B-156420, DEC. 23, 1965

B-156420, DEC. 23, 1965

TO THE HONORABLE DAVID E. BELL, ADMINISTRATOR, AGENCY FOR INTERNATIONAL DEVELOPMENT:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 18, 1965, IN WHICH YOU COMMENT ON SEVERAL STATEMENTS CONTAINED IN OUR DECISION OF SEPTEMBER 30, 1965, B-156420, AND IN OUR LETTER TO YOU OF THAT DATE TRANSMITTING A COPY OF THAT DECISION.

THE DECISION INVOLVED A PROTEST BY AN UNSUCCESSFUL BIDDER OF AN AWARD OF A CONTRACT BY THE AGENCY FOR INTERNATIONAL DEVELOPMENT (AID) TO THE INTERNATIONAL GENERAL ELECTRIC COMPANY FOR FURNISHING OF FOUR HYDRAULIC TURBINES, GENERATORS AND ACCESSORIES FOR A HYDROELECTRIC PROJECT IN BRAZIL. SINCE DESIGN AND ENGINEERING SERVICES WOULD BE FURNISHED BY A CANADIAN FIRM AND SOME PHYSICAL COMPONENTS WERE TO BE OF FOREIGN ORIGIN, THE PROTESTANT ALLEGED THAT AWARD OF THE CONTRACT TO THE INTERNATIONAL GENERAL ELECTRIC COMPANY WOULD BE CONTRARY TO THE PROVISIONS OF SECTION 604 (A) OF THE FOREIGN ASSISTANCE ACT OF 1961, 75 STAT. 439. THIS SECTION, IN PERTINENT PART, PERMITS PROCUREMENT OUTSIDE THE UNITED STATES FROM FOREIGN AID APPROPRIATIONS ONLY IF THERE IS A PRESIDENTIAL DETERMINATION THAT SUCH PROCUREMENT WILL NOT RESULT IN ADVERSE EFFECTS UPON THE ECONOMY OF THE UNITED STATES OR THE INDUSTRIAL MOBILIZATION BASE, WITH SPECIAL REFERENCE TO AREAS OF SURPLUS LABOR OR TO THE NET POSITION OF THE UNITED STATES IN ITS BALANCE OF PAYMENTS TO THE REST OF THE WORLD.

AT THE TIME OF THE PROCUREMENT INVOLVED, AID REGULATIONS REQUIRED THAT, IN THE NORMAL CASE, THE COST OF IMPORTED COMPONENTS COULD NOT EXCEED 10 PERCENT OF THE EXPORT PRICE OF THE COMMODITY PURCHASED IN THE UNITED STATES WITH AID FINANCING, AND NOTICE TO THAT EFFECT WAS CARRIED IN THE INVITATION FOR BIDS. INASMUCH AS COMMODITIES FURNISHED IN COMPLIANCE THEREWITH WOULD BE AT LEAST 90 PERCENT DOMESTIC, WE REGARDED SUCH REQUIREMENT AS A PROPER INTERPRETATION OF THE TERM ,PROCUREMENT OUTSIDE THE UNITED STATES" SINCE IT DID NOT SEEM REASONABLE TO REQUIRE THAT EVERY PARTICLE OF AN ITEM BE OF DOMESTIC ORIGIN. ACCORDINGLY, WE CONCLUDED THAT SUCH ITEMS DID NOT REQUIRE A PRESIDENTIAL DETERMINATION UNDER SECTION 604 (A) AND, SINCE IT WAS REPORTED THAT THE COST OF THE FOREIGN COMPONENTS AND THE ENGINEERING SERVICES COMBINED WOULD AMOUNT TO LESS THAN 10 PERCENT OF THE EXPORT PRICE OF THE CONTRACT ITEMS, THE PROTEST WAS DISALLOWED.

YOUR COMMENTS ARE DIRECTED PRIMARILY AT OUR STATEMENT THAT THE ADMINISTRATIVE REQUIREMENT THAT ITEMS PURCHASED IN THE UNITED STATES BE 90 PERCENT DOMESTIC CONSTITUTED A REASONABLE INTERPRETATION OF THE TERM "PROCUREMENT OUTSIDE THE UNITED STATES" AND TO OUR OBSERVATION TO THE EFFECT THAT A PRESIDENTIAL DETERMINATION WOULD BE REQUIRED IF ITEMS, ENTIRELY FOREIGN MADE, WERE PURCHASED FROM A UNITED STATES SUPPLIER.

RELATIVE TO THIS LATTER OBSERVATION, YOUR AGENCY TAKES THE VIEW THAT SINCE AID REGULATIONS PROVIDED THAT NOT MORE THAN 10 PERCENT OF THE COMPONENTS OF COMMODITIES PURCHASED IN THE UNITED STATES COULD BE OF FOREIGN ORIGIN IT WAS NOT NECESSARY FOR THE PURPOSE OF OUR DECISION TO DECIDE WHETHER SECTION 604 (A) REQUIRED ANYTHING MORE THAN PURCHASE IN THE UNITED STATES. ON THE SAME BASIS, YOU NOW URGE THAT THE 10 PERCENT RULE MAY NOT BE REGARDED AS AN INTERPRETATION OF ,PROCUREMENT OUTSIDE THE UNITED STATES" AND THAT YOU REGARD SUCH RULE AS AN ADMINISTRATIVE REGULATION BASED ON THE BALANCE OF PAYMENTS CONSIDERATIONS.

YOU THEN POINT OUT THAT---

"* * * AT THE TIME OF THE ENACTMENT OF SECTION 604 (A) AS PRESENTLY WRITTEN, THE 10 PERCENT RULE DID NOT EXIST. AT THAT TIME AID REQUIRED THAT COMMODITIES PROCURED IN THE UNITED STATES MUST HAVE BEEN "MINED, GROWN, OR THROUGH MANUFACTURING, PROCESSING, OR ASSEMBLY PRODUCED ...' THE UNITED STATES. SUBSEQUENT TO THE ENACTMENT OF THE STATUTE AS PRESENTLY WORDED, WE SUPERIMPOSED, FOR POLICY REASONS RELATED TO THE BALANCE OF PAYMENTS, AN ADDITIONAL REQUIREMENT THAT NO MORE THAN 30 PERCENT OF THE COMPONENTS BE IMPORTED. SUBSEQUENTLY, AGAIN ON THE BASIS OF POLICY CONSIDERATIONS, THIS FIGURE WAS REDUCED TO 20 PERCENT AND THEN TO THE PRESENT FIGURE OF 10 PERCENT. THERE IS NO INDICATION WHATSOEVER THAT CONGRESS INTENDED TO ADOPT A PROVISION MORE STRINGENT THAN THE AGENCY'S DEFINITION OF SOURCE AND ORIGIN IN EFFECT AT THE TIME THE STATUTE WAS PASSED. WE WOULD ALSO DISAGREE WITH THE CONCLUSION THAT WHEN SUBSEQUENTLY, ON THE BASIS OF BALANCE OF PAYMENTS CONSIDERATIONS, THE AGENCY APPLIED MORE STRINGENT RULES, THESE RULES MUST BE READ AS HAVING BEEN REQUIRED BY A STATUTE ENACTED LONG BEFORE THEY WERE CONCEIVED.'

WE AGREE THAT THE PRESENT 90-10 PERCENT ADMINISTRATIVE RULE IS NOT AN INFLEXIBLE ONE THAT CANNOT BE CHANGED FROM TIME TO TIME. HOWEVER, WHILE EVEN IF IT BE CONCEDED THAT THE EXISTENCE OF THE 90-10 RULE MAY HAVE MADE IT UNNECESSARY FOR THE PURPOSE OF THAT DECISION TO DETERMINE THAT THE STATUTE REQUIRES ANYTHING MORE THAN PURCHASE IN THE UNITED STATES, WE BELIEVE THAT ANY PROCUREMENT MADE SOLELY ON THAT BASIS, WITHOUT REGARD TO SOURCE OR ORIGIN OF THE PRODUCT, WOULD BE CONTRARY TO CONGRESSIONAL INTENT IN THE MATTER.