B-158869, APR. 27, 1966, 45 COMP. GEN. 658

B-158869, APR. 27, 1966, 45 COMP. GEN. 658

BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION THE STEEL REINFORCING BARS USED IN LARGE CONCRETE STRUCTURES WHEN MANUFACTURED IN THE UNITED STATES BY A CANADIAN CONTRACTOR FROM STEEL INGOTS IMPORTED FROM CANADA, FIRST INTO BILLETS AND THEN INTO THE BARS, ARE AN END PRODUCT OF DOMESTIC ORIGIN UNDER THE BUY AMERICAN ACT, 41 U.S.C. 10 (A/-/D), NOTWITHSTANDING THE CUSTOMARY METHOD OF PRODUCING BILLETS IN CANADA IS A CONTINUOUS PROCESS FROM THE RAW MATERIAL THROUGH THE INGOT STAGE INTO THE BILLET AS AN END PRODUCT, AND THE INGOT, THE END PRODUCT OF THE CANADIAN MANUFACTURING PROCESS, UNDERGOING SUBSTANTIAL PHYSICAL CHANGES DURING CONVERSION IN THE UNITED STATES INTO BILLETS IS A COMPONENT OF THE REINFORCING BARS, AND TWO MANUFACTURING PROCESSES TAKING PLACE IN THE UNITED STATES, THE BARS ARE OF DOMESTIC ORIGIN, MEETING THE DESCRIPTION IN SUBPART 1-6.1 AND 1-6.2 OF THE FEDERAL PROCUREMENT REGULATIONS THAT AN END PRODUCT IS DOMESTIC IN ORIGIN IF MANUFACTURED IN THE UNITED STATES AND THE COST OF COMPONENTS MANUFACTURED IN THE UNITED STATES EXCEEDS 50 PERCENT OF THE COST OF ALL ITS COMPONENTS.

TO THE SECRETARY OF THE INTERIOR, APRIL 27, 1966:

WE REFER TO A LETTER DATED APRIL 1, 1966, WITH ENCLOSURES, REQUESTING A DECISION CONCERNING THE APPLICABILITY OF THE BUY AMERICAN ACT (41 U.S.C. 10 (A/-/D).

YOUR DEPARTMENT REPORTS THAT A CANADIAN CONTRACTOR PROPOSES TO BUILD A STEEL MILL NEAR SPOKANE, WASHINGTON, FOR THE PURPOSE OF MANUFACTURING STEEL REINFORCING BARS SUITABLE FOR USE IN LARGE CONCRETE STRUCTURES. THE CONTRACTOR PROPOSES TO USE STEEL INGOTS MANUFACTURED IN CANADA AND DELIVERED IN SPOKANE, WHERE IT WILL MANUFACTURE THE INGOTS INTO BILLETS AND THEN INTO REINFORCING BARS. MANUFACTURE AT THE SPOKANE PLANT OF THE INGOTS INTO BILLETS AND THEN INTO REINFORCING BARS WILL BE A CONTINUOUS PROCESS, DIFFERING FROM THE USUAL PRACTICE OF MANUFACTURING THE INGOTS INTO BILLETS AND THEN AT A LATER DATE MANUFACTURING THE BILLETS INTO REINFORCING BARS. THE CONTRACTOR EXPECTS TO SELL REINFORCING BARS TO YOUR DEPARTMENT.

A QUESTION HAS ARISEN WHETHER REINFORCING BARS SO PRODUCED MAY BE CONSIDERED A DOMESTIC PRODUCT UNDER THE BUY AMERICAN ACT. MANUFACTURED ARTICLES ARE DOMESTIC IN ORIGIN UNDER THAT ACT IF THEY HAVE BEEN MANUFACTURED IN THE UNITED STATES "SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES.' IN THE CASE OF MANUFACTURED PRODUCTS, THE ACT IS APPLIED TO THE END PRODUCT ITSELF AND TO THE COMPONENTS DIRECTLY INCORPORATED IN THE END PRODUCT BUT IS NOT APPLIED TO THE SUPPLIES THAT ARE USED IN THE MANUFACTURE OF ANY SUCH COMPONENT. THUS AN END PRODUCT IS DOMESTIC IN ORIGIN IF IT IS MANUFACTURED IN THE UNITED STATES AND THE COST OF ITS COMPONENTS WHICH ARE MANUFACTURED IN THE UNITED STATES EXCEEDS 50 PERCENT OF THE COST OF ALL ITS COMPONENTS. SUBPART 1-6.1 AND 1-6.2 OF THE FEDERAL PROCUREMENT REGULATIONS.

YOUR DEPARTMENT CONCLUDES THAT THE REINFORCING BARS WOULD BE OF DOMESTIC ORIGIN IF THE COMPANY FOLLOWED THE CUSTOMARY PRACTICE OF MANUFACTURING THE INGOTS INTO BILLETS AND THEN AT A LATER DATE MANUFACTURED THE BILLETS INTO REINFORCING BARS. YOU STATE "* * * THAT THE SAME RESULT SHOULD OBTAIN WHEN THE MANUFACTURING PROCESS IS CONTINUOUS, THAT IS, FROM INGOT TO BILLET TO REINFORCING BAR, BECAUSE THE COMPONENT OF THE REINFORCING BAR IS THE BILLET.' OUR VIEWS ARE REQUESTED.

UNDER THE PROPOSED PLAN OF MANUFACTURE THE BILLET AND THE REINFORCING BAR WILL BE MANUFACTURED WITHIN THE UNITED STATES WHILE THE INGOT WILL BE FOREIGN MANUFACTURED.

THE FEDERAL PROCUREMENT REGULATIONS DEFINE A "COMPONENT" SIMPLY AS ANY ARTICLE, MATERIAL, OR SUPPLY DIRECTLY INCORPORATED IN THE END PRODUCT. FPR 0-6.101 (B) AND 1-6.201 (C). IN OTHER WORDS, A COMPONENT IS SOMETHING DIRECTLY USED IN THE MANUFACTURE OF THE END PRODUCT. AN EXAMPLE OF THE BUY AMERICAN ACT APPLICATION IS GIVEN IN THE ARMED SERVICES PROCUREMENT REGULATION IN EFFECT PRIOR TO THE DATE OF EXECUTIVE ORDER NO. 10582 (1954). THE THEN REGULATION STATED THAT IN THE PROCUREMENT OF CLOTHING, THE BUY AMERICAN ACT WOULD APPLY TO THE CLOTHING ITSELF AND TO THE CLOTH USED IN THE MANUFACTURING OF SUCH CLOTHING, BUT WOULD NOT APPLY TO THE YARN USED IN THE MANUFACTURE OF THE CLOTH. SEE ASPR 6-103.2 DATED JUNE 1, 1950.

IT IS REPORTED THAT IN THE STEEL INDUSTRY THE REINFORCING BAR NORMALLY IS MANUFACTURED DIRECTLY FROM THE BILLET. CONSEQUENTLY, YOUR DEPARTMENT REGARDS THE BILLET AS THE COMPONENT OF THE REINFORCING BAR. WE AGREE THAT IT SHOULD BE SO CONSIDERED.

THE MORE IMPORTANT QUESTION, IT SEEMS TO US, IS WHETHER THE BILLET SHOULD BE CONSIDERED TO HAVE BEEN MANUFACTURED IN THE UNITED STATES. THE CUSTOMARY METHOD OF PRODUCING BILLETS IS A CONTINUOUS PROCESS FROM THE RAW MATERIALS (IRON ORE AND/OR SCRAP) THROUGH THE INGOT STAGE INTO THE BILLET AS AN END PRODUCT. IN THE PROPOSED METHOD OF OPERATION THIS PROCESS WILL BE DIVIDED INTO TWO STAGES WITH THE INGOT AS AN END PRODUCT OF CANADIAN MANUFACTURE. THERE IS A GREAT DIFFERENCE IN THE PHYSICAL CHARACTERISTICS OF AN INGOT AND A BILLET. THE GRANULAR STRUCTURE OF AN INGOT IS SUCH THAT IT IS BRITTLE AND HAS LITTLE OF THE TENSILE STRENGTH FOR WHICH STEEL IS NOTED. WHEN AN INGOT IS HEATED SUFFICIENTLY TO BECOME MALLEABLE AND IS SUBJECTED TO ROLLING, THE GRANULAR STRUCTURE IS SO CHANGED THAT THE RESULTING PRODUCT (BILLET, BLOOM, OR SLAB) HAS GREAT TENSILE STRENGTH AND INCREASED DUCTILITY.

THE PROCESS OF CONVERTING INGOTS INTO BILLETS, INVOLVES THE USE OF HEATING OVENS AND HEAVY MACHINERY. THIS, WITH THE FACT THAT THE MATERIAL BEING TREATED UNDERGOES SUBSTANTIAL CHANGES IN PHYSICAL CHARACTER, IS CONVINCING EVIDENCE, WE THINK, THAT IT CONSTITUTES A MANUFACTURING PROCESS WITHIN THE MEANING OF THE BUY AMERICAN ACT.

WE CONCLUDE, THEREFORE, THAT TWO MANUFACTURING PROCESSES WILL TAKE PLACE WITHIN THE UNITED STATES UNDER THE PROPOSED METHOD OF MAKING STEEL REINFORCING BARS, AND THE BARS SHOULD BE CONSIDERED TO BE OF DOMESTIC ORIGIN.