Final Defense Bill Bans New Purchases of Mass Transit Vehicles from Chinese Companies – After 2-Year Delay

Final Defense Bill Bans New Purchases of Mass Transit Vehicles from Chinese Companies – After 2-Year Delay

December 09, 2019  | Jeff Davis

After weeks of delay, Congressional negotiators at 9:30 p.m. released the text of the final House-Senate conference agreement on the National Defense Authorization Act (NDAA) of 2019 (S. 1790), which would ban mass transit agencies from using federal funds from purchasing rail cars or buses from Chinese-owned or Chinese-domiciled companies, and would penalize transit agencies that use their own funds for such procurements.

However, the final bill provides for a two-year delay before the funding bans take effect (except for the Washington DC Metro system, where the provisions would take effect immediately).

The bill has already made national headlines because it addresses topic completely unrelated to the Pentagon – a new mandate for up to 12 weeks of paid parental leave for federal employees, which the House put in its version of the bill and which President Trump agreed to accept in exchange for the creation of Space Force.  (See “Sausage, Making of.”)

The House Rules Committee has scheduled a meeting for 3:00 p.m. on Tuesday, December 10 to grant a special rule allowing the conference report to go straight to the House floor for a vote, which could happen as early as Wednesday. So many Democrats have already issued press releases praising the parental leave provision, and the White House is so enamored of Space Force, that passage seems assured. (Dec. 11 addendum: the House agreed to the conference report today at 5:38 p.m. by a roll call vote of 377 to 48. The Senate will consider the conference report next week.)

The final bill would prohibit transit agencies from using any federal funding assistance provided under chapter 53 of title 49, U.S.C. (which is just about all transit funding, except for the annual $150 million capital appropriation to WMATA) from being “used in awarding a contract or subcontract…for the procurement of rolling stock for use in public transportation” from any company that has a manufacturing facility in the U.S. but is “owned or controlled by, is a subsidiary of, or is otherwise related legally or financially to a corporation” based in the People’s Republic of China.

In addition, the bill provides a financial penalty to transit agencies that try to use their own non-federal funds to buy rolling stock from these companies – agencies that do so would forfeit their annual federal apportionment from the State of Good Repair formula program under 49 U.S.C. §5337 in the year that they signed the contract with the Chinese manufacturer. (To see how much money that is for each transit agency, see the FY 2019 apportionment table.)

Like the original versions of this language passed by the House and Senate, the final bill grandfathers transit agencies which already already have contracts to purchase rail transit vehicles from Chinese companies “if the manufacturer and the public transportation agency have executed a contract for rail rolling stock before the date of enactment of this subsection”  (of which there are currently four: Chicago CTA, Los Angeles Metro, Philadelphia SEPTA, and Boston MBTA). In 2017, per APTA, those four agencies operated a collective 19.0 percent of all of the heavy rail, light rail, and commuter rail mass transit cars operated in the U.S. The ban would lock Chinese railcar manufacturers out of any long-term role in the New York area mega-market (43.3 percent of the nation’s transit rail cars in 2017 for the NYC MTA and another 7.1 percent for New Jersey Transit and another 1.8 percent for PATH, totaling 52.2 percent of the U.S. fleet) forever.

Unlike the original House and Senate versions of the provision, both of which would have taken effect the moment the President signs the NDAA bill, the final version has a two-year delay, with application of the provisions not taking effect until two years after the enactment of the bill. But the final bill makes one exception to the delay – both the ban on the use of federal funds and the one-year SOGR funding penalty for signing a new contract with a Chinese manufacturer take effect immediately for the Washington D.C.-area WMATA agency, which has been moving to finalize a new contract for the purchase of its 8000-series cars, with its own local Senators opposing a possible contract with Chinese rail giant CRRC.

Another key point – the two-year delay in the funding ban and the penalty taking effect does not extend the grandfathering date. Any new contracts signed by transit agencies for Chinese rail rolling stock purchases after President Trump signs the NDAA into law will not allow those agencies to sign additional contracts to buy Chinese rolling stock after the two-year delay expires unless the transit agency was one of those that already had a rail rolling stock procurement contract in place prior to the enactment of the NDAA. (Last sentence amended after original publication.)

A short comparison between the House, Senate, and final provisions is below, and the legislative text of the final language is below that.

The Chinese Rolling Stock Ban in the Defense Authorization Bill

House bill (H.R. 2500) Senate bill (S. 1790) Conference agreement
Bill section Sec. 896 Sec. 6015 Sec. 7613
Federal funding prohibition No chapter 53 transit funds may be used to award contracts to Chinese-owned, controlled, based, or related companies to buy rail rolling stock. No chapter 53 transit funds may be used to award contracts to Chinese-owned, controlled, based, or related companies to buy rail or bus rolling stock. Senate bill – applies to contracts to purchase rail or bus rolling stock from Chinese companies.
Certification against self-funding In order to receive annual §5337 SOGR funding, transit agencies must certify they won’t use their own funds to buy rail rolling stock from such companies that year. Same as House bill Same as House and Senate bills.
Effective date Enactment of bill Enactment of bill 2 years after effective date of bill except that both prohibitions are effective upon date of enactment for WMATA only.
Grandfathering Any transit agency with a contract to buy rail rolling stock from such companies prior to the date of enactment of the bill is permanently exempt from the above restrictions. Same as House bill Only transit agencies with existing contracts as of the date of enactment of the bill are grandfathered – contracts signed during the 2-year delay will not grandfather that transit agency after 2021.
Cybersecurity In order to receive chapter 53 transit funding, all rail transit agencies must certify that they have established a process to identify and reduce cybersecurity risks. Same as House bill. Same as House and Senate bills.

SEC. 7613. LIMITATION ON CERTAIN ROLLING STOCK PROCUREMENTS; CYBERSECURITY CERTIFICATION FOR RAIL ROLLING STOCK AND OPERATIONS.

Section 5323 of title 49, United States Code, is amended by adding at the end the following:

‘‘(u) LIMITATION ON CERTAIN ROLLING STOCK PROCUREMENTS.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (5), financial assistance made available under this chapter shall not be used in awarding a contract or subcontract to an entity on or after the date of enactment of this subsection for the procurement of rolling stock for use in public transportation if the manufacturer of the rolling stock—

‘‘(A) is incorporated in or has manufacturing facilities in the United States; and

‘‘(B) is owned or controlled by, is a subsidiary of, or is otherwise related legally or financially to a corporation based in a country that—

‘‘(i) is identified as a nonmarket economy country (as defined in section 771(18) of the Tariff Act of 1930 (19 U.S.C. 1677(18))) as of the date of enactment of this subsection;

‘‘(ii) was identified by the United States Trade Representative in the most recent report required by section 182 of the Trade Act of 1974 (19 U.S.C. 2242) as a foreign country included on the priority watch list defined in subsection (g)(3) of that section; and

‘‘(iii) is subject to monitoring by the Trade Representative under section 306 of the Trade Act of 1974 (19 U.S.C. 2416).

‘‘(2) EXCEPTION.—For purposes of paragraph (1), the term ‘otherwise related legally or financially’ does not include a minority relationship or investment.

‘‘(3) INTERNATIONAL AGREEMENTS.—This subsection shall be applied in a manner consistent with the obligations of the United States under international agreements.

‘‘(4) CERTIFICATION FOR RAIL ROLLING STOCK.—

‘‘(A) IN GENERAL.—Except as provided in paragraph (5), as a condition of financial assistance made available in a fiscal year under section 5337, a recipient that operates rail fixed guideway service shall certify in that fiscal year that the recipient will not award any contract or subcontract for the procurement of rail rolling stock for use in public transportation with a rail rolling stock manufacturer described in paragraph (1).

‘‘(B) SEPARATE CERTIFICATION.—The certification required under this paragraph shall be in addition to any certification the Secretary establishes to ensure compliance with the requirements of paragraph (1).

‘‘(5) SPECIAL RULES.—

‘‘(A) PARTIES TO EXECUTED CONTRACTS.—This subsection, including the certification requirement under paragraph (4), shall not apply to the award of any contract or subcontract made by a public transportation agency with a rail rolling stock manufacturer described in paragraph (1) if the manufacturer and the public transportation agency have executed a contract for rail rolling stock before the date of enactment of this subsection.

‘‘(B) ROLLING STOCK.—Except as provided in subparagraph (C) and for a contract or subcontract that is not described in subparagraph (A), this subsection, including the certification requirement under paragraph (4), shall not apply to the award of a contract or subcontract made by a public transportation agency with any rolling stock manufacturer for the 2-year period beginning on or after the date of enactment of this subsection.

‘‘(C) EXCEPTION.—Subparagraph (B) shall not apply to the award of a contract or subcontract made by the Washington Metropolitan Area Transit Authority.

‘‘(v) CYBERSECURITY CERTIFICATION FOR RAIL ROLLING STOCK AND OPERATIONS.—

‘‘(1) CERTIFICATION.—As a condition of financial assistance made available under this chapter, a recipient that operates a rail fixed guideway public transportation system shall certify that the recipients have established a process to develop, maintain, and execute a written plan for identifying and reducing cybersecurity risks.

‘‘(2) COMPLIANCE.—For the process required under paragraph (1), a recipient of assistance under this chapter shall—

‘‘(A) utilize the approach described by the voluntary standards and best practices developed under section 2(c)(15) of the National Institute of Standards and Technology Act (15 U.S.C. 272(c)(15)), as applicable;

‘‘(B) identify hardware and software that the recipient determines should undergo third-party testing and analysis to mitigate cybersecurity risks, such as hardware or software for rail rolling stock under proposed procurements; and

‘‘(C) utilize the approach described in any voluntary standards and best practices for rail fixed guideway public transportation systems developed under the authority of the Secretary of Homeland Security, as applicable.

‘‘(3) LIMITATIONS ON STATUTORY CONSTRUCTION.—Nothing in this subsection shall be construed to interfere with the authority of—

‘‘(A) the Secretary of Homeland Security to publish or ensure compliance with requirements or standards concerning cybersecurity for rail fixed guideway public transportation systems; or

‘‘(B) the Secretary of Transportation under section 5329 to address cybersecurity issues as those issues relate to the safety of rail fixed guideway public transportation systems.’’.

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