Rules on Source, Origin and Nationality for Commodities and Services Financed by the Agency for International Development

INTERNATIONAL DEVELOPMENT COOPERATION AGENCY

Agency for International Development

22 CFR Part 228

RIN 0412-AA28

Rules on Source, Origin and Nationality for Commodities and

Services Financed by the Agency for International Development

AGENCY: United States Agency for International Development (USAID),

IDCA.

ACTION: Final rule.

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SUMMARY: USAID published a proposed rule on February 5, 1996 (61 FR

4240) to add a new Part 228 to Title 22 of the CFR codifying USAID's

rules on source, origin and nationality for commodities and services

financed by USAID. This final rule adopts the provisions of the

proposed rule with some changes which are discussed below in

SUPPLEMENTARY INFORMATION.

DATES: The final rule is effective November 14, 1996.

FOR FURTHER INFORMATION CONTACT:

Kathleen J. O'Hara, Office of Procurement, Procurement Policy Division

(M/OP/P), USAID, Room 1600 A, SA-14, Washington, DC 20523-1435.

Telephone (703) 875-1534, facsimile (703) 875-1243.

SUPPLEMENTARY INFORMATION: USAID received three sets of comments in

response to its proposed rule on source, origin and nationality. The

American Maritime Congress (AMC), commenting on behalf of a large

number of maritime businesses and organizations, expressed concerns

that the proposed rule on ocean freight eligibility was waiving U.S.-

flag cargo preference laws, in contravention of legal requirements.

USAID has no intention to waive or modify cargo preference requirements

in any way; however, it is clear from AMC's comments that the

regulation needs to explain that the ocean freight flag eligibility

requirements apply in addition to cargo preference requirements. Cargo

preference requirements are applicable to all ocean shipments of USAID-

financed goods regardless of whether or not USAID finances the freight

costs. The ocean freight flag eligibility requirements are applied to

determine which freight costs USAID will finance. Section 228.21 on

Ocean Transportation is revised to clarify that cargo preference

requirements do apply.

AMC also expressed concern that the waiver criteria in Section

228.55 are

[[Page 53616]]

inappropriate, particularly Sec. 228.55(a)(1) which would allow for a

waiver in order to obtain competitive pricing. Section 228.20 and

Section 228.55(a) are amended to clarify that waivers will not reduce

the Cargo Preference Act requirement that the applicable percentage of

USAID cargoes be transported on U.S.-flag vessels under the waiver is

based on a determination of non-availability. USAID has used these

waiver criteria for many years. With the exception of the first one,

these criteria are also used to determine non-availability for Cargo

Preference purposes, and are very similar to those which the Maritime

Administration uses to determine non-availability for Export-Import

Bank transactions. The first waiver criterion was developed to

encourage price competition for large, bulk shipments; however, it is

always used in conjunction with the Cargo Preference requirements.

USAID may have an agreement with a recipient country which limits

financing to U.S. goods and services, including transportation

services, which would mean that even after Cargo Preference

requirements have been met, only U.S.-flag shipments would be eligible

for USAID financing. By allowing non-U.S. flag vessels to compete for a

portion of the cargo which is not required by Cargo Preference rules to

be on U.S.-flag vessels, the purchaser may be able to obtain a better

price. As the new language in Section 228.55(a) makes clear, this

waiver will not affect Cargo Preference requirements in any way unless

a determination of non-availability is also issued; and the competitive

pricing criterion is not a criterion for determining non-availability.

Section 228.21, Ocean Transportation, is also revised to implement

a change in policy on eligibility for USAID financing. Previously when

Code 941 (the United States and developing countries excluding Foreign

Policy Restricted countries [formerly the non-Free World]) was the

authorized source for procurement, ocean freight eligibility was also

restricted to vessels under flag registry of Code 941 countries. Since

the ownership of a vessel generally does not relate to the country in

which the vessel is registered, the Agency has decided that freight

eligibility will be expanded to Code 935 (the United States and all

other countries except Foreign Policy Restricted countries) when Code

941 is the authorized source for procurement.

Comments submitted by a Private Voluntary Organization suggested

that the current policy which exempts individual commodity transactions

not exceeding $5,000 from waiver requirements should be included.

Omitting the exemption was an oversight, and Section 228.51 is amended

to incorporate it. Also as a result of suggestions from the Private

Voluntary Organization several other changes have been made. Sec.

228.02 is clarified to state that the rule applies to direct costs, not

to indirect costs. The coverage on waivers in Sec. 228.56 is revised to

indicate that contractors and recipients may contact the contract or

agreement officer to request waivers. One suggestion the organization

made was not adopted. They requested that the codification clearly

state that nationality resides only with the immediate supplier. The

rules, however, do apply to sub-suppliers, so the change was not made.

A third set of comments made a number of suggestions which have

been adopted. These include: (1) A more specific definition of

implementing document in Sec. 228.01; (2) clarifying the scope and

application in Sec. 228.02 to state that the regulation applies to

goods and services financed under the Foreign Assistance Act of 1961,

as amended, and that if different conditions are authorized for a

program, the implementing document will indicate the terms and

conditions and will prevail in the event of conflict with Part 228; (3)

revising the definition of the Geographic Code in Sec. 228.03 to remove

the term ``non-Free World'' (the Agency now uses the term ``foreign

policy restricted countries''; (4) revising the coverage in Sec.

228.11(e) to use the term ``systems'' instead of package installations;

(4) adding language in Sec. 228.13(c) on the statutory prohibition on

pharmaceutical patent infringement; (5) revising the language on

suppliers of services in Secs. 228.30, 228.31, and 228.32 for clarity

and consistency, though the content has not changed; and (6) adding a

new section covering the special source rule for suppliers of

construction and engineering services.

Other changes include revising the definition of motor vehicles to

exclude vehicles which are not designed for general road travel,

substituting the Procurement Executive for the Deputy Assistant

Administrator for Management (DAA/M) for one approval since the DAA/M

position is not occupied, and a number of editorial corrections.

USAID has determined that this rule is not a significant regulatory

action under Executive Order 12866. The rule has been reviewed in

accordance with the requirement of the Regulatory Flexibility Act.

USAID has determined that the proposed rule will not have a significant

economic impact on a substantial number of small entities, and,

therefore, a Regulatory Flexibility Analysis is not required. There are

no information collection requirements in this rule as contemplated by

the Paperwork Reduction Act.

List of Subjects in 22 CFR Part 228

Administrative practice and procedure, Commodity procurement, Grant

programs--foreign relations.

Accordingly, Part 228 is added to Title 22 of the Code of Federal

Regulations to read as follows:

PART 228--RULES ON SOURCE, ORIGIN AND NATIONALITY FOR 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 principal geographic code numbers.

Subpart B--Conditions Governing Source and Nationality of Commodity

Procurement Transactions for USAID Financing

228.10 Purpose.

228.11 Source and origin of commodities.

228.12 Long-term leases.

228.13 Special source rules requiring procurement from the United

States.

228.14 Nationality of suppliers of commodities.

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 Eligibility of marine insurance.

228.24 Other delivery services.

228.25 Incidental services.

Subpart D--Conditions Governing the Nationality of Suppliers of

Services for USAID Financing

228.30 Purpose.

228.31 Individuals and privately owned commercial firms.

228.32 Nonprofit organizations.

228.33 Foreign government-owned organizations.

228.34 Joint ventures.

228.35 Construction services from foreign-owned local firms.

228.36 Ineligible suppliers.

228.37 Nationality of employees under contracts or subcontracts for

services.

228.38 Miscellaneous service transactions.

228.39 Special source rules for construction and engineering

services.

Subpart E--Conditions Governing Source and Nationality of Local

Procurement Transactions for USAID Financing

228.40 Local procurement.

[[Page 53617]]

Subpart F--Waivers

228.50 General.

228.51 Commodities.

228.52 Suppliers of commodities.

228.53 Suppliers of services--privately owned commercial suppliers

and nonprofit organizations.

228.54 Suppliers of services--foreign government-owned

organizations.

228.55 Delivery services.

228.56 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:

(a) Commodity means any material, article, supply, goods, or

equipment.

(b) Commodity-related services means delivery services and/or

incidental services.

(c) Component means any good that goes directly into the production

of a produced commodity.

(d) Cooperating country means the country receiving the USAID

assistance subject to this part 228.

(e) 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.

(f) Delivery service means any service customarily performed in a

commercial export transaction which is necessary to effect a physical

transfer of commodities to the cooperating 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 services'' may also include

work and materials necessary to meet USAID marking requirements.

(g) Implementing document means any document, such as a contract,

grant, letter of commitment, etc., issued by USAID which authorizes the

use of USAID funds for the procurement of services or commodities and/

or commodity related services, and which specifies conditions which

apply to such procurement.

(h) Incidental services means the installation or erection of

USAID-financed equipment, or the training of personnel in the

maintenance, operation and use of such equipment.

(i) Mission means the USAID Mission or representative in a

cooperating country.

(j) Origin means the country where a commodity is mined, grown or

produced. A commodity is produced when, through manufacturing,

processing, or substantial and major assembling of components, a

commercially recognized new commodity results that is significantly

different in basic characteristics or in purpose of utility from its

components.

(k) Services means the performance of identifiable tasks, rather

than the delivery of an end item of supply.

(l) Source means the country from which a commodity is shipped to

the cooperating country, or the cooperating country 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.

(m) State means the District of Columbia or any State,

commonwealth, territory or possession of the United States.

(n) Supplier means any person or organization, governmental or

otherwise, who furnishes services, commodities and/or commodity related

services financed by USAID.

(o) 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.

(p) USAID means the U.S. Agency for International Development or

any successor agency, including when applicable, each USAID Mission

abroad.

(q) 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 principal USAID geographic codes are described in

Sec. 228.03.

(r) USAID/W means the USAID in Washington, DC 20523, including any

office thereof.

Sec. 228.02 Scope and application.

This part is applicable to goods and services financed directly

with program funds under the Foreign Assistance Act of 1961, as

amended, unless otherwise provided by statute or regulation. If

different conditions apply to a USAID-financed procurement, by statute

or regulation, those conditions shall be incorporated in the

implementing document and shall prevail in the event of any conflict

with this part 228. The implementing documents will indicate the

authorized source of procurement. The terms and conditions applicable

to a procurement of goods or services shall be those in effect on the

date of the issuance of a contract for goods or services by USAID or by

the cooperating country.

Sec. 228.03 Identification of principal geographic code numbers.

The USAID Geographic Code Book sets forth the official description

of all geographic codes used by USAID in authorizing or implementing

documents, to designate authorized source countries or areas. The

following are summaries of the principal codes:

(a) Code 000--The United States: 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.

(b) Code 899--Any area or country, except the cooperating country

itself and the following foreign policy restricted countries:

Afghanistan, Libya, Vietnam, Cuba, Cambodia, Laos, Iraq, North Korea,

Syria and People's Republic of China.

(c) Code 935--Any area or country including the cooperating

country, but excluding the foreign policy restricted countries.

(d) Code 941--The United States and any independent country

(excluding foreign policy restricted countries), except the cooperating

country itself and the following: Albania, Andorra, Angola, Armenia,

Austria, Australia, Azerbaijan, Bahamas, Bahrain, Belgium, Bosnia and

Herzegovina, Bulgaria, Belarus, Canada, Croatia, Cyprus, Czech

Republic, Denmark, Estonia, Finland, France, Gabon, Georgia, Germany,

Greece, Hong Kong, Hungary, Iceland, Ireland, Italy, Japan, Kazakhstan,

Kuwait, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg,

Macedonia,* Malta, Moldova, Monaco, Mongolia, Montenegro,* Netherlands,

New Zealand, Norway, Poland, Portugal, Qatar, Romania, Russia, San

Marino, Saudi Arabia, Serbia,* Singapore, Slovak Republic, Slovenia,

South Africa, Spain, Sweden, Switzerland, Taiwan,* Tajikistan,

Turkmenistan, Ukraine, United Arab Emirates, United Kingdom,

Uzbekistan, and Vatican City.

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*Has the status of a ``Geopolitical Entity'', rather than an

independent country.

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[[Page 53618]]

Subpart B--Conditions Governing Source and Nationality of Commodity

Procurement Transactions for USAID Financing

Sec. 228.10 Purpose.

Sections 228.11 through 228.14 set forth the rules governing the

eligible source of commodities and nationality of commodity suppliers

for USAID financing. These rules may be waived in accordance with the

provisions in subpart F of this part.

Sec. 228.11 Source and origin of commodities.

(a) The source and origin of a commodity as defined in Sec. 228.01

shall be a country or countries authorized in the implementing document

by name or by reference to a USAID geographic code.

(b) Any component from a non-Free World country makes the commodity

ineligible for USAID financing.

(c) When the commodity being purchased is a kit (e.g., scientific

instruments, tools, or medical supplies packaged as a single unit), the

kit will be considered a produced commodity.

(d) When spare parts for vehicles or equipment are purchased, each

separate shipment will be considered a produced commodity, rather than

each individual spare or replacement part. The parts must be packed in

and shipped from an eligible country.

(e) Systems determination. When a system consisting of more than

one produced commodity is procured as a single, separately priced item,

USAID may determine that the system itself shall be considered a

produced commodity.

(f) In order to be eligible for USAID financing, when items are

considered produced commodities under paragraphs (c), (d), or (e) of

this section, the total cost (to the system supplier) of the

commodities making up the kit, spare parts, or system which were

manufactured in countries not included in the authorized geographic

code may not exceed 50 percent of the lowest price (not including ocean

transportation and marine insurance) at which the supplier makes the

final product available for export sale.

Sec. 228.12 Long-term leases.

Any commodity obtained under a long-term lease agreement is subject

to the source and origin 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 under a single

activity or program within a one-year period totalling more than 180

days, for the same type of commodity.

Sec. 228.13 Special source 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)

(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 and

utility vehicles. Excluded from this definition are 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). Also, for purposes of

this section, a long-term lease is defined as a single lease of more

than 180 days, or repetitive or intermittent leases under a single

activity or program within a one-year period totalling more than 180

days. In addition to the above requirements, passenger cars, light

trucks, vans, minivans and utility vehicles must be manufactured by

either Chrysler, Ford or General Motors and bear their nameplates,

brand names or logos, to be eligible for financing by USAID. The

nameplate, brand name or logo requirements do not apply when vehicles

are procured under a source waiver.

(c) Pharmaceutical products must be manufactured in the United

States in order to be eligible for USAID financing. 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)

Sec. 228.14 Nationality of suppliers of commodities.

(a) The rules on nationality of suppliers of commodities relate

only to the suppliers, and not to the commodities they supply. The

nationality of the supplier is an additional eligibility criterion to

the rules on source, origin and componentry.

(b) A supplier providing commodities must fit one of the following

categories for the transaction to be eligible for USAID financing:

(1) An individual who is a citizen or a lawfully admitted permanent

resident of a country or area included in the authorized geographic

source code, except as provided in paragraph (c) of this section;

(2) A corporation or partnership organized under the laws of a

country or area included in the authorized geographic source code and

with a place of business in such country;

(3) A controlled foreign corporation (within the meaning of section

957 et seq. of the Internal Revenue Code) as attested by current

information on file with the Internal Revenue Service of the United

States (on IRS Form 959, 2952, 3646, or on substitute or successor

forms) submitted by shareholders of the corporation; or

(4) A joint venture or unincorporated association consisting

entirely of individuals, corporations, or partnerships which are

eligible under either paragraph (b) (1), (2) or (3) of this section.

(c) Citizens of any country or area, or firms or organizations

located in, organized under the laws of, or owned in any part by

citizens or organizations of any country or area not included in

Geographic Code 935 are ineligible for financing by USAID as suppliers

of commodities. Limited exceptions to this rule are:

(1) Individuals lawfully admitted for permanent residence in the

United States are eligible, as individuals or owners, regardless of

their citizenship; and

(2) The USAID Deputy Assistant Administrator for Management (DAA/M)

may authorize the eligibility of organizations having minimal ownership

by citizens or organizations of non-Geographic Code 935 countries.

Subpart C--Conditions Governing the Eligibility of Commodity-

Related Services for USAID Financing

Sec. 228.20 Purpose.

Sections 228.21 through 228.25 set forth the rules governing the

eligibility of commodity-related services, both delivery services and

incidental services, for USAID financing. These rules may be waived in

accordance with the provisions in subpart F of this part. Waivers

granted pursuant to subpart F

[[Page 53619]]

for individual shipments requiring ocean transportation which are not

based on a determination of non-availability shall not reduce the

requirement that the applicable percentage of USAID cargoes be

transported on U.S.-flag vessels pursuant to the Cargo Preference Act

of 1954, Section 901(b)(1) of the Merchant Marine Act of 1936, as

amended, 46 U.S.C. 1241(b). 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.

(a) The Cargo Preference Act of 1954, Section 901(b)(1) of the

Merchant Marine Act of 1936, as amended, 46 U.S.C. 1241(b)(1), is

applicable to ocean shipment of goods subject to this part.

(b) In addition to cargo preference requirements, ocean shipments

of USAID-financed goods must meet the requirements in paragraph (c) of

this section in order for the freight cost to be eligible for USAID

financing.

(c) The eligibility of ocean transportation services is determined

by the flag registry of the vessel.

(1) When the authorized source for procurement is Geographic Code

000 (U.S.A.), USAID will finance ocean transportation only on U.S. flag

vessels.

(2) When the authorized source for procurement is Geographic Code

941 (selected Free World), USAID will finance ocean transportation on

vessels under flag registry of any country in Code 935.

(3) When commodities whose eligibility is restricted to Geographic

Code 000 are purchased under agreements which authorize Geographic Code

941 for the procurement of all other commodities, USAID will finance

the ocean transportation in accordance with paragraph (c)(2) of this

section.

(4) USAID will finance costs incurred on vessels under flag

registry of any Geographic Code 935 country if the costs are part of

the total cost on a through bill of lading that is paid to a carrier

for initial carriage on a vessel which is eligible in accordance with

paragraph (c) (1), (2) or (3) of this section.

Sec. 228.22 Air transportation.

(a) The eligibility of air transportation is determined by the flag

registry of the aircraft. The term ``U.S. flag air carrier'' means one

of a class of air carriers holding a certificate under Section 401 of

the Federal Aviation Act of 1958 (49 U.S.C. 1371) authorizing

operations between the United States or its territories and one or more

foreign countries.

(b) For air transport financed under USAID grants, there is a U.S.

Government statute that requires the use of U.S. flag air carriers for

all international air travel and transportation, unless such service is

not available. When U.S. flag air carriers are not available, any

Geographic Code 935 flag air carrier may be used.

(c) Different requirements may be authorized in the implementing

document if the transaction is financed under a USAID loan.

(d) The Comptroller General's memorandum (B-138942), dated March

31, 1981, entitled ``Revised Guidelines for Implementation of the Fly

America Act'', established criteria for determining when U.S. flag air

carriers are unavailable. See 48 CFR 47.403-1, or USAID Optional

Standard Provision on ``Air Travel and Transportation'' for grants and

cooperative agreement.

(e) While the Comptroller General's memorandum does not establish

specific criteria for determining when freight service is unavailable,

it is USAID's policy that such service is not available when the

following criteria are met:

(1) When no U.S. flag air carrier provides scheduled air freight

service from the airport serving the shipment's point of origin and a

non-U.S. flag carrier does;

(2) When the U.S. flag air carrier(s) serving the shipment's point

of origin decline to issue a through air waybill for transportation at

the shipment's final destination airport;

(3) When use of a U.S.-flag air carrier would result in delivery to

final destination at least seven days later than delivery by means of a

non-U.S. carrier;

(4) When the total weight of the consignment exceeds the maximum

weight per shipment which the U.S. flag air carrier will accept and

transport as a single shipment and a non-U.S. flag air carrier will

accept and transport the entire consignment as a single shipment;

(5) When the dimensions (length, width, or height) of one or more

of the items of a consignment exceed the limitations of the U.S. flag

aircraft's cargo door opening, but do not exceed the acceptable

dimensions for shipment on an available non-U.S. flag scheduled air

carrier.

Sec. 228.23 Eligibility of marine insurance.

The eligibility of marine insurance is determined by the country in

which it is ``placed''. Insurance is ``placed'' in a country if payment

of the insurance premium is made to, and the insurance policy is issued

by, an insurance company office located in that country. Eligible

countries for placement are governed by the authorized geographic code.

However, if Geographic Code 941 is authorized, the cooperating country

is also eligible to provide such services, unless the implementing

document specified otherwise based on the following:

(a) If a cooperating country discriminates against marine insurance

companies authorized to do business in any State of the United States,

then all USAID-financed goods for that country must be insured in the

United States against marine risk. The term ``authorized to do business

in any State of the United States'' means that foreign-owned insurance

companies licensed to do business in the United States (by any State)

are treated the same as comparable U.S.-owned companies.

(b) The prima facie test of discrimination is that a cooperating

country takes actions which hinder private importers in USAID-financed

transactions from making cost, insurance and freight (C.I.F.) or cost

and insurance (C.&I.) contracts with United States commodity suppliers,

or which hinder importers in instructing such suppliers to place marine

insurance with companies authorized to do business in the United

States.

(c) When discrimination is found to exist and the cooperating

country fails to correct the discriminatory practice, USAID requires

that all commodities procured with USAID funds be insured in the United

States against marine loss. The decision of any cooperating country to

insure all public sector procurements locally with a government-owned

insurance agency is not considered discrimination.

Sec. 228.24 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 in

connection with a commodity which is financed by USAID.

Sec. 228.25 Incidental services.

Source and nationality rules do not apply to suppliers of

incidental services specified in a purchase contract relating to

equipment. However, citizens of firms of any country not included in

USAID Geographic Code 935 are ineligible to supply incidental services,

except that individuals lawfully admitted for permanent residence in

the

[[Page 53620]]

U.S. are eligible regardless of their citizenship.

Subpart D--Conditions Governing the Nationality of Supplies of

Services for USAID Financing

Sec. 228.30 Purpose.

Sections 228.31 through 228.37 set forth the nationality rules

governing the eligibility for USAID financing of suppliers of services

which are not commodity-related. These rules may be waived in

accordance with the provisions in subpart F of this part.

Sec. 228.31 Individuals and privately owned commercial firms.

(a) In order to be eligible for USAID financing as a supplier of

services, whether as a contractor or subcontractor at any tier, an

individual must meet the requirements of paragraph (a)(1) of this

section (except that individual personal services contractors are not

subject to this requirement), and a privately owned commercial firm

must meet the requirements in paragraph (a)(2) of this section. In the

case of the categories described in paragraphs (a)(2) (i) and (ii) of

this section, the certification requirements in paragraph (b) of this

section must be met.

(1) An individual must be a citizen of and have a principal place

of business in a country or area included in the authorized geographic

code, or a non-U.S. citizen lawfully admitted for permanent residence

in the United States whose principal place of business is in the United

States;

(2) A privately owned commercial (i.e., for profit) corporation or

partnership must be incorporated or legally organized under the laws of

a country or area included in the authorized geographic code, have its

principal place of business in a country or area included in the

authorized geographic code, and meet the criteria set forth in either

paragraph (a)(2)(i) or (ii) of this section:

(i) The corporation or partnership is more than 50 percent

beneficially owned by individuals who are citizens of a country or area

included in the authorized geographic code or non-U.S. citizens

lawfully admitted for permanent residence in the United States. In the

case of corporations, ``more than 50 percent beneficially owned'' means

that more than 50 percent of each class of stock is owned by such

individuals; in the case of partnerships, ``more than 50 percent

beneficially owned'' means that more than 50 percent of each category

of partnership interest (e.g., general, limited) is owned by such

individuals.

(With respect to stock or interest held by companies, funds or

institutions, the ultimate beneficial ownership by individuals is

controlling.)

(ii) The corporation or partnership:

(A) Has been incorporated or legally organized in the United States

for more than 3 years prior to the issuance date of the invitation for

bids or requests for proposals,

(B) Has performed within the United States administrative and

technical, professional, or construction services, similar in

complexity, type and value to the services being contracted (under a

contract, or contracts, for services) and derived revenue therefrom in

each of the 3 years prior to the date described in paragraph

(a)(2)(ii)(A) of this section,

(C) Employs United States citizens and non-U.S. citizens lawfully

admitted for permanent residence in the United States in more than half

its permanent full-time positions in the United States and more than

half of its principal management positions, and

(D) Has the existing technical and financial capability in the

United States to perform the contract.

(b) A duly authorized officer of a firm or nonprofit organization

shall certify that the participating firm or nonprofit organization

meets either the requirements of paragraph (a)(2) (i) or (ii) of this

section or Sec. 228.32. In the case of corporations, the certifying

officer shall be the corporate secretary. With respect to the

requirements of paragraph (a)(2)(i) of this section, the certifying

officer may presume citizenship on the basis of the stockholders'

record address, provided the certifying officer certifies, regarding

any stockholder (including any corporate fund or institutional

stockholder) whose holdings are material to the corporation's

eligibility, that the certifying officer knows of no fact which might

rebut that presumption.

Sec. 228.32 Nonprofit organizations.

(a) Nonprofit organizations, such as educational institutions,

foundations, and associations, must meet the criteria listed in this

section and the certification requirement in Sec. 228.31(b) to be

eligible as suppliers of services, whether as contractors or

subcontractors at any tier. Any such institution must:

(1) Be organized under the laws of a country or area included in

the authorized geographic code;

(2) Be controlled and managed by a governing body, a majority of

whose members are citizens of countries or areas included in the

authorized geographic code; and

(3) Have its principal facilities and offices in a country or area

included in the authorized geographic code.

(b) International agricultural research centers and such other

international research centers as may be, from time to time, formally

listed as such by the USAID Assistant Administrator, Global Bureau, are

considered to be of U.S. nationality.

Sec. 228.33 Foreign government-owned organizations.

Firms operated as commercial companies or other organizations

(including nonprofit organizations other than public educational

institutions) which are wholly or partially owned by foreign

governments or agencies thereof are not eligible for financing by USAID

as contractors or subcontractors, except if their eligibility has been

established by a waiver approved by USAID in accordance with

Sec. 228.54. This does not apply to foreign government ministries or

agencies.

Sec. 228.34 Joint ventures.

A joint venture or unincorporated association is eligible only if

each of its members is eligible in accordance with Secs. 228.31,

228.32, or 228.33.

Sec. 228.35 Construction services from foreign-owned local firms.

(a) When the estimated cost of a contract for construction services

is $5 million or less and only local firms will be solicited, a local

corporation or partnership which does not meet the test in

Sec. 228.31(a)(2)(i) for eligibility based on ownership by citizens of

the cooperating country (i.e., it is a foreign-owned local firm) will

be eligible 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 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 country on a continuing

basis for not less than 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 resident in the

cooperating country;

[[Page 53621]]

(4) Most of its operating equipment and physical plant are in the

cooperating country.

Sec. 228.36 Ineligible suppliers.

Citizens of any country or area not included in Geographic Code

935, and firms and organizations located in, organized under the laws

of, or owned in any part by citizens or organizations of any country or

area not included in Geographic Code 935 are ineligible for financing

by USAID as suppliers of services, or as agents in connection with the

supply of services. The limited exceptions to this rule are:

(a) Individuals lawfully admitted for permanent residence in the

United States are eligible, as individuals or owners, regardless of

their citizenship, and

(b) The Procurement Executive may authorize the eligibility of

organizations having minimal ownership by citizens or organizations of

non-Geographic Code 935 countries.

Sec. 228.37 Nationality of employees under contracts or subcontracts

for services.

(a) The rules set forth in Secs. 228.31 through 228.36 do not apply

to the employees of contractors or subcontractors. Such employees must,

however, be citizens of countries included in Geographic Code 935 or,

if they are not, have been lawfully admitted for permanent residence in

the United States.

(b) When the contractor on a USAID-financed construction project is

a United States firm, at least half of the supervisors and other

specified key personnel working at the project site must be citizens or

permanent legal residents of the United States. Exceptions may be

authorized by the USAID Mission in writing if special circumstances

exist which make compliance impractical.

Sec. 228.38 Miscellaneous service transactions.

This section sets forth rules governing certain miscellaneous

services.

(a) Commissions. The nationality rules in subparts C and D of this

part, with the exception of Sec. 228.36, 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 securing 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 in subparts C and D

of this part, with the exception of Sec. 228.36, 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 in subparts C and D of this part, with the exception

of Sec. 228.36, do not apply to firms providing liability insurance

under construction contracts.

Sec. 228.39 Special source rules for construction and engineering

services.

Advanced developing countries, eligible under Geographic Code 941,

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. There is

no waiver of this provision. (22 U.S.C. 2354)

Subpart E--Conditions Governing Source and Nationality of Local

Procurement Transactions for USAID Financing

Sec. 228.40 Local procurement.

Local procurement in the cooperating country involves the use of

appropriated funds to finance the procurement of goods and services

supplied by local businesses, dealers or producers, with payment

normally being in the currency of the cooperating country. Unless

otherwise specified in an implementing document, or a waiver is

approved by USAID in accordance with subpart F of this part, local

procurement is eligible for USAID financing only in the following

situations:

(a) Locally available commodities of U.S. origin, which are

otherwise eligible for financing, if the value of the transaction is

estimated not to exceed the local currency equivalent of $100,000

(exclusive of transportation costs).

(b) Commodities of Geographic Code 935 origin if the value of the

transaction does not exceed $5,000.

(c) Professional services contracts estimated not to exceed the

local currency equivalent of $250,000.

(d) Construction services contracts, including construction

materials required under the contract, estimated not to exceed the

local currency equivalent of $5,000,000.

(e) Under a fixed-price construction contract of any value, the

prime contractor may procure locally produced goods and services under

subcontracts.

(f) The following commodities and services which are only available

locally:

(1) Utilities, including fuel for heating and cooking, waste

disposal and trash collection;

(2) Communications--telephone, telex, facsimile, postal and courier

services;

(3) Rental costs for housing and office space;

(4) Petroleum, oils and lubricants for operating vehicles and

equipment;

(5) Newspapers, periodicals and books published in the cooperating

country;

(6) Other commodities and services (and related expenses) that, by

their nature or as a practical matter, can only be acquired, performed,

or incurred in the cooperating country, e.g., vehicle maintenance,

hotel accommodations, etc.

Subpart F--Waivers

Sec. 228.50 General.

USAID may expand the authorized source in order to accomplish

project or program objectives by processing a waiver. When a waiver is

processed to include a new country, area, or geographic code,

procurement is not limited to the added source(s), but may be from any

country included in the authorized geographic code. All waivers must be

in writing.

Sec. 228.51 Commodities.

(a) Waiver criteria. Any waiver must be based upon one of the

criteria listed in this section. Waivers to Geographic Code 899 or Code

935 which are justified under paragraph (a) (2) or (3) of this section

may only be authorized on a case-by-case basis.

(1) Commodities required for assistance are of a type that are not

produced in and available for purchase in the United States, and for

waivers to Code 899 or Code 935, also not in the cooperating country,

or any country in Code 941.

(2) It is necessary to permit procurement in a country not

otherwise eligible in order to meet unforeseen circumstances, such as

emergency situations.

(3) It is necessary to promote efficiency in the use of United

States foreign assistance resources, including to avoid impairment of

foreign assistance objectives.

(4) For waivers to authorize procurement from Geographic Code 941

or the cooperating country:

(i) For assistance other than commodity import programs, when the

lowest available delivered price from the United States is reasonably

estimated to be 50 percent or more higher than the delivered price from

a

[[Page 53622]]

country or area included in Geographic Code 941 or the cooperating

country.

(ii) For assistance other than commodity import programs, when the

estimated cost of U.S. construction materials (including transportation

and handling charges) is at least 50 percent higher than the cost of

locally produced materials.

(iii) For commodity import programs or similar sector assistance,

an acute shortage exists in the United States for a commodity generally

available elsewhere.

(iv) Persuasive political considerations.

(v) Procurement in the cooperating country would best promote the

objectives of the foreign assistance program.

(vi) Such other circumstances as are determined to be critical to

the success of project objectives.

(b) Additonal requirements. A waiver to authorize procurement from

outside the United States of agricultural commodities, motor vehicles,

or pharmaceuticals (see Sec. 228.13, ``Special source rules requiring

procurement from the United States,'') must also meet requirements

established in USAID directives on commodity eligibility. (USAID's

Automated Directives System Chapter 312.)

(c) Any individual transaction not exceeding $5,000 (not including

transportation) does not require a waiver.

Sec. 228.52 Suppliers of commodities.

Geographic code changes authorized by waiver with respect to the

source of commodities automatically apply to the nationality of their

suppliers. A waiver to effect a change in the geographic code only with

respect to the nationality of the supplier of commodities, but not in

the source of the commodities, may be sought if the situation requires

it based on the appropriate criteria in Sec. 228.51.

Sec. 228.53 Suppliers of services--privately owned commercial

suppliers and nonprofit organizations.

Waiver criteria. Any waiver must be based upon one of the criteria

listed in this section. Waivers to Geographic Code 899 or Code 935

which are justified under paragraph (b) or (c) of this section may only

be authorized on a case-by-case basis.

(a) Services required for assistance are of a type that are not

available for purchase in the United States, and for waivers to Code

899 or Code 935, also not in the cooperating country, or any country in

Code 941.

(b) It is necessary to permit procurement in a country not

otherwise eligible in order to meet unforeseen circumstances, such as

emergency situations.

(c) It is necessary to promote efficiency in the use of United

States foreign assistance resources, including to avoid impairment of

foreign assistance objectives.

(d) For waivers to authorize procurement from Geographic Code 941

or the cooperating country:

(1) There is an emergency requirement for which non-USAID funds are

not available and the requirement can be met in time only from

suppliers in a country or area not included in the authorized

geographic code.

(2) No suppliers from countries or areas included in the authorized

geographic code are able to provide the required services.

(3) Persuasive political considerations.

(4) Procurement of locally available services would best promote

the objectives of the foreign assistance program.

(5) Such other circumstances as are determined to be critical to

the achievement of project objectives.

Sec. 228.54 Suppliers of services--foreign government-owned

organizations.

A waiver to make foreign government-owned organizations, described

in Sec. 228.33, eligible for financing by USAID must be justified on

the basis of the following criteria:

(a) The competition for obtaining a contract will be limited to

cooperating country firms/organizations meeting the criteria set forth

in Secs. 228.31 or 228.32.

(b) The competition for obtaining a contract will be open to firms

from countries or areas included in the authorized geographic code and

eligible under the provisions of Secs. 228.31 or 228.32, and it has

been demonstrated that no U.S. firm is interested in competing for the

contract.

(c) Services are not available from any other source.

(d) Foreign policy interests of the United States outweigh any

competitive disadvantage at which United States firms might be placed

or any conflict of interest that might arise by permitting a foreign

government-owned organization to compete for the contract.

Sec. 228.55 Delivery services.

(a) Ocean transportation. A waiver to expand the flag eligibility

requirements to allow the use of vessels under flag registry of the

cooperating country, or Geographic Code 899 or 935 countries may be

authorized under the circumstances provided for in this section. Any

waiver granted under this section for a particular shipment which is

not based on a determination of non-availability does not reduce the

pool of cargo from which the applicable percentage required to be

shipped on U.S.-flag vessels under the Cargo Preference Act of 1954,

Section 901(b)(1) of the Merchant Marine Act of 1936, as amended, 46

U.S.C. 1241(b), is determined. A waiver to expand the flag registry of

any Code 935 country may be authorized when:

(1) It is necessary to assure adequate competition in the shipping

market in order to obtain competitive pricing, particularly in the case

of bulk cargoes and large cargoes carried by liners;

(2) Eligible vessels provide liner service, only by transshipment,

for commodities that cannot be containerized, and vessels under flag

registry of countries to be authorized by the waiver provide liner

service without transshipment;

(3) Eligible vessels are not available, and cargo is ready and

available for shipment, provided it is reasonably evident that delaying

shipment would increase costs or significantly delay receipt of the

cargo;

(4) Eligible vessels are found unsuitable for loading, carriage, or

unloading methods required, or for the available port handling

facilities;

(5) Eligible vessels do not provide liner service from the port of

loading stated in the procurement's port of export delivery terms,

provided the port is named in a manner consistent with normal trade

practices; or

(6) Eligible vessels decline to accept an offered consignment.

(b) Air transportation. The preferences for use of United States

flag air carriers or for use of United States, other Geographic Code

941 countries, or cooperating country flag air carriers are not subject

to waiver. Other free world air carriers may be used only as provided

in Sec. 228.22.

Sec. 228.56 Authority to approve waivers.

The authority to approve waivers of established policies on source,

origin and nationality are delegated authorities within USAID, as set

forth in the Automated Directives System Chapter 103 and any

redelegations. USAID contractors or recipients of assistance agreements

shall request any necessary waivers through the USAID contract or

agreement officer.

Dated: September 27, 1996.

Marcus L. Stevenson,

Procurement Executive.

[FR Doc. 96-26246 Filed 10-11-96; 8:45 am]

BILLING CODE 6116-71-M