Where assistance funds may buy

← All Insights

1. Three places to buy

Section 604 of the Foreign Assistance Act of 1961, codified at 22 U.S.C. 2354, limits where assistance funds may be spent (22 U.S.C. 2354). The President may use funds made available under the Act for procurement only in the United States, the recipient country or developing countries (22 U.S.C. 2354(a)(1)(A)). For this rule, developing countries do not include advanced developing countries (22 U.S.C. 2354(a)(2)).

2. When other countries are allowed

Procurement elsewhere is possible in two situations (22 U.S.C. 2354(a)(1)(B)). The first is where the assistance needs commodities or services of a type not produced in and available for purchase in any of the three permitted places (22 U.S.C. 2354(a)(1)(B)(i)). The second is where the President determines, case by case, that procurement in another country is necessary (22 U.S.C. 2354(a)(1)(B)(ii)).

Two reasons can support that determination. One is meeting unforeseen circumstances, such as emergencies, where it is important to allow procurement outside the permitted places (22 U.S.C. 2354(a)(1)(B)(ii)(I)). The other is promoting efficiency in the use of American foreign assistance resources, including avoiding harm to assistance objectives (22 U.S.C. 2354(a)(1)(B)(ii)(II)). The rules for Foreign Military Financing, which come from a different statute, are covered in where Foreign Military Financing may be spent.

3. Construction and engineering services

A separate bar covers construction and engineering services (22 U.S.C. 2354(g)(1)). No funds under the Act may buy those services from advanced developing countries, eligible under Geographic Code 941, that have become competitive in international markets for construction or engineering services. The bar does not apply to an advanced developing country that receives direct economic assistance under part I of subchapter I or part IV of subchapter II of the Act (22 U.S.C. 2354(g)(2)). If such a country has its own assistance programs that buy construction or engineering services, it must also let American firms compete for them.

4. Price and commodity rules

Bulk purchases are capped by reference to American prices (22 U.S.C. 2354(b)). Funds may not buy commodities in bulk at prices above the market price prevailing in the United States at the time, adjusted for differences in transportation cost to destination, quality and terms of payment.

Agricultural commodities have their own rules. Where a commodity available under the Food for Peace Act is bought for grant transfer, it is to be procured only in the United States, as far as practicable and in furtherance of the Act (22 U.S.C. 2354(c)). The exception is where the commodity is not available in the United States in sufficient quantities for emergency needs. Funds may not buy an agricultural commodity abroad when its domestic price is below parity, unless it could not reasonably be bought in the United States for the program’s objectives (22 U.S.C. 2354(e)).

Under commodity import programs funded under subchapter I of the Act, a supplier is paid only after certifying the information the administering agency requires, including a description and the condition of the commodity (22 U.S.C. 2354(f)). The agency must then have approved the commodity as eligible and suitable for financing.

5. Marine insurance

Where assistance helps buy commodities in the United States, dollars are made available for marine insurance placed competitively under the normal trade practice that prevailed before the outbreak of World War II (22 U.S.C. 2354(d)). If a participating country discriminates by statute, decree, rule or regulation against a marine insurer authorized in an American state, commodities bought with these funds and bound for that country must be insured against marine risk in the United States. The insurer must be a company authorized to write marine insurance in an American state.

6. Shipping between foreign countries

The cargo preference laws do not apply to one kind of shipment (22 U.S.C. 2353). Ocean transport between foreign countries of commodities and defense articles bought with foreign currencies made available or derived from funds under the Act or the Food for Peace Act is exempt. So are transfers of fresh fruit and its products under the Act. Those shipments are not governed by section 55305 of title 46 or any other law on carriage in American flag vessels.

Where the preference law does apply, the Act can help with the cost (22 U.S.C. 2399d). Funds for part I of subchapter I or part IV of subchapter II of the Act may pay grants to recipients for this purpose. A grant may cover all or part of any difference, as determined by the Secretary of Commerce, between American and foreign-flag vessel charter or freight rates. Such grants are paid in American-owned foreign currencies wherever feasible. Cargo preference is covered in cargo preference and the rules on flag carriers.

7. Plans before large agreements

Section 611 adds planning conditions for larger commitments (22 U.S.C. 2361(a)). It covers assistance under part I of subchapter I, subpart II of part II of subchapter I, and part IV of subchapter II of the Act. No agreement or grant creating an obligation of more than $500,000 may be made for that assistance until two conditions, where they apply, are met. Where the agreement needs substantive technical or financial planning, the engineering, financial and other plans, and a reasonably firm cost estimate, must be complete (22 U.S.C. 2361(a)(1)). Where it needs legislation in the recipient country, that legislation must reasonably be expected in time for the agreement’s purposes (22 U.S.C. 2361(a)(2)).

Construction contracts outside the United States under such agreements must be competitive to the maximum extent practicable (22 U.S.C. 2361(c)). The planning condition does not apply to assistance given only to prepare engineering, financial and other plans (22 U.S.C. 2361(d)). For capital projects above $1,000,000, the agency head must first consider a certification from its principal officer in the country on the country’s capacity to maintain and use the project (22 U.S.C. 2361(e)).

8. Small business

The President must help American small business, as far as practicable and consistent with the Act’s purposes, take an equitable part in supplying commodities, defense articles and services, including defense services, financed under the Act (22 U.S.C. 2352(a)). That means giving suppliers in the United States, especially small independent enterprises, advance information on proposed purchases (22 U.S.C. 2352(a)(1)). It also means telling purchasers in recipient countries about goods and services from small American enterprises, and offering other services to improve their chances (22 U.S.C. 2352(a)(2) and 22 U.S.C. 2352(a)(3)). An Office of Small Business, headed by a Special Assistant for Small Business, sits in whichever agency the President directs (22 U.S.C. 2352(b)). The Secretary of Defense must make advance information available on Defense purchases under subchapter II of the Act (22 U.S.C. 2352(c)).

Key terms

Developing countries	For the procurement rule, developing countries other than advanced developing countries.
Geographic Code 941	The eligibility code referred to in the bar on construction and engineering services.
Parity	The price benchmark below which agricultural commodities may not be bought abroad.
Freight differential	The gap between American and foreign-flag charter or freight rates.
Office of Small Business	The office that helps small firms take part in assistance purchases.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

How Sentfore supports this

Goods bought under assistance programs still have to reach the people who need them. Sentfore works at the delivery end of defense programs in difficult environments, providing secure movement, protective security, facilities and life support. Requirements can be sent through the contact page.