2022-26690. Defense Federal Acquisition Regulation Supplement: United States-Mexico-Canada Agreement (DFARS Case 2020-D032)

AGENCY:

Defense Acquisition Regulations System, Department of Defense (DoD).

ACTION:

Final rule.

SUMMARY:

DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement the United States-Mexico-Canada Agreement Implementation Act.

DATES:

Effective December 30, 2022.

FOR FURTHER INFORMATION CONTACT:

Ms. Kimberly Bass, telephone [phone].

SUPPLEMENTARY INFORMATION:

I. Background

DoD published a proposed rule in the Federal Register at 87 FR 11002 on February 28, 2022, to implement the United States-Mexico-Canada Agreement Implementation Act. A correction notification was published in the Federal Register at 87 FR 12923 on March 8, 2022, to correct the comment period due date from May 27, 2022, to April 29, 2022. There were no public comments received in response to the proposed rule.

II. Discussion and Analysis

A. Summary of Significant Changes

No changes are made to the final rule as a result of public comments.

B. Other Changes

The proposed rule reflected redesignation of the paragraph numbering structure for several definitions in paragraph (a) for DFARS clauses 252.225-7036, Buy American—Free Trade Agreements—Balance of Payments Program, and 252.225-7045, Balance of Payments Program—Construction Material Under Trade Agreements. Those paragraph redesignations are no longer required in this final rule, since those redesignations were accomplished with the publication of the final rule for DFARS Case 2019-D045, Maximizing the Use of American-Made Goods, Products, and Materials, in the Federal Register at 87 FR 37440 on June 23, 2022. In addition, minor editorial changes are made to this rule.

III. Applicability to Contracts at or Below the Simplified Acquisition Threshold (SAT) and for Commercial Services and Commercial Products, Including Commercially Available Off-the-Shelf (COTS) Items

This rule amends the contract clauses at DFARS 252.225-7013, Duty-Free Entry; DFARS 252.225-7017, Photovoltaic Devices; DFARS 252.225-7021, Trade Agreements (Basic and Alternate II); DFARS 252.225-7036, Buy American—Free Trade Agreements—Balance of Payments Program (Basic and Alternates I (with the prescription), II, III (with the prescription), IV, and V); DFARS 252.225-7045, Balance of Payments Program—Construction Material Under Trade Agreements (Basic and Alternates I, II, and III); and the solicitation provisions at DFARS 252.225-7018, Photovoltaic Devices—Certificate; DFARS 252.225-7035, Buy American—Free Trade Agreements—Balance of Payments Program Certificate (Basic and Alternate I, II, III (with the prescription)). This rule does not impose any new requirements on contracts at or below the simplified acquisition threshold, for commercial products including commercially available off-the-shelf items, or for commercial services.

IV. Expected Impact of the Rule

The rule implements the United States-Mexico-Canada Agreement Implementation Act. The United States-Mexico-Canada Agreement (USMCA) supersedes the North American Free Trade Agreement (NAFTA). Canada is still a designated country under the World Trade Organization Government Procurement Agreement; however, Canada is no longer a Free Trade Agreement country, because chapter 13 (Government Procurement) of the USMCA applies only to the United States and Mexico. References to Canada as a Free Trade Agreement country in the DFARS are deleted, including the $25,000 threshold. Canadian end products will still receive nondiscriminatory treatment with respect to the Buy American statute but starting at $183,000 rather than $25,000. Impacts are anticipated to be negligible, since Canada remains a World Trade Organization Government Procurement Agreement (WTO GPA) designated country, and a qualifying country, with a threshold of $183,000. The Mexico thresholds remain unchanged.

V. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

VI. Congressional Review Act

As required by the Congressional Review Act (5 U.S.C. 801-808) before an interim or final rule takes effect, DoD will submit a copy of the interim or final rule with the form, Submission of Federal Rules under the Congressional Review Act, to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule under the Congressional Review Act cannot take effect until 60 days after it is published in the Federal Register . The Office of Information and Regulatory Affairs has determined that this rule is not a major rule as defined by 5 U.S.C. 804.

VII. Regulatory Flexibility Act

A final regulatory flexibility analysis (FRFA) has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

This final rule is necessary to revise the Defense Federal Acquisition Regulation Supplement (DFARS) to implement the United States-Mexico-Canada Agreement Implementation Act (Pub. L. 116-113). On November 30, 2018, the Governments of the United States, Mexico, and Canada (the parties) signed the protocol replacing NAFTA with the United States-Mexico-Canada Agreement (USMCA). On December 10, 2019, the parties signed the protocol of amendment to the USMCA. On January 29, 2020, the President signed into law the United States-Mexico-Canada Agreement Implementation Act, through which Congress approved the USMCA. On July 1, 2020, the USMCA entered into effect.

The objective of this rule is to implement the USMCA Implementation Act. The rule includes changes in the DFARS to conform to chapter 13 of the USMCA, which sets forth certain obligations between the United States and Mexico with respect to government procurement of goods and services, as specified in Annex 13-A of the USMCA. Chapter 13 of the USMCA applies only to Mexico and the United States and does not cover Canada.

Although Canada is still a designated country under the WTO GPA, Canada is no longer a Free Trade Agreement country, because chapter 13 of the USMCA applies only to the United States and Mexico. Therefore, references to Canada as a Free Trade Agreement country in the DFARS are deleted, including the $25,000 threshold. Canadian end products will still receive nondiscriminatory treatment with respect to the Buy American statute but starting at $183,000 rather than the threshold of $25,000. Mexico thresholds remain unchanged.

The rule removes all references to the NAFTA, replacing them with the new USMCA language, including statutory references. All references to Canadian end products or Canadian photovoltaic devices also are removed.

No public comments were received in response to the initial regulatory flexibility analysis.

This rule is not expected to have a significant economic impact on small entities. Although the rule removes Canada as a Free Trade Agreement designated country and deletes the associated $25,000 threshold, replacing it with the free trade agreement minimum threshold of $92,319, Canada remains a WTO GPA designated country, and a qualifying country, with a threshold of $183,000. The Mexico thresholds remain unchanged. Contracting officers will be required to use the revised provisions and clauses as prescribed that reflect the USMCA requirements.

Based on fiscal year 2021 data from the Federal Procurement Data System, 24,808 unique small entities were awarded DoD contracts. Impacts to small businesses are anticipated to be negligible, since Canada remains a WTO GPA designated country, and a qualifying country, with a threshold of $183,000, and the Mexico thresholds remain unchanged.

This final rule does not include any new reporting, recordkeeping, or other compliance requirements for small businesses. The rule does not impose any additional information collection requirements.

There are no known significant alternative approaches to the rule that would meet the requirements of the USMCA Implementation Act.

VIII. Paperwork Reduction Act

The rule affects information collection requirements in the provisions at DFARS 252.225-7018, Photovoltaic Devices—Certificate, and 252.225-7035, Buy American—Free Trade Agreements—Balance of Payments Program Certificate; and the clauses at DFARS 252.225-7013, Duty-Free Entry, and 252.225-7021, Alternate II, Trade Agreements, currently approved under OMB Control Number 0704-0229 in accordance with the Paperwork Reduction Act (44 U.S.C. chapter 35). The changes to the DFARS do not impose additional information collection requirements to the paperwork burden previously approved under OMB Control Number 0704-0229, DFARS Part 225, Foreign Acquisition, and Related Clauses at 252.225; DD Form 2139.

List of Subjects in 48 CFR Parts 212, 225, and 252

• Government procurement

Jennifer D. Johnson,

Editor/Publisher, Defense Acquisition Regulations System.

Therefore, 48 CFR parts 212, 225, and 252 are amended as follows:

1. The authority citation for 48 CFR parts 212, 225, and 252 continues to read as follows:

Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.

PART 212—ACQUISITION OF COMMERCIAL ITEMS

212.301

[Amended]

2. Amend section 212.301 in paragraphs (f)(x)(M) introductory text, (f)(x)(N) introductory text, (f)(x)(V) introductory text, and (f)(x)(W) introductory text by removing “3301 note” and adding “4501-4732”.

PART 225—FOREIGN ACQUISITION

225.1101

[Amended]

3. Amend section 225.1101 in paragraphs (10)(i) introductory text and (10)(i)(B) and (D) by removing “equals or exceeds $25,000, but”.

PART 252—SOLICITATION PROVISIONS AND CONTRACT CLAUSES

4. Amend section 252.225-7013 by—

a. Revising the date of the clause; and

b. In paragraph (a), revising the definition of “Eligible product”.

The revisions read as follows:

252.225-7013

Duty-Free Entry.

* * * * *

Duty-Free Entry (DEC 2022)

(a) * * *

Eligible product means—

(1) Designated country end product, as defined in the Trade Agreements (either basic or alternate) clause of this contract;

(2) Free Trade Agreement country end product, other than a Bahrainian end product, a Moroccan end product, a Panamanian end product, or a Peruvian end product, as defined in the Buy American—Free Trade Agreements—Balance of Payments Program (either basic or alternate II) clause of this contract; or

(3) Free Trade Agreement country end product other than a Bahrainian end product, Korean end product,Moroccan end product, Panamanian end product, or Peruvian end product, as defined in the Buy American—Free Trade Agreements—Balance of Payments Program (either alternate IV or alternate V) clause of this contract.

* * * * *

5. Amend section 252.225-7017 by—

a. Revising the date of the clause;

b. In paragraph (a)—

i. Removing the definition of “Canadian photovoltaic device”; and

ii. In the definitions of “Designated country”, paragraph (2), and “Free Trade Agreement country” removing “Canada,”;

c. In paragraph (c)(1), removing “$25,000” and adding “$92,319” in its place;

d. Removing paragraph (c)(2); and

e. Redesignating paragraphs (c)(3), (4), and (5) as paragraphs (c)(2), (3), and (4).

The revision reads as follows:

252.225-7017

Photovoltaic Devices.

* * * * *

Photovoltaic Devices (DEC 2022)

* * * * *

252.225-7018

[Amended]

6. Amend section 252.225-7018 by—

a. Revising the date of the provision;

b. In paragraph (a), removing “ “Canadian photovoltaic device,” ”;

c. In paragraph (c), removing “$25,000” and adding “$92,319” in its place;

d. In paragraph (d)(2) introductory text, removing “$25,000” and adding “$92,319” in its place; and

e. Revising paragraph (d)(3).

The revisions read as follows:

252.225-7018

Photovoltaic Devices—Certificate.

Photovoltaic Devices—Certificate (DEC 2022)

(d) * * *

(3) If less than $92,319—

__(i) The offeror certifies that each photovoltaic device to be utilized in performance of the contract is a domestic photovoltaic device;

__(ii) The offeror certifies that each photovoltaic device to be utilized in performance of the contract is a qualifying country photovoltaic device [Offeror to specify country of origin__]; or

__(iii) The foreign photovoltaic devices to be utilized in performance of the contract are the product of__. [Offeror to specify country of origin, if known, and provide documentation that the cost of a domestic photovoltaic device would be unreasonable in comparison to the cost of the proposed foreign photovoltaic device, i.e. that the price of the foreign photovoltaic device plus 50 percent is less than the price of a comparable domestic photovoltaic device.]

* * * * *

7. Amend section 252.225-7021 by—

a. Revising the section heading and date of the clause;

b. In paragraph (a)—

i. In the definition of “Caribbean Basin country end product” redesignating paragraphs (i) introductory text, (i)(A) and (B), (ii) introductory text, and (ii)(A), (B), and (C) as paragraphs (1) introductory text, (1)(i) and (ii), (2) introductory text, and (2)(i), (ii), and (iii), respectively;

ii. In the definition of “Commercially available off-the-shelf (COTS) item”, redesignating paragraphs (i) introductory text, (i)(A), (B), and (C), and (ii) as paragraphs (1) introductory text, (1)(i), (ii), and (iii), and (2), respectively;

iii. In the definition of “Designated country”:

A. Redesignating paragraphs (i) through (iv) as paragraphs (1) through (4), respectively; and

B. In the newly redesignated paragraph (2), removing “Canada,”;

iv. In the definitions of “Free Trade Agreement country end product” and “Least developed country end product”, redesignating paragraphs (i) and (ii) as paragraphs (1) and (2), respectively;

v. In the definition of “Qualifying country end product”, redesignating paragraphs (i), (ii) introductory text, (ii)(A) introductory text, (ii)(A)( 1), ( 2), and ( 3), and (ii)(B) as paragraphs (1), (2) introductory text, (2)(i) introductory text, (2)(i)(A), (B), and (C), and (2)(ii), respectively; and

vi. In the definitions of “U.S.-made end product” and “WTO GPA country end product”, redesignating paragraphs (i) and (ii) as paragraphs (1) and (2), respectively;

c. In paragraph (e) introductory text, removing “on the internet”; and

d. In Alternate II—

i. Revising the date of the clause;

ii. In paragraph (a)—

A. In the definition of “Caribbean Basin country end product ”, redesignating paragraphs (i) introductory text, (i)(A) and (B), (ii) introductory text, and (ii)(A), (B), and (C) as paragraphs (1) introductory text, (1)(i) and (ii), (2) introductory text, and (2)(i), (ii), and (iii), respectively;

B. In the definition of “Commercially available off-the-shelf (COTS) item”, redesignating paragraphs (i) introductory text, (i)(A), (B), and (C), and (ii) as paragraphs (1) introductory text, (1)(i), (ii), and (iii), and (2), respectively;

C. In the definition of “Designated country”:

1. Redesignating paragraphs (i) through (iv) as paragraphs (1) through (4), respectively; and

2. In the newly redesignated paragraph (2), removing “Canada,”;

D. In the definitions of “Free Trade Agreement country end product” and “Least developed country end product”, redesignating paragraphs (i) and (ii) as paragraphs (1) and (2), respectively;

E. In the definition of “Qualifying country end product”, redesignating paragraphs (i), (ii) introductory text, (ii)(A) introductory text, (ii)(A)( 1), ( 2), and ( 3), and (ii)(B) as paragraphs (1), (2) introductory text, (2)(i) introductory text, (2)(i)(A), (B), and (C), and (2)(ii), respectively; and

F. In the definitions of “South Caucasus/Central and South Asian (SC/CASA) state end product”, “U.S.-made end product”, and “WTO GPA country end product”, redesignating paragraphs (i) and (ii) as paragraphs (1) and (2), respectively; and

iii. In paragraph (f) introductory text, removing “on the internet”.

The revisions read as follows:

252.225-7021

Trade Agreements.

* * * * *

Trade Agreements—Basic (DEC 2022)

* * * * *

Trade Agreements—Alternate II (DEC 2022)

* * * * *

8. Amend section 252.225-7035 by—

a. Revising the provision date;

b. In paragraph (b)(1), removing “Part” and adding “part” in its place;

c. In paragraph (c)(2)(i) introductory text, removing “or Canadian”;

d. In paragraph (c)(2)(iii) introductory text, removing “paragraph (ii)” and adding “paragraph (1)(ii)” in its place;

e. In Alternate I—

i. Revising the introductory text and the provision date;

ii. In paragraph (a)—

A. Removing “Canadian end product,”; and

B. Removing “commercially available off-the-shelf (COTS) item” and adding “Commercially available off-the-shelf (COTS) item” in its place;

iii. In paragraph (b)(2), removing “or Canadian end products”; and

iv. Revising paragraph (c)(2);

f. In Alternate II—

i. Revising the provision date;

ii. In paragraph (c)(2)(i) introductory text, removing “or Canadian”; and

iii. In paragraph (c)(2)(iii) introductory text, removing “paragraph (ii)” and adding “paragraph (1)(ii)” in its place;

g. In Alternate III—

i. Revising the provision date;

ii. In paragraph (a)—

A. Removing “Canadian end product,”; and

B. Removing “commercially available off-the-shelf (COTS) item” and adding “Commercially available off-the-shelf (COTS) item” in its place;

iii. In paragraph (b)(2), removing “products, SC/CASA state end products, or Canadian end products” and adding “products or SC/CASA state end products” in its place; and

iv. In paragraph (c)(2)(i) introductory text, removing “(except Canadian)”;

h. In Alternate IV—

i. Revising the provision date;

ii. In paragraph (c)(2)(i) introductory text, removing “or Canadian”; and

iii. In paragraph (c)(2)(iii) introductory text, removing “paragraph (ii)” and adding “paragraph (1)(ii)” in its place; and

i. In Alternate V—

i. Revising the provision date;

ii. In paragraph (c)(2)(i) introductory text, removing “or Canadian”; and

iii. In paragraph (c)(2)(iii) introductory text, removing “paragraph (ii)” and adding “paragraph (1)(ii)” in its place.

The revisions read as follows:

252.225-7035

Buy American-Free Trade Agreements-Balance of Payments Program Certificate.

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program Certificate—Basic (DEC 2022)

* * * * *

Alternate I. As prescribed in 225.1101(9) and (9)(ii), use the following provision, which does not use the phrases Bahrainian end product, Free Trade Agreement country,Free Trade Agreement country end product, Moroccan end product,Panamanian end product, and Peruvian end products in paragraph (a); does not use “Free Trade Agreement country end products other than Bahrainian end products, Moroccan end products, Panamanian end products, or Peruvian end products” in paragraphs (b)(2) and (c)(2)(ii); and does not use “Australian or” in paragraph (c)(2)(i):

Buy American—Free Trade Agreements—Balance of Payments Program Certificate—Alternate I (DEC 2022)

* * * * *

(c) * * *

(2) The offeror shall identify all end products that are not domestic end products.

(i) The offeror certifies that the following supplies are qualifying country end products:

( Line Item Number) ( Country of Origin)

(ii) The following supplies are other foreign end products, including end products manufactured in the United States that do not qualify as domestic end products, i.e., an end product that is not a COTS item and does not meet the component test in paragraph (1)(ii) of the definition of “domestic end product”:

( Line Item Number) ( Country of Origin (If known))

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program Certificate—Alternate II (DEC 2022)

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program Certificate—Alternate III (DEC 2022)

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program Certificate—Alternate IV (DEC 2022)

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program Certificate—Alternate V (DEC 2022)

* * * * *

9. Amend section 252.225-7036 by—

a. Revising the clause date;

b. In paragraph (a), in the definition of “Free Trade Agreement country”, removing “Canada,”;

c. In Alternate I—

i. Revising the introductory text and the clause date;

ii. In paragraph (a)—

A. Removing the definition of “Canadian end product”; and

B. In the definition of “Free Trade Agreement country”, removing “Canada,”; and

iii. In paragraph (c), removing “, Canadian”, “or a Canadian end product”, and “, a Canadian end product,”;

d. In Alternate II—

i. Revising the clause date; and

ii. In paragraph (a) definition of “Free Trade Agreement country”, removing “Canada,”;

e. In Alternate III—

i. Revising the introductory text and the clause date;

ii. In paragraph (a)—

A. Removing the definition of “Canadian end product”; and

B. In the definition of “Free Trade Agreement country”, removing “Canada,”; and

iii. Revising paragraph (c);

f. In Alternate IV—

i. Revising the clause date; and

ii. In paragraph (a), in the definition of “Free Trade Agreement country”, removing “Canada,”; and

g. In Alternate V—

i. Revising the clause date; and

ii. In paragraph (a), in the definition of “Free Trade Agreement country”, removing “Canada,”.

The revisions read as follows:

252.225-7036

Buy American—Free Trade Agreements—Balance of Payments Program.

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program—Basic (DEC 2022)

* * * * *

Alternate I. As prescribed in 225.1101(10)(i) and (10)(i)(B), use the following clause, which uses a different paragraph (c) than the basic clause:

Buy American—Free Trade Agreements—Balance of Payments Program—Alternate I (DEC 2022)

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program—Alternate II (DEC 2022)

* * * * *

Alternate III. As prescribed in 225.1101(10)(i) and (10)(i)(D), use the following clause, which adds South Caucasus/Central and South Asian (SC/CASA) state and South Caucasus/Central and South Asian (SC/CASA) state end product to paragraph (a) and uses a different paragraph (c) than the basic clause:

Buy American—Free Trade Agreements—Balance of Payments Program—Alternate III (DEC 2022)

* * * * *

(c) The Contractor shall deliver under this contract only domestic end products unless, in its offer, it specified delivery of qualifying country end products, SC/CASA state end products, or other foreign end products in the Buy American—Free Trade Agreements—Balance of Payments Program Certificate—Alternate III provision of the solicitation. If the Contractor certified in its offer that it will deliver a qualifying country end product or SC/CASA state end products, the Contractor shall deliver a qualifying country end product, an SC/CASA state end product, or, at the Contractor's option, a domestic end product.

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program—Alternate IV (DEC 2022)

* * * * *

Buy American—Free Trade Agreements—Balance of Payments Program—Alternate V (DEC 2022)

* * * * *

10. Amend section 252.225-7045 by—

a. Revising the clause date;

b. In paragraph (a), in the definition of “Designated country”, paragraph (2), removing “Canada,”;

c. In Alternate I—

i. Revising the clause date;

ii. In paragraph (a), in the definition of “Designated country”, paragraph (2), removing “Canada,”; and

iii. In paragraph (b), removing “NAFTA” and adding “United States-Mexico-Canada Agreement” in its place;

d. In Alternate II—

i. Revising the clause date; and

ii. In paragraph (a), in the definition of “Designated country”, paragraph (2), removing “Canada,”; and

e. In Alternate III—

i. In the introductory text, removing “(SC/CASA state” and adding “(SC/CASA) state” in its place;

ii. Revising the clause date;

iii. In paragraph (a), in the definition of “Designated country”, in paragraph (2), removing “Canada,”; and

iv. In paragraph (b) removing “NAFTA” and adding “United States-Mexico-Canada Agreement” in its place.

The revisions read as follows:

252.225-7045

Balance of Payments Program—Construction Material Under Trade Agreements.

* * * * *

Balance of Payments Program—Construction Material Under Trade Agreements—Basic (DEC 2022)

* * * * *

Balance of Payments Program—Construction Material Under Trade Agreements—Alternate I (DEC 2022)

* * * * *

Balance of Payments Program—Construction Material Under Trade Agreements—Alternate II (DEC 2022)

* * * * *

Balance of Payments Program—Construction Material Under Trade Agreements—Alternate III (DEC 2022)

* * * * *