Will Philadelphia’s New Rail Cars, Built by a Chinese State-Owned Company, Abide By Buy America?

By Elizabeth Brotherton-Bunch
Sep 26 2022 |

Members of Congress want an investigation after new photographs “appear to show nearly completed railcars” in China.

House Republicans on a key congressional committee want the Department of Transportation to review whether a Pennsylvania public transit system’s contact with Chinese state-owned company to build rail cars complies with Buy America.

Rep. Sam Graves (R-Mo.), ranking member of the House Transportation and Infrastructure Committee, joined with Rep. Rodney Davis (R-Ill.), ranking member of the Highways and Transit Subcommittee, and Rep. Rick Crawford (R-Ark.), ranking member of the Railroads, Pipelines, and Hazardous Materials subcommittee, to ask Department of Transportation Inspector General Eric Soskin to investigate whether the Southeastern Pennsylvania Transportation Authority (SEPTA) is abiding by Buy America in its contact with the China Railway Rolling Stock Corporation MA (CRRC MA).

CRRC MA is a subsidiary of CRRC Corporation Limited and is owned by the Chinese government. The Defense Department has listed it as maintaining strong ties to the Chinese military.

For years, CRRC MA secured U.S. taxpayer-funded contracts to build rail cars for U.S. transit agencies, including those in Boston, Chicago, and Los Angeles. CRRC MA was notorious for severely underbidding to win these contracts. When it nabbed the SEPTA contact in 2017, a spokesperson for Hyundai Rotem, the next highest competitor, said: “I cannot grasp how they are able to do it at that cost.”

Bipartisan Members of Congress became concerned about the threat that CRRC and other Chinese state-owned companies posed to U.S. national and economic security. In 2019, Congress passed the Transportation Infrastructure Vehicle Security Act (TIVSA), effectively banning state-owned companies from taxpayer-funded contracts to build rail cars or buses.

CRRC MA’s contract with SEPTA for 45 new rail cars began in 2017. TIVSA does not apply, but SEPTA is still required to follow Buy America guidelines, which state that the cost of the components and subcomponents for the rail cars produced in the United States must total more than 60% for fiscal years 2016 and 2017; 65% for fiscal years 2018 and 2019, and more than 70% for fiscal year 2020 and beyond. In addition, final assembly must take place in the United States.

Graves, Davis, and Crawford write that “CRRC has claimed that it sources 70 percent of the total cost of railcar components from manufacturers in the United States,” but point out that recent evidence suggests that may not be the case.

The Philadelphia Inquirer published a story in July 2022 that “reported that the first cars from the SEPTA–CRRC MA contract were being built in China,” the trio write.

Indeed, photos published on Twitter from Imperial Hobby Productions (@ihphobby) that were included in that article show the double decker rail cars, complete with SEPTA’s red, white and blue logo.

The Inquirer reported that fulfillment of the SEPTA contact was pushed back due to COVID-19 shutdowns. The first four rail cars as part of that contract, which include the two pictured in the photos, are testing prototypes that are expected to be sent to CRRC’s facility in Massachusetts “for more work to comply with federal Buy American law.”

“Inspectors from a Chinese company under contract to SEPTA are monitoring the work in Tangshan, and authority engineers visit when travel conditions allow. Officials in Philadelphia knew that two of the cars were nearly done, but the news photos apparently provided the first look for them, too,” the Inquirer reported. “Workers in China have started another 20 coach car shells, which also will go to the U.S. facility.”

Graves, Davis, and Crawford have concerns, however. They write:

“The photos published alongside the story appear to show nearly completed railcars. Furthermore, the Inquirer article states that CRRC MA is planning to ship finished shells for the passenger cars to Massachusetts for final assembly. In other words, the article raises questions about how complete these cars are when they arrive in the United States.”

In the letter to Soskin, the three Members ask that the Department of Transportation examine how the Federal Transit Administration (FTA) and SEPTA “are certifying CRRC MA’s adherence” to Buy America and how they “determine the total value of foreign components for the purpose of the Buy America requirements and if any foreign components in the CRRC MA contract are undervalued against their domestic market rate in the United States.”

The trio requested a response by Oct. 5.

“It is important to the competitiveness and security of American industries that we ensure that companies that do business in our country comply with all U.S. laws and that there’s a level playing field,” Graves said in a statement. “We are simply asking the Inspector General to determine whether CRRC is in compliance with Buy America requirements.”