[Federal Register Volume 76, Number 161 (Friday, August 19, 2011)]
[Proposed Rules]
[Pages 51916-51922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20773]


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AGENCY FOR INTERNATIONAL DEVELOPMENT

22 CFR Part 228

[Aid Reg. 228]
RIN 0412-AA70


Procurement of Commodities and Services Financed by USAID

AGENCY: Agency for International Development (USAID).

ACTION: Proposed rule.

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SUMMARY: This proposed rule implements the statutory requirement that 
funds made available by the United States Congress (Congress) to USAID 
under the authority of the Foreign Assistance Act of 1961, as amended 
(FAA), be used for procurement in the United States (U.S.), the 
recipient country, or developing countries. It does so by revising 
USAID's current source, origin and nationality (S/O/N) regulation to 
track more closely the statutory procurement authority provided under 
the FAA and referenced above; by establishing a single code for 
procurements from the U.S., recipient country and developing countries; 
by deleting the concept of ``origin,'' which is increasingly obsolete 
and difficult to apply in today's globalized economy; and by 
simplifying the concepts of ``source'' and ``nationality'' in order to 
reflect better Congress's directive to procure from the U.S., recipient 
or developing countries.

DATES: Comments must be received by close of business October 3, 2011.

ADDRESSES: You may submit comments, identified by Regulatory 
Information Number, RIN 0412-AA70, by any of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#610b0f08040c041804132114120008054f060e17"><span class="__cf_email__" data-cfemail="caa0a4a3afa7afb3afb88abfb9aba3aee4ada5bc">[email protected]</span></a>. Include RIN number 0412-AA70 
in the subject line of the message.
    <bullet> Mail: U.S. Agency for International Development, Office of 
the General Counsel, Room 6.07-105, 1300 Pennsylvania Ave., NW., 
Washington, DC 20523, Attention: John R. Niemeyer, Esq.
    <bullet> Instructions: All submissions received must include the 
Agency name and docket number or Regulatory Information Number (RIN 
0412-AA70) for this rulemaking. All comments received will be included 
in the public docket without change and will be made available online 
at http://www.regulations.gov, including any personal information 
provided. Public Participation: Because security screening precautions 
have slowed the delivery and dependability of surface mail and hand 
delivery to USAID/Washington, USAID recommends sending all comments to 
the Federal eRulemaking Portal. The e-mail address listed above is 
provided in the event that submission to the Federal eRulemaking Portal 
is not convenient (all comments must be in writing to be reviewed). You 
may submit comments by electronic mail, avoiding the use of any special 
characters and any form of encryption.

USAID will consider all comments in response to the proposed rule as 
USAID determines how to revise its S/O/N regulation, and will reconcile 
all comments (similar comments by category) in any published, final 
rule. All comments will be posted at the portal for Federal rulemaking, 
regulations.gov, under Regulatory Information Number, RIN 0412-AA70.

FOR FURTHER INFORMATION CONTACT: John Niemeyer (or designee), Attorney 
Advisor, Office of the General Counsel, USAID, Rm. 6.07-105, 1300 
Pennsylvania Ave., NW., Washington, DC 20523; telephone: (202) 712-5053 
(this is not a toll-free number); <a href="/cdn-cgi/l/email-protection#a4cecacdc1c9c1ddc1d6e4d1d7c5cdc08ac3cbd2"><span class="__cf_email__" data-cfemail="503a3e39353d352935221025233139347e373f26">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

<bullet> Part I. Background
<bullet> Part II: The Proposed Rule
    [cir] Purpose of the Rule
    [cir] USAID Regulations Amended by This Rule
    [cir] Summary of Changes to the Existing Rule
    [cir] Regulatory Planning and Review: Findings and 
Certifications of Impact Assessment
    [cir] List of Subjects in 22 CFR Part 228
    [cir] Proposed Rule: Part 228, Rules on Procurement of 
Commodities and Services Financed by USAID

I. Background

    On February 16, 2011, USAID published in the Federal Register (76 
FR 8961) an Advanced Notice of Public Rulemaking (ANPRM), notifying the 
public that USAID intended to review

[[Page 51917]]

and revise its S/O/N regulation found at 22 CFR part 228, which in turn 
implements section 604(a) of the FAA. The Agency provided a forty-five 
(45)-day public comment period on the ANPRM, which ended Monday, April 
4, 2011. The Agency also offered the public the opportunity to submit 
comments by surface mail, e-mail or fax.
    The ANPRM invited comments and suggestions on the existing S/O/N 
rules in 22 CFR part 228. In particular, USAID inquired
    <bullet> What, if any, sections of 22 CFR part 228 lead to 
inefficiencies and ineffectiveness in implementing USAID development 
assistance activities and programs? What are the efficiency impacts to 
contractors and grantees from provisions reflecting the concept of 
``origin'' and ``source'' (essentially, the country where a commodity 
is produced and the country from which a commodity is shipped to the 
cooperating country, respectively, see 22 CFR 228.01), given the 
difficulty of determining with specificity the origin and source of 
many commodities in an increasingly globalized economy?
    <bullet> Should the regulatory guidance concerning ``nationality'' 
(the place of incorporation, ownership, citizenship, residence, etc. of 
suppliers of USAID-financed goods and services) be modified, and if so, 
in what manner to improve efficacy of the rule, particularly as applied 
to suppliers of services and goods in the recipient country?
    <bullet> Should USAID modify the ``special source rules,'' FAA 
604(b), (c), (e), (f), and (g), and reflected in 22 CFR 228.13, for 
procurement of agricultural commodities, vehicles or pharmaceuticals 
within limitations set forth in the FAA; and, if so, in what manner?
    <bullet> Should references in 22 CFR part 228 to other statutory 
requirements, such as the Fly America Act (49 U.S.C. 40118) be removed 
or changed? Specifically is it useful for USAID to include Agency-
specific policy and procedures in 22 CFR part 228, when separate 
statutes and prevailing regulatory systems are already in place and 
publicly available from other sources?
    What difficulties do contractors and grantees encounter when 
requesting a waiver to procure in any country other than those in the 
approved geographic code for each USAID-funded agreement (contract or 
grant)? How can USAID's waiver guidance be modified or improved for 
more clear and cost effective application of the statutory and 
regulatory waiver requirements? If commenters suggest modification, 
USAID requests specific proposals for what elements of 22 CFR part 228 
should be modified.
    USAID also sought comments in the ANPRM concerning the potential 
costs of modifying the existing regulation, and the potential, 
quantifiable efficiency benefits of modifying the regulation.
    USAID received twenty-one comments in response to the ANPRM, all 
strongly in favor of substantial simplification of the regulation to 
reflect the globalization of the economy. Comments also urged revision 
of the existing regulation due to the growing obsolescence of concepts 
like ``origin'' in the globalized economy; and stressed the difficulty 
of applying the geographic codes established in the current rule, and 
in particular, of finding United States ``origin'' commodities and 
services, as defined by the current regulation, for procurement in 
support of USAID funded aid programs. Comments received in response to 
the ANPRM are discussed and addressed in greater detail, below in 
``Background.''
    The proposed rule, below, reflects comments received in response to 
the ANPRM, and has been reviewed by the Office of Management and 
Budget's Office of Information and Regulatory Affairs. The period for 
comments concerning the proposed rule has been established at forty-
five (45) days, due to the high visibility of United States Government 
assistance programs in response to current and anticipated political, 
humanitarian and natural disaster crises, and the shortness and lack of 
complexity of the proposed rule.
    The initial version of the FAA procurement provision in Section 
604(a) provided that funds made available under the FAA could be used 
for procurement outside the United States only if the President made a 
determination that such procurement would not have adverse effects upon 
the economy of the U.S., or that any such harm was outweighed by the 
benefits of ``less costly government procurement outside the United 
States.'' USAID implemented this directive by adapting the concepts of 
``source, origin and nationality'' developed under USAID's commodity 
import program (CIP),\1\, to all its procurements under the FAA. USAID 
also adapted the ``geographic source codes'' developed under the CIP to 
apply to all USAID financed procurements, in part in order to address 
Congress's concern that U.S. taxpayer funded foreign assistance not 
provide any direct benefits to the governments of communist countries 
during the Cold War.
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    \1\ A CIP is a program in which USAID provides foreign exchange 
to a host country that, by the terms of the applicable agreement 
between USAID and the host country, is used to finance particular 
commodity import transactions of the host country.
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    In 1993, Congress amended the FAA procurement authorities in 
Section 604(a) to provide that funds made available to USAID may be 
used for procurement from the U.S., the recipient country, or 
developing countries (but not advanced developing countries). However, 
USAID did not change its procurement regulations to reflect the change 
in statutory procurement authorities, but instead self-imposed a policy 
to continue to follow the same limits on procurement in the recipient 
and developing countries as if the 1993 statutory amendments had not 
occurred. The concepts of source, origin and nationality were 
maintained in USAID's procurement regulations at 22 CFR part 228, as 
were the geographic source codes, none of which captured in any single 
code Congress's clear 1993 directive to procure from the U.S., 
recipient country, or developing countries.
    Because of the end of the Cold War and the subsequent globalization 
of the economy, this approach has become increasingly difficult to 
administer and in some respects obsolete. In an era of tightening 
budgets, the costs of compliance with the now needlessly complex 
regulation, and of the self-imposed and unnecessary restrictions on 
procurement in recipient and developing countries means that the 
foreign assistance dollar does not go as far as it would with a more 
straightforward regulation that reflects the statutory authority to 
procure in the recipient country and other developing countries, in 
addition to the U.S.
    Comments received in response to the ANPRM detail the mounting 
inefficiencies and costs of the current regulation. Comments generally 
fell into the following categories: Strongly supportive of review and 
revision; eliminate the regulation entirely and rely instead on USAID's 
statutory procurement authority (FAA Section 604(a), above); replace 
the authorized geographic codes in the current regulation with a 
simpler approach; Geographic Code 000 (procure from United States 
source, origin and nationality) is not relevant in today's globalized 
economy; adherence to Code 000 slows implementation and costs resources 
better devoted to development; commodities of Code 000 are ineffective 
in achieving development impact due to warranty and servicing problems 
abroad; services are frequently needed from non-Code 000 suppliers 
abroad; source requirements should be eliminated; origin requirements 
should be

[[Page 51918]]

eliminated; and waiver procedures should be reduced and streamlined. 
There were also many specific recommendations about particular types of 
commodity procurements, such as modifying the regulations concerning 
procurement of used or leased commodities. While USAID did not receive 
any cost-specific data, several commenters estimated that the time for 
processing of waivers needed when Code 000 (United States) commodities 
and services were unavailable ranges from 10-90 days, depending on 
circumstances such as the length of time needed to complete a market 
survey, draft the waiver documents, and process the waiver according to 
implementing partner and USAID procedures.
    Several commenters made the point that because of the development 
of a world or globalized economy since the end of the Cold War, it is 
difficult to determine with any accuracy where a commodity is produced, 
due to the myriad sources of components that go into manufacture of 
many commodities and the movement overseas of the manufacturing 
operations of many U.S. producers (for example, one commenter commented 
that little if any computer hardware is manufactured in the United 
States). Other commodities, such as much information technology and 
office equipment, certain types of vehicles, and copiers, are not 
generally available from U.S. origin producers. Because of these 
challenges, USAID and its implementing partners are frequently required 
to process waivers to the current S/O/N requirements, costing (based on 
the data of one commenter) an average of 55 days delay and processing 
time per waiver. While USAID attempts to expedite such waivers, 
especially in response to natural or other foreign disasters requiring 
an emergency response, the waiver process can still slow USAID's 
emergency responses.
    Other commenters note that because of their complexity (for 
example, the current regulation requires a ``systems determination'' to 
determine where the components that make up a system, rather than 
single commodity, are produced, as part of the determination of a 
commodity's ``origin''), the regulations are sometimes inconsistently 
applied by USAID missions across the world. Additional concerns about 
the unavailability of servicing and repairs, spare parts, warranty 
enforcement, voltage and video format incompatibility, and suitability 
of some U.S. origin commodities for use in the underdeveloped economies 
and countries in which USAID works, when taken together present a 
critique of a regulation in need of revision and updating.
    Additional specific comments proposed revisions to the waiver 
provisions of the current regulation, and many advocated for increased 
local procurements as both good development and a spur for economic 
growth in underdeveloped countries. Several comments argued for 
revision of the restricted commodities provisions in the current 
regulation, and one urged a clarification that commodities from the 
General Service Administration supply schedule should be considered to 
be U.S. source commodities. USAID reviewed and considered all comments, 
which informed the proposed rule.

II. The Proposed Rule

A. Purpose of Rule

    The purpose of this rule is to bring USAID regulations into full 
alignment with section 604(a) of the Foreign Assistance Act of 1961, as 
amended, which directs that funds made available under the FAA may be 
used for procurement ``in the United States, the recipient country, or 
developing countries.''

B. USAID Regulations Amended by This Rule

    The proposed rule amends in its entirety 22 CFR part 228, Rules on 
Source, Origin and Nationality for Commodities and Services Financed by 
USAID. The proposed, amended rule applies to all commodities and 
services financed by USAID.

C. Summary of Changes to the Existing Rule

    The proposed rule revises the existing regulation to track more 
closely the statutory procurement authority provided under the FAA by 
establishing a single code for procurements from the U.S., recipient 
country, and developing countries. The proposed rule also deletes the 
concept of ``origin,'' which is increasingly obsolete and difficult to 
apply in today's globalized economy, and in place of the concept of 
``origin,'' simplifies and strengthens the concepts of ``source'' and 
``nationality'' in order to reflect better Congress's directive to 
procure from the U.S., recipient or developing countries. Section 
228.02 preserves statutory procurement authority that augments FAA 
604(a), such as Support for Economic and Democratic Development of the 
Independent States of the Former Soviet Union, 22 U.S.C. 2295b, and 
Development Fund for Africa, 22 U.S.C 2293 et seq. The proposed rule 
clarifies that waivers to permit procurements beyond the United States, 
recipient, or developing countries will be to Code 935--any area or 
country but excluding countries to which assistance is prohibited by 
law (such prohibited countries were formerly referred to as ``foreign 
policy restricted countries''). USAID will maintain a list of countries 
to which assistance is prohibited by law, which will be available in 
USAID's Automated Directives System, ADS 310. The proposed rule also 
proposes to raise the amount, from $5 million to $10 million, for which 
foreign owned local firms will be eligible for construction 
procurement, 22 CFR 228.13, because that amount has not been raised in 
over fifteen years. Finally, the proposed rule also clarifies that case 
by case waivers can be approved by commodity or service type or 
category (for example, a category of medical equipment like diagnostic 
machinery, or of services like translation services), to obviate the 
need for repeat or serial waivers for the same type or category of 
commodity or service.

D. Regulatory Planning and Review: Findings and Certifications of 
Impact Assessment

    Executive Orders 13563 and 12866 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). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated a ``significant regulatory 
action'' although not economically significant, under section 3(f) of 
Executive Order 12866. Accordingly, the rule has been reviewed by the 
Office of Management and Budget.
    This rule is not a major rule under 5 U.S.C. 804. However, in order 
to ensure compliance with Executive Branch rulemaking policy and 
priorities, this rule has been reviewed by the Office of Information 
and Regulatory Affairs of the Office of Management and Budget.
    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601 et seq.), USAID has considered the economic 
impact of the proposed rule and has determined that its provisions 
would not have a significant economic impact on a substantial number of 
small entities.

[[Page 51919]]

List of Subjects in 22 CFR Part 228

    Foreign aid, Procurement, USAID contractors, Grantees and non-
governmental recipients.

    For the reasons set forth above and based on the comments received 
in response to the ANPRM, USAID proposes to revise 22 CFR part 228 as 
follows:

PART 228--RULES FOR PROCUREMENT OF COMMODITIES AND SERVICES 
FINANCED BY USAID

Subpart A--Definitions and Scope of This Part
Sec.
228.01 Definitions.
228.02 Scope and application.
228.03 Identification of the principal geographic code.
Subpart B--Conditions Governing Source and Nationality of Commodity and 
Service Procurement Transactions for USAID Financing
228.10 Purpose.
228.11 Source of commodities.
228.12 Nationality of suppliers of commodities and services.
228.13 Foreign government-owned organizations.
228.14 Construction services from foreign-owned local firms.
228.15 Nationality of employees under contracts or subcontracts for 
services.
228.16 Miscellaneous service transactions.
228.17 Special procurement rules for construction and engineering 
services.
228.18 Long-term leases.
228.19 Special source rules requiring procurement from the United 
States.
Subpart C--Conditions Governing the Eligibility of Commodity-Related 
Services for USAID Financing
228.20 Purpose.
228.21 Ocean transportation.
228.22 Air transportation.
228.23 Other delivery services.
228.24 Incidental services.
Subpart D--Waivers
228.30 General.
228.31 Authority to approve waivers.

    Authority: Sec. 621, Pub. L. 87-195, 75 Stat. 445 (22 U.S.C. 
2381), as amended, E.O. 12163, Sept. 29, 1979, 44 FR 56673: 3 CFR 
1979 Comp., p. 435.

Subpart A--Definitions and Scope of This Part


Sec.  228.01  Definitions.

    As used in this part, the following terms shall have the following 
meanings:
    Advanced developing countries mean those countries that are 
categorized by the World Bank as upper middle income countries 
according to its gross national income per capita, except for those 
countries in which USAID provides assistance. USAID will maintain a 
list of advanced developing countries primarily based on the most 
recent World Bank determinations, and which will be available in 
USAID's Automated Directives System, ADS 310.
    Available for purchase means that there have been documented, 
multiple sales of a commodity or service by the supplier of the 
commodity or service in an authorized country during the past calendar 
year. Additionally, for commodities, the commodity is located in such 
country at the time of purchase from the supplier, and if applicable, 
can be serviced, and if warrantied, has a warranty valid, in the 
recipient country. Recipients and contractors must document in their 
project files that the commodities and services to be procured are 
available for purchase according to the standards set forth in this 
definition. There is a de minimis exception to the documentation 
requirement for procurements in the amount of up to $5,000 per 
procurement, primarily intended for procurements of office supplies or 
other frequently recurring procurements.
    Commodity means any material, article, supply, goods, or equipment. 
Commodity-related services means delivery services and/or incidental 
services.
    Cooperating country or recipient country means the country 
receiving the USAID assistance subject to this part 228, and includes 
all the countries receiving assistance under a regional program or 
project.
    Delivery means the transfer to, or for the account of, an importer 
of the right to possession of a commodity, or, with respect to a 
commodity-related service, the rendering to, or for the account of, an 
importer of any such service.
    Delivery service means any service customarily performed in a 
commercial export or import transaction which is necessary to affect a 
physical transfer of commodities to the cooperating/recipient country. 
Examples of such services are the following: Export packing, local 
drayage in the source country (including waiting time at the dock), 
ocean and other freight, loading, heavy lift, wharfage, tollage, 
switching, dumping and trimming, lighterage, insurance, commodity 
inspection services, and services of a freight forwarder. ``Delivery 
service'' may also include work and materials necessary to meet USAID 
marking requirements.
    Developing countries means those countries that are categorized by 
the World Bank as low or middle income according to its gross national 
income per capita, and also including all countries to which USAID 
provides assistance. USAID will maintain a list of developing countries 
primarily based on the most recent World Bank determinations, and which 
will be available in USAID's Automated Directives System, ADS 310.
    Implementing document means any document, such as a contract, 
grant, or letter of commitment issued by USAID, which authorizes the 
use of USAID funds for the procurement of services or commodities and/
or commodity related services, and which specific conditions apply to 
such procurement.
    Incidental services means services such as installation, erection, 
maintenance, or upgrading of USAID-financed equipment, or the training 
of personnel in the maintenance, operation and use of such equipment, 
or similar services provided for the authorized disposition of such 
commodities.
    Mission means the USAID Mission, office or representative in a 
cooperating/recipient country. Nationality refers to the place of legal 
organization, ownership, citizenship, or lawful permanent residence of 
suppliers of goods and services.
    Recipients and contractors. Recipient has the same meaning as 
defined in 22 CFR 226.02. Contractors mean those entities which enter 
into a contract, as the term is defined in 48 CFR part 2, with the U.S. 
Government.
    Services mean the performance of identifiable tasks, rather than 
the delivery of an end item of supply.
    Source means the country from which a commodity is shipped to the 
cooperating/recipient country or the cooperating/recipient country 
itself if the commodity is located therein at the time of the purchase. 
Where, however, a commodity is shipped from a free port or bonded 
warehouse in the form in which received therein, ``source'' means the 
country from which the commodity was shipped to the free port or bonded 
warehouse. For a commodity to have a country as its source, it must 
also be available for purchase in that country.
    Supplier means any person or organization, governmental or 
otherwise, who furnishes services, commodities and/or commodity related 
services, including delivery or incidental services, financed by USAID.
    United States means the United States of America, any State(s) of 
the United States, the District of Columbia, and areas of U.S. 
associated sovereignty, including commonwealths, territories and 
possessions.
    USAID means the United States Agency for International Development 
or any successor agency, including when applicable, each USAID Mission 
or office abroad.

[[Page 51920]]

    USAID Geographic Code means a code in the USAID Geographic Code 
Book which designates a country, a group of countries, or an otherwise 
defined area. The USAID geographic code for purposes of procurement is 
described in Sec.  228.03 of this part.


Sec.  228.02  Scope and application.

    (a) This part is applicable to commodities and services financed 
directly with program funds appropriated under the Foreign Assistance 
Act of 1961, as amended, 22 U.S.C. 2151 et seq. If additional 
authorities and conditions that apply to a USAID-financed procurement 
are otherwise provided by statute, regulation, or related 
administrative authorities, those authorities and conditions shall be 
incorporated in the implementing document and shall prevail in the 
event of any conflict with this part 228. The authorities and 
conditions applicable to procurement of commodities or services shall 
be those in effect on the date of the issuance by USAID of an 
implementing document for procurement of commodities or services, and 
include any directives, prohibitions, restrictions or other statutory 
and related requirements by the United States Congress that govern the 
funds appropriated to fund the specific procurement, including those on 
types of assistance and recipients of assistance.
    (b) This part is not applicable to commodities purchased under 
General Services Administration (GSA) supply schedules. Nor is it 
applicable to procurements with donated funds received under USAID's 
gift authority, Section 635(d), Foreign Assistance Act of 1961, as 
amended.


Sec.  228.03  Identification of the principal geographic code.

    (a) The USAID Geographic Code Book sets forth the official 
description of all geographic codes used by USAID in authorizing or 
implementing documents, the principal codes of which are used to 
designate authorized source countries or areas. This regulation 
establishes one geographic code for procurement of commodities and 
services under implementing documents unless otherwise specified, the 
specific number of which is to be determined but hereafter referred to 
in this regulation as Code xxx for all USAID financed procurements. 
Code xxx is defined as the United States, the recipient country, and 
developing countries other than advanced developing countries and 
countries to which assistance is prohibited by law. USAID will maintain 
a list of advanced developing countries and a list of countries to 
which assistance is prohibited by law, which will be available in 
USAID's Automated Directives System, ADS 310.
    (b) For purposes of any waivers authorized under subpart D of this 
part, the authorized procurement code shall be Code 935, any area or 
country but excluding those countries to which assistance is prohibited 
by law.

Subpart B--Conditions Governing Source and Nationality of Commodity 
and Service Procurement Transactions for USAID Financing


Sec.  228.10  Purpose.

    Sections 228.11 through 228.18 of this part set forth the rules 
governing the eligible source of commodities and nationality of 
commodity and service suppliers for USAID financing. The provisions in 
these sections may be waived in accordance with the provisions in 
subpart D of this part.


Sec.  228.11  Source of commodities.

    The source of all commodities financed with program funds 
appropriated under the Foreign Assistance Act of 1961, as amended, 
shall be Code xxx. Certain commodities must also comply with the 
special procurement rules in Sec.  228.18 of this part.


Sec.  228.12  Nationality of suppliers of commodities and services.

    The suppliers of all commodities and services financed with program 
funds appropriated under the Foreign Assistance Act of 1961 shall:
    (a) If an individual, be a citizen or lawful permanent resident of 
a country in Code xxx,
    (b) If a for-profit organization,
    (1) Be organized under the laws of a country in Code xxx;
    (2) Have its principal place of business in a country in Code xxx; 
and
    (3) Be majority [directly] owned, or majority beneficially owned, 
by individuals who are citizens or lawful permanent residents of 
countries in Code xxx, or
    (c) If a not-for-profit organization performing as a contractor or 
subcontractor,
    (1) Be organized under the laws of a country in Code xxx;
    (2) Have its principal place of business in a country in Code xxx; 
and
    (3) Be managed by a governing body, the majority of whom are 
citizens or lawful permanent residents of countries in Code xxx.


Sec.  228.13  Foreign government-owned organizations.

    Firms operated as commercial companies or other organizations 
(including nonprofit organizations other than public educational 
institutions) in which foreign governments or their agents or agencies 
have a controlling interest are not eligible for financing by USAID, 
including in a subcontractor or subgrantee capacity, except if their 
eligibility has been established by a waiver approved by USAID in 
accordance with the procedures set forth in Subpart D. Foreign 
government ministries or agencies are eligible for financing by USAID.


Sec.  228.14  Construction procurement with foreign-owned local firms.

    (a) When the estimated cost of a contract for construction is $10 
million or less and only local firms will be solicited, a local 
corporation or partnership which is a foreign-owned local firm will be 
eligible, see paragraph (b) of this section, if it is determined by 
USAID to be an integral part of the local economy. However, such a 
determination is contingent on first ascertaining that no United States 
construction company with the required capability is currently 
operating in the cooperating/recipient country or, if there is such a 
company, that it is not interested in bidding for the proposed 
contract.
    (b) A foreign-owned local firm is an integral part of the local 
economy provided:
    (1) It has done business in the cooperating/recipient country on a 
continuing basis for at least three years prior to the issuance date of 
invitations for bids or requests for proposals to be financed by USAID;
    (2) It has a demonstrated capability to undertake the proposed 
activity;
    (3) All, or substantially all, of its directors of local 
operations, senior staff and operating personnel are lawfully resident 
in the cooperating/recipient country; and
    (4) Most of its operating equipment and physical plant are in the 
cooperating/recipient country.


Sec.  228.15  Nationality of employees under contracts or subcontracts 
for services.

    The rules set forth in Sec. Sec.  228.10 through 228.13 do not 
apply to the employees or individual technical or professional 
consultants providing personal services to recipients or contractors 
(consistent with the applicable cost principles for the type of 
organization). Citizens or lawful permanent residents of countries to 
which assistance is prohibited by law

[[Page 51921]]

are not eligible for USAID financing under this section. USAID will 
maintain a list of countries to which assistance is prohibited by law, 
which will be available in USAID's Automated Directives System, ADS 
310.


Sec.  228.16  Miscellaneous service transactions.

    This section sets forth rules governing certain miscellaneous 
services.
    (a) Commissions. The nationality rules of this part do not apply to 
the payment of commissions by suppliers. A commission is defined as any 
payment or allowance by a supplier to any person for the contribution 
which that person has made to secure the sale or contract for the 
supplier or which that person makes to securing on a continuing basis 
similar sales or contracts for the supplier.
    (b) Bonds and guarantees. The nationality rules of this part do not 
apply to sureties, insurance companies or banks who issue bonds or 
guarantees under USAID-financed contracts.
    (c) Liability insurance under construction contracts. The 
nationality rules of this part do not apply to firms providing 
liability insurance under construction contracts.


Sec.  228.17  Special procurement rules for construction and 
engineering services.

    Advanced developing countries which have attained a competitive 
capability in international markets for construction services or 
engineering services, are not eligible to furnish USAID-financed 
construction and engineering services unless approved to do so under 
the wavier provisions set forth under subpart D of this part.


Sec.  228.18  Long-term leases.

    Any commodity obtained under a long-term lease agreement, including 
motor vehicles, is subject to the source and nationality requirements 
of this subpart B. For purposes of this subpart B, a long-term lease is 
defined as a single lease of more than 180 days, or repetitive or 
intermittent leases, including vehicle leases, under a single activity 
or program within a one-year period totaling more than 180 days, for 
the same type of commodity.


Sec.  228.19  Special procurement rules requiring procurement from the 
United States.

    (a) Agricultural commodities and products thereof must be procured 
in the United States if the domestic price is less than parity, unless 
the commodity cannot reasonably be procured in the United States in 
fulfillment of the objectives of a particular assistance program under 
which such commodity procurement is to be financed. (22 U.S.C. 2354). 
USAID will maintain a list of affected agricultural commodities, which 
will be available in USAID's Automated Directives System, ADS 310.
    (b) Motor vehicles must be manufactured in the United States to be 
eligible for USAID financing. Also, any vehicle to be financed by USAID 
under a long-term lease or where the sale is to be guaranteed by USAID 
must be manufactured in the United States. (22 U.S.C. 2396). For 
purposes of this section, motor vehicles are defined as self-propelled 
vehicles with passenger carriage capacity, such as highway trucks, 
passenger cars and buses, motorcycles, scooters, motorized bicycles, 
ATVs and utility vehicles. Excluded from this definition are 
ambulances, snowmobiles, industrial vehicles for materials handling and 
earthmoving, such as lift trucks, tractors, graders, scrapers, off-the-
highway trucks (such as off-road dump trucks), and other vehicles that 
are not designed for travel at normal road speeds (40 kilometers per 
hour and above). Procurement or leasing of motor vehicles must comply 
with United States law, see 22 U.S.C. 2396.
    (c) USAID shall not finance any pharmaceutical product manufactured 
outside the United States if the manufacture of such product in the 
United States would involve the use of, or be covered by, a valid 
patent of the United States, unless such manufacture is expressly 
authorized by the owner of such patent. (22 U.S.C. 2356). In addition, 
USAID shall not finance non-contraceptive pharmaceuticals without prior 
written approval as provided in USAID's Automated Directives System 
Chapter 310. Contraceptives may be financed in accordance with the 
procedures in ADS 310.

Subpart C--Conditions Governing the Eligibility of Commodity-
Related Services for USAID Financing


Sec.  228.20  Purpose.

    This subpart C governs the eligibility of commodity-related 
services, both delivery services and incidental services, for USAID 
financing. These rules, except for those in Sec.  228.21, may be waived 
in accordance with the provisions in subpart D of this part. The rules 
on delivery services apply whether or not USAID is also financing the 
commodities being transported. In order to be identified and eligible 
as incidental services, such services must be connected with a USAID-
financed commodity procurement.


Sec.  228.21  Ocean transportation.

    When transporting commodities subject to the provisions of the 
Cargo Preference Act, 46 U.S.C. 55305, USAID will administer its 
programs in accordance with that act and its implementing regulations 
in 46 CFR part 381 (and any waivers applicable thereto). Subpart D of 
22 CFR part 228 does not apply to this provision.


Sec.  228.22  Air transportation.

    The Fly America Act, Title 49 of the United States Code, Subtitle 
VII, Part A, subpart I, Chapter 401, 40118--Government-Financed Air 
Transportation, is applicable to all travel subject to this part.


Sec.  228.23  Other delivery services.

    No source or nationality rules apply to other delivery services, 
such as export packing, loading, commodity inspection services, and 
services of a freight forwarder. Such services are eligible when 
provided as part of a commodity procurement financed by USAID.


Sec.  228.24  Incidental services.

    Source and nationality rules do not apply to suppliers of 
incidental services specified in a purchase contract relating to 
equipment.

Subpart D--Waivers


Sec.  228.30  General.

    USAID may waive the rules contained in Subparts A, B and C of this 
part, except for those in Sec.  228.21, in order to accomplish project 
or program objectives. All waivers must be in writing, and where 
applicable, are limited to the term established by the waiver.
    (a) Waivers to permit procurement outside of Code xxx must be based 
on a case by case determination that
    (1) The provision of assistance requires commodities or services of 
the type that are not produced in and available for purchase in Code 
xxx;
    (2) It is important to permit procurement from a country not 
specified in Code xxx to meet unforeseen circumstances;
    (3) To promote efficiency in the use of United States foreign 
assistance resources, including to avoid impairment of foreign 
assistance objectives
    (b) Case by case waivers under paragraph (a) of this section may be 
made on the basis of a commodity or service type or category, rather 
than processing repeat, individual waivers for an identical or 
substantially similar commodity or service. A waiver under paragraph 
(a)(1) of this section may be

[[Page 51922]]

based on a determination that the commodities or services are of a type 
not produced in and available for purchase in Code xxx and may also be 
based on a factual finding that a commodity is not mined or grown in 
Code xxx, or if produced, any substantial part of manufacturing, 
assembly or processing of a commodity takes place in a country other 
than in Code xxx. A waiver under paragraph (a)(1) of this section may 
also be based on the fact that a commodity is not available for 
purchase in Code xxx in sufficient, reasonable and available quantities 
or sufficient and reasonable quality that is fit for the intended 
purpose.
    (c) A waiver to authorize procurement from outside the United 
States of agricultural commodities, motor vehicles, and pharmaceuticals 
(see Sec.  228.18) must also meet the requirements established in USAID 
directives on commodity eligibility. USAID will maintain a list of 
current requirements for commodity eligibility, which will be available 
in USAID's Automated Directives System, ADS 310.
    (d) Any individual transaction not exceeding $25,000 (excluding 
those covered by special procurement rules in Sec.  228.18) does not 
require a waiver.


Sec.  228.31  Authority to approve waivers.

    The authority to approve waivers of established policies on source 
and nationality are delegated authorities within USAID. Contractors or 
recipients of assistance agreements shall request any necessary waivers 
through the USAID contracting or agreement officer.

John R. Niemeyer,
Office of the General Counsel.
[FR Doc. 2011-20773 Filed 8-18-11; 8:45 am]
BILLING CODE P


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