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Eno Transportation Weekly

Senate Agrees to One-Year Ban on Transit Rail Car and Bus Procurements from Chinese-Owned Companies

August 1, 2018

Last night, the U.S. Senate agreed to a one-year ban on any new procurements of mass transit rail cars or buses from companies owned or subsidized by the government of the People’s Republic of China, if the procurement uses any Federal Transit Administration formula or bus funding.

A modified version of an amendment by Sen. John Cornyn (R-TX) was adopted by voice vote as part of a bipartisan “manager’s package” of 40-odd amendments to the four-bill “minibus” appropriations measure for fiscal 2019 (H.R. 6147), which includes the annual Transportation-HUD appropriations bill.

The Senate language is a more refined and precise version of language that is already included in the version of the legislation reported in the House of Representatives (H.R. 6072). Section 165 of the House bill prevents any fiscal 2019 FTA funding from being used to procure any rail or transit asset from an entity owned, directed or subsidized by a country that is not spelled out by name in the section but is clearly the People’s Republic of China.

The Senate language adopted last night narrows and clarifies the House language significantly:

  • The Senate prohibition only applies to funding from the urbanized area formula (§5307), rural area formula (§5311), state of good repair formula (§5337) and bus and bus facility grant (§5339) programs (formula and discretionary), not other FTA programs. Notably, this leaves open the possibility that Capital Investment Grant program (§5309) money for future new starts, small starts, or core capacity projects could be used for Chinese rolling stock or buses. (If the Trump Administration ever agrees to sign any new funding agreements for such projects, that is.)
  • The Senate prohibition only applies to rolling stock (rail cars and buses), not any other kind of procurement.
  • The Senate prohibition “shall be applied in a manner consistent with the obligations of the United States under international agreements.” (However, Annex 2 of the Government Procurement Agreement of the World Trade Organization specifically says in Note 5 (at the end) that the WTO rules “shall not apply to restrictions attached to Federal funds for mass transit and highway projects”.)
  • The Senate prohibition only applies to contracts executed after the date of enactment of the Act (which is on pace for late September or early October), not to any contracts executed prior to the date of enactment. The House language appears to be retroactive.
  • But the Senate prohibition also prevents the expansion of existing contracts executed prior to the date of enactment to include any more rolling stock vehicles or railcars than were in the contract already (including all options).

Since some version of a ban on new Chinese rolling stock is now in both the House and Senate versions of the bill, it seems certain that some version of the ban will be enacted into law in the final 2019 DOT appropriations act. The final language will probably be closer to the Senate version, since the House language came out of nowhere and many of the changes in the Senate version reflect the input of DOT, the U.S. Trade Representative, transit stakeholders and others on how to make the language work better.

As ETW noted in a May 31 article, the impetus behind this provision appears to come from the U.S. freight rail car manufacturers (Trinity, Greenbrier, etc.). They have seen how successful the Chinese state-owned rail company (CRRC) has been at taking freight rail car market share in other countries and want to head things off in the U.S. as early as possible. They have apparently decided that the best way to go about this is to prevent CRRC from establishing a beachhead in the U.S. in the transit rail car sector so CRRC can’t build large factories that could then be used to assemble Chinese-manufactured freight rail cars as well.

And CRRC has indeed been building a foothold in the transit sector through its ability to drastically underbid other manufacturers, which may have something to do with the subsidies received from the Chinese government allowing them to sell at below their (already low) cost. As we wrote in the May 31 article:

CRRC has had success in the last few years making the lowest bid on contracts for new rail transit cars for U.S. cities. Its initial success was for MBTA in Boston in 2014, where it bid $567 million and won the Orange/Red Line contract (the next lowest bid was $721 million), prompting it to build a plant in Springfield, Mass. for vehicle assembly. It then won a $1.3 billion contract for Chicago’s CTA (prompting a new assembly factory in the Windy City dedicated by Mayor Rahm Emanuel). CRRC won a third contract for L.A. Metro ($647 million) last year as well as a much smaller contract for SEPTA in Philadelphia.

Behind the scenes in the Senate, Minority Whip Richard Durbin (D-IL) was trying to stop the Cornyn amendment, which could affect the new CRRC assembly plant in Chicago now under construction. But, in retrospect, Durbin’s fight was doomed from the beginning – most Democrats have spent decades arguing that Buy America requirements should be strengthened generally, and two of the Senate’s most prominent Democrats on the Buy America issue, Tammy Baldwin (D-WI) and Gary Peters (D-MI), were cosponsors of the Cornyn amendment.

Add to that the fact that legislators from both parties have been beating up the Trump Administration for months over its flip-flop on the potential national security threat posed by purchases of Chinese-made computer and telecommunications equipment from manufacturers like ZTE and Huawei (including anti-China language in the pending appropriations bill), and the fact that Congress this week will send to the President a mammoth defense authorization bill that includes a requirement (sec. 1719(c) of this bill) that the Secretary of Homeland Security study the national security implications of Chinese-made rolling stock in particular, and it was just too powerful to stop.

At one point yesterday, it seemed that the Cornyn amendment was set for a roll call vote with a 60-vote threshold. But it became clear that the amendment would get far more votes that that (maybe over 80), and given the choice between putting that many Senators on record in favor of a ban or just letting the amendment pass by voice as part of a much larger package, Durbin apparently chose the latter option.

We’re still not sure if the Chinese-government-subsidized electric bus manufacturer BYD is caught up in the funding prohibition by accident, or on purpose.

A side-by-side comparison of the House and Senate bill language is below.

FY 2019 Appropriations Language on Chinese Rail Cars and Buses for Mass Transit

(Senate language is as included in the engrossed amendment to H.R. 6147.)
SENATE LANGUAGE HOUSE LANGUAGE
SEC. 196. (a) None of the funds appropriated or otherwise made available to the Federal Transit Administration under this title to carry out sections 5307, 5311, 5337, and 5339 of title 49, United States Code, may be used in awarding a contract or subcontract to an entity on or after the date of enactment of this Act for the procurement of rolling stock for use in public transportation if the manufacturer of the rolling stock is incorporated in or has manufacturing facilities in the United States and receives support from the government of a country that— SEC. 165. None of the funds appropriated or otherwise made available to the Federal Transit Administration under this Act may be used in awarding any contract or subcontract for the procurement of an asset within the mass transit and passenger rail or freight rail subsectors included within the transportation systems sector defined by President Policy Directive 21 (Critical Infrastructure Security and Resilience) including rolling stock, and the ensuing regulations if the entity is owned, directed, or subsidized by a country
(1) 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 Act;
(2) 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 priority foreign country under subsection (a)(2) of that section; and identified as a priority watch list country by the United States Trade Representative in the most recent report required under section 182 of the Trade Act of 1974 (19 U.S.C. 2242) and
(3) is subject to monitoring by the Trade Representative under section 306 of the Trade Act of 1974 (19 U.S.C. 2416). is subject to monitoring by the Trade Representative under section 306 of the Trade Act of 1974 (19 U.S.C. 2416).
(b) This section shall be applied in a manner consistent with the obligations of the United States under international agreements.
(c)(1) This section shall not apply to the award of a contract or subcontract made by a public transportation agency with a rail rolling stock manufacturer described in subsection (a) if the manufacturer ‘produces’ rail rolling stock for an eligible public transportation agency through a contract executed prior to the date of enactment of this Act.
(2) A rail rolling stock manufacturer described in subsection (a) may not use funds provided under a contract or subcontract described in paragraph (1) to expand the manufacturer’s production of rail rolling stock within the United States to an ‘amount of rolling stock vehicles or railcars’ that is greater than the amount required under contractual obligations of the manufacturer as of the date of enactment of this ‘Act including all options per for additional rolling stock.’
(d) Nothing in this section shall be construed to apply to funds that are not appropriated or otherwise made available to the Federal Transit Administration under this title.

Reminder: Every budget document, bill, amendment, hearing, and debate related to the federal transportation and infrastructure budget for fiscal year 2019 is linked on our FY19 reference page at enotrans.org/fy19 – bookmark it!

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