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Wednesday, July 17, 2024 | Back issues
Courthouse News Service Courthouse News Service

Buy-America Steel Exemptions Struck Down

(CN) - Regulators improperly carved out an exemption from the policy of using American steel exclusively for U.S. highway programs, a federal judge ruled.

For decades, Congress has required that steel or iron used in federally funded highways be sourced domestically - through what is known as the "Buy America" policy.

That changed on Dec. 21, 2012, when the Federal Highway Administration (FHWA) announced that the policy would no longer apply to two product categories: steel or iron "manufactured" products, or "miscellaneous steel or iron" products.

The two-page memorandum issued by U.S. Department of Transportation Secretary Anthony Foxx exempts products that contain less than 90 percent steel or iron from the Buy America policy, as well as all goods available "off-the-shelf" or that are "necessary to encase, assemble and construct" manufactured products.

Therefore, a manufactured product containing up to 89.9 percent steel or iron can now be obtained from a foreign source, as can a faucet or bolt, for instance, made of 100 percent foreign steel.

The steel industry, including a union, manufacturers and a trade group, reacted with a lawsuit in Washington, D.C., alleging violations of the Administrative Procedure Act and the Regulatory Flexibility Act.

Focusing on the term "predominately" in a 1997 FHWA memorandum about minimal-use exemptions, U.S. District Judge Amit Mehta granted the plaintiffs summary judgment on Dec. 22.

"The 2012 memorandum says nary a word about why 90 percent was chosen as the threshold value to mean 'predominately,'" Mehta wrote. "Not a single word. And defendants' post-hoc efforts to rationalize the choice of that number ring hollow."

Foxx's exemption for miscellaneous products does not "flow" from regulations in 1983 that significantly expanded the scope of Buy America coverage to include "all steel products," not just "structural steel," the judge ruled.

"The 1983 regulations' exemption for non-steel manufactured products was based on the fact that such products were made of 'various materials' and were 'difficult to trace,'" the ruling states. "The 2012 memorandum does not, however, tie the miscellaneous products exemption to either of those rationales."

After vacating the challenged aspects of the 2012 rules, Mehta remanded the issue to the FHWA.

"Here, the FHWA's path to the 90-Percent Threshold cannot 'reasonably be discerned,'" Mehta wrote. "Indeed, there is no path to follow. Defendants have pointed to nothing in the administrative record that would support the conclusion that the FHWA's adoption of the 90-percent threshold was the product of 'reasoned analysis.' The court reaches this conclusion for much the same reason it found the 90-percent threshold to be a substantive rule-nothing in the 2012 memorandum itself, the administrative record, or any other materials presented by the parties explains how or why defendants selected 90 percent. The number quite literally appears to have been pulled out of thin air. Given the complete lack of explanatory support, plaintiffs and this court are left to guess defendants' rationale."

Mehta added that his ruling "should not be construed as a criticism of the substance of the exemption or the FHWA's purpose in adopting it."

"Indeed, the exemption seems quite sensible," the judge wrote. "But even when an agency adopts a sensible rule it must follow proper procedures. Defendants failed to do so here."

The steel industry plaintiffs are "pleased" with the ruling, attorney Paul Rosenthal said.

"They are gratified that the opinion thoroughly rejected the substance of the agency's action and the procedures employed," Rosenthal added. "This court's decision affirms Congress' strong directive to apply the Buy America laws rigorously."

Representatives for the government have not return a request for comment emailed over the Christmas weekend.

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