MAY 02, 2017
SIDLEY UPDATE
President Trump Signs Executive Order Indicating Ambiguous
Directions on H-1B Visas and Buy American and Hire
American Provisions
On April 18, 2017, President Trump signed an Executive Order (Order) that appears designed to strengthen
domestic preference procurement requirements and to make changes to the H-1B visa program for the
benefit of U.S. workers.
Summary
The Order may be of particular interest to pharmaceutical and medical device manufacturers because of its
potential impact on Federal Supply Schedule contracts, which are typically subject to the Trade Agreements
Act (TAA), 19 U.S.C. § 2501 et seq, or other federal government contracts containing Buy American or TAA
provisions. For example, in contracts for which the TAA applies, the government is generally prohibited from
purchasing products manufactured in countries that are not TAA-designated countries, including China and
India. To determine whether a product is manufactured in a designated country, the government applies a
“substantial transformation” test, which finds such a substantial transformation if the article is transformed
into a new and different article of commerce that has a distinct name, character, or use when compared to
the original article.
The key elements of the Buy American Provisions in the Order include:
•
All “Buy American Laws” which are defined to include “all statutes, regulations, rules and Executive
Orders … that require, or provide a preference for, the purchase or acquisition of goods, products, or
materials produced in the United States, including manufactured goods.”
•
Potential increased scrutiny on compliance with domestic preference regimes including the TAA.
•
Potential increased scrutiny on buy national requirements during contract negotiation.
•
Potential narrowing of the current “substantial transformation” test under the TAA to restrict those
products that qualify as manufactured in the United States or in a designated country.
•
Direction for agencies to assess the impact of the U.S. free trade agreement and the WTO Agreement on
Government Procurement commitments could indicate an interest on the part of the Administration to
rescind the U.S.’s accession to such agreements. However, such a step would be radical and could have
significant international ramifications.
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SIDLEY UPDATE
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The Order, while not imposing any new restrictions, calls for agencies to “suggest reforms to help ensure that
H-1B visas are awarded to the most-skilled or highest-paid petition beneficiaries.”
Buy American and Hire American Provisions
Domestic preference procurement requirements typically are considered to include the Buy American Act,
41 U.S.C. § 8301 et seq., the Trade Agreements Act, 19 U.S.C. § 2501 et seq. and Buy America provisions, as
implemented by several Department of Transportation departments and the EPA. However, the Order
provides little in the way of concrete guidance for federal agencies tasked with implementing the
requirements or federal contractors tasked with complying with the requirements. It is possible that, as
many commentators have speculated, a potential consequence of the increased scrutiny on compliance with
domestic preference regimes will be an increased number of OIG investigations and False Claims Act cases
brought against non-compliant contractors, which could result in suspension or debarment, as well as lesser
penalties such as contract terminations. However, the Order itself does not provide any explicit guidance in
this regard.
Under the Order, within 60 days of April 18, the Secretary of Commerce and the Director of the Office of
Management and Budget, in consultation with other agency heads, are required to issue guidance to agencies
explaining how the agencies are “to make the assessments and to develop the policies” required by the
Order.
Once the agencies have the guidance, they have a further 90 days to submit a report to the Secretary of
Commerce and the Director of the Office of Management and Budget: (i) that assesses compliance and
enforcement with Buy American Laws within their agency; (ii) that assesses the use and impact of waivers
within the agency; and (iii) to “develop and propose policies” that “to the extent permitted by law …
maximize the use of materials produced in the United States, including manufactured products; components
of manufactured products; and materials such as steel, iron, aluminum and cement.”
Finally, the Secretary of Commerce, in consultation with other agency heads, has a further 70 days to submit
a report to the President that “shall include specific recommendations to strengthen implementation of Buy
American Laws, including domestic procurement preference policies and programs.” The Order appears to
envision that this process will be complete by mid-November 2017. This is in line with the subsequent
annual reports that the Order requires be submitted by November 15, 2018, 2019 and 2020.
The Order, however, does not specify whether any of the guidance or reports generated pursuant to the
Order will be publicly available. Unless the guidance and reports are made publicly available, federal
contractors will have little further insight into specifically how the Administration may seek to enhance
already existing domestic preference regimes.
An advantage of the relatively lengthy time frame for the development of the report to the President is that it
will enable contractors to seek opportunities to interact with Congress and the Executive Branch regarding
the Order’s requirements and, should proposed regulations be issued as part of the process, the public would
presumably have an opportunity to comment following typical rule and comment procedures.
The Order contains a limited number of areas in which the potential for more stringent domestic preference
requirements is more apparent. For example, the Buy American Act’s “substantially all” requirement, as
currently interpreted by the FAR, specifies that U.S.-sourced components must account for more than
SIDLEY UPDATE
Page 3
50 percent of the total cost of all components of an end product for the end product to qualify as U.S.-origin.
Commercial-off-the shelf (COTS) end products are only required to be manufactured in the United States,
regardless of the origin of their components, to qualify as U.S.-origin. Because agencies are directed in the
Order to develop policies that “maximize the use of materials produced in the United States” including for
“components of manufactured products,” agencies may seek to increase the threshold for compliance with
the Buy American Act’s “substantially all” standard so as to ensure more U.S.-sourced components are
required. Additionally, new requirements could be added for COTS products to require that a certain
percentage of COTS components are U.S.-sourced.
A second example is found in the Order’s definition of “produced in the United States.” The Order defines
“produced in the United States” to require that “all manufacturing processes, from the initial melting stage
through the application of coatings, occur in the United States for iron and steel products.” This definition is
vague and as a result could be interpreted more expansively. For example, under the FHWA’s current
interpretation, while the application of a coating is subject to the Buy America provisions, the material being
applied as a coating is not covered. See Q No. 14 of FHWA’s Buy America Q and A for Federal-aid Program.
In contrast, under the Order’s definition, it is unclear whether the material of the coatings themselves are
intended to be covered, and agencies could interpret the definition to require that the coating itself be
subject to the Buy America provisions.
Finally, one area that may appear to be more restrictive in writing than in practice is the Order’s attempt to
limit the number of waivers. The Order only limits public interest waivers, which are separate and distinct
from those waivers granted under the Buy America provisions where (1) the products are not manufactured
in sufficient quantities, or (2) using U.S.-manufactured goods would increase the cost of the project by more
than 25 percent. See 23 C.F.R. § 635.410(c). Thus, while the Order may successfully limit public interest
waivers, it appears to leave unchanged the two other waiver standards.
The next stage of the anticipated process is, therefore, the issuance of Executive guidance to agencies on how
to make the assessments and develop the policies sought by the Order. Sidley will of course track all
developments and provide further Updates when warranted.
H-1B Visa Provisions
Throughout his presidential campaign and since the beginning of the new Administration, President Trump
has called for restrictions to the H-1B visa program, a mechanism that allows employers in the United States
to sponsor certain foreign professionals for work visas. The Order instructs the Departments of Justice,
State, Labor and Homeland Security to “propose new rules and issue new guidance … to protect the interests
of United States workers in the administration of our immigration system, including through the prevention
of fraud or abuse.” In addition, the Order directs those agencies to “suggest reforms to help ensure that H-1B
visas are awarded to the most-skilled or highest-paid petition beneficiaries.”
The language of the Order does not impose any new requirements or restrictions on employers using the
H-1B program. Rather, the Order instructs the federal agencies with roles in the administration of the H-1B
program to recommend changes and reforms, including refocusing the H-1B program on higher skilled and
higher paid workers. As the H-1B program is governed by statute and regulations, most potential restrictions
to the program, including those related to H-1B wages, employer requirements and U.S. workers protections,
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Page 4
would require regulatory or legislative change, so there is no immediate impact on U.S. employers who
employ H-1B workers.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or
Marketa Lindt
Partner
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Howard J. Stanislawski
Partner
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+1 202 736 8219
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