Waiver proposed to allow US territories and freely associated states to source construction materials outside of the United States
By Mar-Vic Cagurangan
The White House recently released the long-awaited final guidance on the implementation of the manufacturing requirements for infrastructure projects funded through the Infrastructure Investment and Jobs Act, which includes the Build America, Buy America Act, or BABA.
Signed on Nov. 15, 2021, the law is designed to enhance “Made in America” laws to bolster the United States’ industrial base and protect national security. The BABA grants awarded to all states, territories and freely associated Pacific nations come with a condition that the projects utilize certain domestically produced materials, including iron or steel products, manufactured products and construction materials.
U.S. Pacific territories including Guam, the Northern Marianas and American Samoa as well the freely associated states— Palau, the Federated States of Micronesia and the Marshall Islands— are recipients of millions in federal dollars with the Buy America strings attached. However, the tyranny of distance makes compliance a complex challenge for these islands.
During a recent field hearing conducted by the U.S. House Committee on Natural Resources on Guam, CNMI Gov. Arnold Palacios told the visiting lawmakers that “the unique challenges” confronting the Pacific island communities make it difficult to comply with some of the federal policies.
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“For instance, while we understand and support the goals of the Build America, Buy America Act, this policy is untenable for insular areas in the Pacific islands when it makes the sourcing of equipment and supplies extremely cost-prohibitive and when it is exceedingly difficult for small island territories to compete with the bigger states in procurement,” Palacios said.
“A blanket BABA waiver from Congress across the federal family would efficiently resolve the issue, and allow the territories to access closer markets with allied nations so that our projects can move forward," the governor said.
The U.S. Department of Transportation agrees. “Without the waiver, DOT-assisted infrastructure projects located within the Pacific island territories and freely associated states will continue to experience challenges with product delivery, availability, reliability, and project scheduling,” Carlos Monje Jr., undersecretary of transportation for policy, said in a notice of waiver posted on the Federal Register last month.
The U.S. Federal Emergency Management Agency proposed a similar waiver in June.
Monje noted that infrastructure project schedules rely on readily available products delivered within reasonable timeframes. For the Pacific island jurisdictions located 5,000 miles from the U.S. mainland, complying with the Buy America requirement would be impossible without stalling the projects and incurring higher costs.
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The transportation department provides financial assistance to Guam, American Samoa and the CNMI through discretionary grants and allocated programs for highways and bridges, public transportation, airports and port facilities. Palau, the Marshall Islands and the Federated States of Micronesia are also eligible for discretionary grants under the Federal Aviation Administration's Airport Improvement Program.
Between 2018 and 2022, the department provided over $340 million in financial assistance for 160 capital projects in the three U.S. territories under various programs that are subject to Buy America requirements. The FAA also provided $88 million in AIP discretionary grants to the freely associated states in the Pacific region for 20 projects over that same time period.
Most of the projects in the Pacific islands include port and airport upgrades to facilitate access for the U.S. military during training exercises and in preparation for any potential conflict in the region. In the FSM, the $37-million Yap airport rehabilitation funded by the Federal Aviation Administration is being prepared as an alternate operating site for the U.S. Air Force.
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Monje noted that the U.S. Pacific territories and the freely associated states lack existing local product supply networks for the listed compliant products. They have to be shipped from the mainland U.S. and manufacturers may not be able to assure on-time delivery and “could potentially face unreasonable scheduling uncertainty,” the transportation official said.
Besides the burden of distance, Monje noted that the Pacific islands are subject to unpredictable shipping fuel cost fluctuations. Shipping construction materials from the continental U.S. to Guam and the CNMI, for example, raises the costs by approximately 30 percent above the cost of shipping directly to the islands from Asia.
“For these reasons, DOT is concerned that complying with Buy America requirements may increase already elevated project time and costs—particularly in the short run—and seeks time to better understand the local manufacturing footprint and the balance of equities for residents of the Pacific island territories,” Monje said. “DOT is aware that substantial changes to shipping and supply chains to incorporate domestic sourcing requirements in the Pacific island territories could take multiple years to establish.”
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At the Feb. 9 hearing conducted by the natural resources committee, American Samoa Gov. Lemanu Mauga suggested that having the flexibility to procure materials and supplies elsewhere would not only lower costs but would cut down on lead time. "The territory's geographic location is closer to New Zealand, Australia, the Pacific island nations and Asian countries, where similar products are manufactured at slightly lower costs. Shipping of these materials and supplies to the territory is also more time-efficient," he said.
Monje said the department is exploring opportunities “to leverage existing shipping and transportation processes to make domestic sourcing feasible over the longer term.”
In the meantime, he said, the waiver would allow time for the department to offer technical assistance to the Pacific island communities. The waiver will remain in effect for 18 months after the effective date of the final waiver and will be reviewed as often as necessary.
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