  https://www.ksdot.org/bureaus/burLocalProj/default.asp    2  “Iowa  Senate  OKs  controversial  DOT  road  fund  swap  with  cities,  counties,”  The  Des  Moines  Register,  March  13,  2017,    http://www.desmoinesregister.com/story/news/politics/2017/03/13/iowa-­‐senate-­‐oks-­‐controversial-­‐dot-­‐road-­‐fund-­‐swap-­‐cities-­‐counties/99122172/    

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COST  COMPARISON  FEDERAL-­‐AID  PROJECT  VS.  FEDERAL  FUND  EXCHANGE  PROJECT    

$400,000  BRIDGE  

ACTIVITY  FEDERAL  AID      PROJECT  

(FA)  

LOCAL  PROJECT  (FFE)  

REASONS  FOR  COST  DIFFERENCE  

DESIGN   $35,000   $25,000  

Federal-­‐aid  projects  require  plan  development  that  meets  KDOT  requirements.  Estimated  cost  of  meeting  these  requirements  is  about  40%  more  than  plans  developed  for  a  project  that  is  administered  locally  with  local  funds.  Some  reasons  for  the  higher  costs  with  Federal-­‐aid  include,  but  are  not  limited  to:  NEPA  environmental  review,  multiple  levels  of  plan  review,  strict  adherence  to  the  "Federal  process",  and  requirements  for  greater  detail  in  the  plans.  

R/W  ACQUISITION   $8,000   $6,000  

Acquisition  of  R/W  on  projects  using  Federal-­‐aid  on  any  portion  of  the  project  must  be  done  in  accordance  with  the  Uniform  Relocation  Assistance  and  Real  Property  Acquisition  Policies  Act  of  1970.  This  law  has  specific  requirements  that  have  created  a  time-­‐consuming  process  that  results  in  administrative  costs  that  are  unreasonable  for  many  smaller  projects.  An  example  of  these  costs  is  the  requirement  for  two  independent  appraisals  (initial  appraisal  and  review  appraisal)  to  establish  the  compensation  amount.  It  is  estimated  that  these  costs  are  about  one-­‐third  more  than  acquisitions  done  under  local  procedures.  

CONSTRUCTION   $400,000   $372,000  

Construction  under  Federal-­‐aid  requirements  is  higher  than  a  locally  administered  project  because  of  stricter  requirements,  as  well  as  requirements  that  apply  only  to  projects  utilizing  Federal  funds.  These  include,  but  are  not  limited  to:  strict  material  and  construction  requirements  in  KDOT  specifications,  which  are  required  for  Federal-­‐aid  projects;  and  required  Federal  specifications  that  increase  costs  such  as  Davis-­‐Bacon  Wage  Requirements,  Buy  America  for  steel  and  iron  products,  and  Disadvantaged  Business  Enterprise  contract  goals.  The  estimated  cost  of  complying  with  the  additional  requirements  is  about  7.5%.  

CONSTR.  ENGINEERING  /  INSPECTION  

$60,000   $20,000  

The  inspection  requirements  for  a  Federal-­‐aid  project  are  much  greater  than  a  typical  local  project.  Additional  requirements  on  Federal-­‐aid  projects  include,  but  are  not  limited  to:  inspector  must  be  present  on  the  job  site  at  all  times  the  contractor  could  be  performing  work;  KDOT  specifications  have  extensive  requirements  for  taking  measurements  and  confirming  all  work  is  in  order;  greater  documentation/reporting  is  required,  particularly  with  regard  to  Federal-­‐  aid  specifications;  and  KDOT  certified  inspectors  are  required,  which  requires  a  city/county  to  invest  in  training  for  its  own  staff  or  to  hire  a  qualified  consulting  engineering  firm  to  perform  the  work.  When  compared  to  normal  local  procedures,  this  work  costs  about  three  times  as  much  on  Federal-­‐aid  projects.  

INFLATION   $22,000   $0  

Under  current  procedures,  the  project  development  of  a  city/county  Federal-­‐aid  project  takes  about  two  years  to  complete  all  requirements  to  allow  it  to  be  let  to  contract.  The  exact  same  project  developed  under  local  procedures  can  be  completed  in  a  matter  of  only  a  few  months.  As  a  result,  a  Federal-­‐aid  project  will  have  a  higher  cost  due  to  the  inflation  incurred  over  the  two  year  period.  This  cost  has  been  estimated  at  a  3%  annual  inflation  rate.  

TOTAL  PROJECT  COST   $525,000   $423,000   Total  cost  of  local  project  is  approximately  80%  of  the  same  FA  project.  

COMPARISON  OF  REQUIRED  LOCAL  SHARE  OF  PROJECT  UNDER  FEDERAL  FUND  EXCHANGE  COST  VS.  TRADITIONAL  FEDERAL  AID  

FEDERAL  FUNDS   $385,600     80%  of  Construction  and  Inspection    LOCAL  FUNDS   $139,400     20%  of  Construction  and  Inspection,  plus  100%  of  Design  and  R/W    

FFE     $347,040   90%  of  the  $385,600  that  would  have  been  paid  for  a  FA  project    LOCAL  FUNDS     $75,960   Amount  local  agency  would  have  have  to  contribute  to  project.  TOTAL  COST   $525,000   $423,000    

RATIO  OF  LOCAL  FUNDS  FOR  FFE  VS  

FA  PROJECT     54%  

The  cost  to  the  city/county  using  Federal  Fund  Exchange  for  the  same  project  would  be  54%  of  their  cost  for  a  Federal-­‐aid  project.