December 15, 2004
Mr. J. Daniel Garrett
Interim President and Chief Executive Officer
North American Bus Industries, Inc.
106 National Drive
Anniston, Alabama 36207
Dear Mr. Garrett:
This letter responds to your correspondence of March 23 and November 15, 2004, in which you request an extension of the two-year Buy America component waiver for North American Bus Industries’ (NABI) CompoBus, granted by the Federal Transit Administration (FTA) on March 19, 2002. Specifically, NABI submits its extension request on the basis of public interest and on the domestic non-availability of the reduced weight, integrated frame/chassis (referred to as the shell), which is manufactured in Hungary, that is used in the 40C-LFW and 45C-LFW models of the CompoBus. For the reasons below, I have determined that an extension of the waiver is not appropriate here.
The requirements concerning domestic preference for federally funded transit projects are set forth in 49 U.S.C. 5323(j). Section 5323(j)(2)(C) addresses the general requirements for the procurement of rolling stock. This section provides that all rolling stock procured with FTA funds must have a domestic content of at least 60 percent and must undergo final assembly in the U.S.
Under 49 U.S.C. 5323(j)(2)(A) and the implementing regulations, these requirements may be waived if their application "would be inconsistent with the public interest." 49 C.F.R. 661.7(b). The regulation also notes that "[i]n determining whether the conditions exist to grant this public interest waiver, the [FTA] will consider all appropriate factors on a case-by-case basis . . . ." Id. And 49 U.S.C. 5323(j)(2)(B) states that the Buy America requirements shall not apply if the item or items being procured are not produced in the U.S. in sufficient and reasonably available quantities or are not of a satisfactory quality. The implementing regulation also provides that public interest and non-availability waivers may be granted for a component of rolling stock, and in such cases, the component would be treated as domestic when calculating the overall component content of the vehicle. 49 C.F.R. 661.7(f).
Component Public Interest Waiver
In its most recent request for a component waiver extension of the CompoBus shell, NABI claims a number of advantages of the CompoBus to justify a public interest waiver, including the CompoBus’s structural strength and light weight, which provides for improved fuel efficiency, environmental compatibility, crash worthiness, lack of corrosion, and adaptability to a variety of transit applications including bus rapid transit and electric/ alternative fuel configurations. It should be noted that in its waiver request of March 2002, NABI detailed similar characteristics about the CompoBus. FTA does not dispute that the CompoBus may have a host of advantages or unique features. However, claims that a product is superior are insufficient to justify a public interest waiver of the Buy America requirements.
To support its public interest waiver request, NABI further argues that it has had to incur “enormous capital costs” and technical hurdles to bring the CompoBus to market. NABI made similar arguments in its March 2002 waiver request. In granting NABI’s previous public interest waiver request, FTA acknowledged the technical difficulties and increased costs associated with developing the new technologies incorporated in the CompoBus shell, and the consequent benefits of having a single manufacturing facility. In its decision, FTA recognized that granting the waiver would accomplish the goal of furthering development of new vehicle technologies, thereby resulting in more choices for FTA grantees and better vehicles for the riding public. However, the CompoBus and its integrated frame/chassis, as with any new technology, inevitably ceases to be “new” with the passage of time. Consequently, the earlier, legitimate rationale for justifying the public interest waiver to NABI for the CompoBus, e.g., fostering new technology, is no longer valid in this case.
Component Non-Availability Waiver
Alternatively, NABI requests that FTA extend the component waiver for the CompoBus’s 40’ and 45’ integrated frame/chassis shell, on the basis of domestic non-availability. I am not persuaded that such a waiver is justified. Under its current business plan, NABI’s Hungarian parent company, NABI Bus Industries Rt. (NABI Rt.) manufactures the CompoBus shell at its plant in Kaposvar, Hungary. The Kaposvar plant then exports composite-structured “semi-finished buses” to NABI’s Anniston, Alabama, plant where they undergo final assembly with other component items into finished CompoBuses.
NABI Rt. manufactures the CompoBus shell using patented technology and fabrication methods licensed by TPI Technology, Inc. (“TPI”) to NABI Rt. in 2001. NABI acknowledges, however, that while the parent company holds the license, NABI Rt. can sublicense the patented technology to NABI. Thus, there appears to be no legal or technical impediment to NABI’s manufacturing the CompoBus shell at its Anniston, Alabama facility. NABI argues, however, that it is not in a position to finance an additional capital expansion of its Anniston plant, and is thereby unable to establish a complete “CompoBus manufacturing facility in the United States.” However, such cost factors do not justify extending a nonavailability component waiver for the CompoBus shell. Many manufacturers could similarly argue that major component items are domestically “unavailable,” simply because it is cheaper for them to produce such components overseas. This argument is self-serving and defeats the intent of Buy America.
Since FTA last granted the component waiver to NABI two and a half years ago, NABI and its parent company made the business decision to continue manufacturing the CompoBus shell at the Kaposvar facility rather than in Alabama. While the original component waiver for the CompoBus shell was justified at the time under the unique circumstances of developing new vehicle technology, a continuation of the component waiver, for the sole purpose of supporting favorable cost structures to NABI and its parent, is not justified.
In addition, the Buy America provisions for rolling stock already allow for considerable foreign content, up to 40 percent by cost. 49 U.S.C. 5323(j)(2)(C); 49 C.F.R. 661.11. Based on the proprietary information that NABI presented to FTA pursuant to the waiver request, the “foreign content” of the frame/chassis shells that NABI purchases from NABI Rt. represents a relatively small percentage of the total material cost of the CompoBus. Based on NABI’s own data, NABI could include the Kaposvar produced shells in the non-domestic (40 percent) category in their Buy America calculations, leaving space for significant additional foreign content. NABI may or may not have to source other component items of the CompoBus domestically to meet the 60 percent requirement. Nevertheless, I am not persuaded that NABI would be unable to comply with the requirements of Buy America if it counted the frame/chassis shells as foreign-sourced.
Based on the above-referenced information, I have determined that the grounds for “public interest” and "non-availability" waivers do not exist. If you have any questions, please contact Joseph Pixley at (202) 366-1936.
Very truly yours,
Gregory B. McBride
Deputy Chief Counsel