Congress Gets Closer to Closing an Infrastructure Loophole that Benefits a Chinese State-Owned Firm

By Matthew McMullan
May 23 2023 |
The Massachusetts Bay Transportation Authority is one of the entities currently exempt from a federal rule that prohibits purchasing rail cars from state-owned and -supported enterprises. Getty Images

Thanks to flawed implementation of the 2019 TIVSA law, four major U.S. cities received a lifetime exemption. That could change soon.

An important bill passed out of the House Transportation and Infrastructure Committee on Tuesday. If it’s enacted, it will close a glaring loophole in a law meant to restrict certain Chinese companies from lucrative public infrastructure contracts.

The law with the loophole is called the Transportation Infrastructure Vehicle Security Act (TIVSA), which disallows Federal Transit Administration (FTA) funds from being used to procure railcars, electric buses, and other forms of “rolling stock” from China’s state-owned and -supported vehicle manufacturers. TIVSA passed in late 2019, and included a two-year phase-in period before it took full effect.

Now here we are in 2023. And China’s state-owned and -supported vehicle manufacturers are still positioned to secure FTA-funded contracts in certain U.S. cities due to an unintended implementation loophole created by that agency.

So what gives? What are we talking about? What’s rolling stock?

Rolling stock means rail cars, buses, and other types of public transportation typically found in U.S. cities. We’re talking about the subway cars used on mass transit systems, like the “L” train in Chicago or the iconic New York City subway. A Chinese state-owned enterprise called CRRC began securing taxpayer-funded contracts put out by local transit agencies that needed new rail cars to maintain and upgrade their systems. CRRC secured the business by making impossibly low bids that no market-based competitors could match.

Because rail cars are expensive, most of these contracts are paid for (at least in part) with federal dollars. And that’s where TIVSA came in. Congress attached a condition to that federal money: It can’t be spent on rail cars or other rolling stock made by a Chinese state-owned or state-supported enterprise.   

But, to put it generously, the FTA had other ideas with its interpretation of the TIVSA statute and how it would implement it. It issued guidance in the form of “frequently asked questions” so that transit agencies in the market for rail car contracts would know how to adhere to the new law, and in it the FTA wrote this:

“Any public transportation agency that formed a contract for rail rolling stock with an otherwise restricted manufacturer prior to December 20, 2019, is permanently exempt from the restrictions of Section 5323(u) for rail rolling stock procured from that particular manufacturer.” (emphasis added)

Section 5323(u) is the TIVSA law.

The FTA even listed the four major transit agencies that it made “permanently exempt” to the congressionally directed funding prohibition: the Chicago Transit Authority, the Los Angeles County Metropolitan Transportation Authority, the Massachusetts Bay Transportation Authority (Boston), and the Southeastern Pennsylvania Transportation Authority (Philadelphia).

A new loophole in the form of a permanent exemption is clearly not what Congress was aiming for when it enacted TIVSA. Its intent was obvious: If an agency had an existing order with a restricted rail rolling stock manufacturer, it would be permitting to complete that particular transaction.

But the FTA instead gave these major transit systems – and an enormous Chinese state-owned company – a major carveout. A permanent exemption.

Advocates for American manufacturing haven’t forgotten.

In 2020, the House passed infrastructure legislation that included a section correcting this obvious TIVSA misinterpretation, but it didn’t make it into the final bill, which passed a year later as the Infrastructure Investment and Jobs Act.

In 2021, a coalition of labor and industry groups wrote to transportation committee leaders in both the House and Senate, urging them to resist lobbying efforts to undermine TIVSA and instead close its glaring loopholes – like the permanent exemption for the train systems in Chicago, Philadelphia, Boston and Los Angeles incorrectly granted by the FTA.

In 2023, TIVSA supporters in Congress are once again working to get this loophole closed. Rep. Rick Crawford (R-Ark.) introduced legislation that would eliminate the permanent exemption to those transit agencies that the FTA granted. Rep. John Garamendi (D-Calif.) cosponsored it. And the bill – HR 3317, or the Rolling Stock Protection Act – cleared the House Transportation and Infrastructure Committee on Tuesday.

We’ll be keeping an eye on this one as it moves forward in the House of Representatives.