(2004/C 78 E/0522)

WRITTEN QUESTION E-3243/03

by Jan Wiersma (PSE) to the Commission

(3 November 2003)

Subject:   The ‘Buy American Act’ in the American defence budget

Is the Commission aware that a law has been included in the American defence budget of the House of Representatives that extensively commits the Pentagon to buying American defence materiel, viz. the so-called ‘Buy American Act’?

What is the Commission's position in relation to the ‘Buy American Act’ that has been incorporated into US Defense Authorization Bill FY 2004?

What efforts has the Commission made in seeking to prevent the act's adoption?

To what extent does the act amount to a violation of international trade treaties?

What impact will the act's adoption have on the arms industry in Europe and on cooperation in the area of arms production between the EU and the USA?

What countermeasures will the Commission take if the act is definitively adopted?

Does the Commission intend, if the act were to be adopted, to recommend to EU Member States that they adopt the same arrangements as those that the act would impose on the Pentagon?

Does the Commission consider that adoption of the ‘Buy American Act’ will put the already strained relations with the United States under even more pressure?

Answer given by Mr Lamy on behalf of the Commission

(23 December 2003)

The Commission has been closely following the draft bill entitled ‘National Defence Authorisation Act for Fiscal Year 2004’ since it was passed by the United States House of Representatives in May 2003. The initial attention of the Commission was brought to this draft law by an unprecedented expansion of ‘Buy American’ provisions into areas that may have violated commitments undertaken by the United States in the World Trade Organisation (WTO) Agreement on Government Procurement.

Matters have evolved in the right direction since the draft was discussed in the House and Senate, where deep disagreement forced a conciliation and the involvement of the United States Administration. The Conciliation Conference Report was finally approved on 11 November 2003 and was passed in the House and Senate immediately after. The bill was presented to President Bush to be enacted into law on 21 November 2003.

Regarding the actions undertaken by the Commission to oppose the initial draft, in early September 2003, the Commission transmitted a ‘note verbale’ to the United States Administration and Congress, raising the Commission's concerns and pointing out that certain provisions contained in the draft law may violate the WTO Agreement on Government Procurement. The Head of the Commission Delegation in Washington wrote to the Secretary of State and selected Representatives from the House and Senate reiterating the Commission's opposition to any extension of ‘Buy American’ provisions. The Member of the Commission responsible for Trade also discussed this issue with the United States Trade Representative, Mr Zoellick. In October 2003, the President of the Commission, Mr Prodi, wrote to the United States President, Mr Bush, requesting he veto the law if adopted by the Congress in its (at the time) current form. The Commission believes that these repeated interventions have been instrumental in removing significant shortcomings contained in the original draft. The overall final result can indeed be considered as largely satisfactory from the Union's perspective, in particular as it avoids an extensive use of waivers or exemptions, which would lead to a considerable degree of legal uncertainty, and left broad scope for the application of discretionary measures.

According to the sponsor of the bill, the Chair of the Armed Services Committee in the House, Mr Hunter (Rep., CA), the chapter on acquisitions contained in the bill originally aimed at strengthening the United States defence industrial base capability and reducing dependency from foreign sources. Amongst other measures, the bill, in its initial version, would have allowed the Department of Defence to ban the purchase of goods manufactured in countries that applied arms exports restrictions or did not support the United States operations in Afghanistan or Iraq. A similar but slightly modified provision is contained in the final version, but now a possible ban on procurement of goods would only apply to countries which apply military export restrictions to the United States for its war against terrorism, in which case these restrictions would be applied after the entry into force of the Act (and not as a consequence of restrictions applied during the United States military operations in Iraq, as initially proposed). Furthermore, the application of this provision is subject to a requirement that the United States Administration ensures that its application is not contrary to any applicable international obligations, including the WTO Agreement on Government Procurement.

Other proposed measures such as the increase of United States content subject to ‘Buy American’ (from the existing 50 % to a higher 65 %) or a ban to import certain goods considered as ‘critical items for national defence’ have been dropped in the final version.

The provision creating incentives for United States contractors to use machine tools or capital assets manufactured in the United States for the production of military equipment and a vague preference for suppliers using these machine tools or assets is maintained in the final version and is the main remaining concern for the Commission. The Commission's concerns on this provision will depend now on how the United States Administration may apply it, and the broader exemption in the act which requires the United States Administration not to apply the provisions of the act in a manner inconsistent with the United States' international obligations, including the WTO Agreement on Government Procurement. The Commission is conscious that European supplies to the United States Department of Defence of civilian and military goods may potentially be subject to this provision, if the exemption is not correctly applied. For that reason, the Commission intends to monitor particularly closely the implementation of these provisions.

As in the past, the Commission will closely monitor the implementation of the National Defence Authorisation Act for Fiscal Year 2004 and will take any action which may be considered appropriate.