Buy American Requirements as stipulated in the American Buy Act.
The most general and commonly followed law on the government purchase of domestic goods in the United States is probably the Buy American Act of March 1993. Generally, the objective of the Act is to protect industries in the U.S. by restricting the purchase and use of building materials and finished goods that it finds not domestic. In order for a commodity to be deemed domestic under this Act, it should come under any of the following criteria: It is an unmanufactured end product or construction material that has been mined or produced in the United States
It is a construction material or end product that has been manufactured in the U.S, on condition that
(a) It is commercially available off-the-shelf or
(b) If the cost of the components that constitute it and have been acquired in the U.S exceed 50% of the cost of all the components in the product.
The act achieves its restricting purpose by setting up price preferences for domestic products. It ensures that whenever a domestic offer is not the low one, the procuring agency is necessitated to add a fraction of the price of the low offer to that offer before it determines the offer that is best valued for the government. This act requires companies to acquire their construction materials in the U.S after landing a government contract (Leakey, 2009). Delivery of services is not influenced by the Buy American Act. There are exceptions to the application of this law in some scenarios, the first of which is that the products will be consumed outside the United States. The other case is if it is not consistent with the interest of the public.
Benefits of the Buy American Requirements to VectorCal and the Company
The Buy American Act was passed by the congress in the 1930s to encourage the purchase of American-made products (Luckey, 2012). The Act has usually been met with a general feeling of disapproval by foreign countries. At the time before the Act was implemented, companies in the U.S used to face stiff competition from foreign ones. It is in this bid that the Act was adopted to regulate the U.S economy, by protecting its companies. Most of the local organizations in the U.S have thrived under this Act, and would otherwise have been put out of business by more financially capable foreign companies, in supplying products to the U.S population. As both my new company and VectorCal fall into the category of local companies, a lot of advantages will be realized, thanks to this Act. One of the benefits that VectorCal and my company may witness is that the U.S government will favor both of these companies in the event of issuing a tender that involves navigation systems if our competitors for the tender are foreign. Another advantage is that the competition from foreign companies that deal in navigation systems would be curbed and, hence VectorCal and my company will be assured of the market from the U.S population for the products, which means that losses incurred would be minimal. In the event where neither VectorCal nor my company wins the government tender, all hope would not be lost. This is because they may get the role of supplying products to the company that has won the tender, as the requirements Act dictates that the firms that have been awarded tenders are to use resources available in the U.S (Wise, 2009).
Contradiction in the Principles of the Buy American Requirements
The U.S government has since time immemorial claimed to support the ideology of capitalism, whereby the market is controlled by the private sector that aims to make profits, rather than by the government (Scott, 2011). However, the U.S government actively influences the market and prevents it from operating independently, by embracing the Buy American Act. This policy, first of all, is a form of prejudice against foreign goods to the U.S, all in the name of patriotism and protecting the local businesses. Giving preference to American-made products over Japanese-made ones, for example, can be described as a form of economic nationalism, whereby the government discriminates products by the group they come from, rather than by their quality. This is interference to free trade by the U.S government, a contradiction to the capitalist ethos it purports to uphold. The Law of Comparative Advantage, that aims to promote free trade in a business area, is ultimately ignored by the U.S government. This law suggests that there is a mutual benefit from trade between two countries, even if one of them has a comparative advantage over the other. The U.S government, however, amidst its claims of supporting free trade, imposes fees on foreign products cheaper than its domestic ones, through the Buy American Act. This has the effect of protection of local businesses at the expense of foreign ones. In a capitalist environment, the government should not dictate any terms to companies whatsoever, and hence the U.S government contradicts itself by upholding the Buy American Act.
Impact of the exceptions to the Buy American Requirements
The requirements of the Buy American Act do not usually apply to all scenarios. An example of a scenario where an exception is made is if the deals are not worth more than $2500. In my view, these exceptions, that entail permitting the purchase of foreign products, are made in a bid to positively impact the U.S economy. I have the belief that the U.S government has been successful in this effort, as the advantages arising from that are many. An example of this is the permission to purchase foreign goods by US citizens of their government if domestic goods of the same type are not available. This ensures that there will never be a point in time when the demand for a particular product is unmet by its supply. Breaks in the supply chain of commodities can have severe impacts on a country’s economy. One of the adverse effects it can bring about is inflation, that causes an increase in the cost of living of a population. It normally takes time for inflation to be offset (Maxwell, 1984). Another exception to the application of the Act is witnessed in the procurement of information technology. The U.S has substantially gained from this as in this era, technology is the way forward and it controls various sectors of the economy (Jorgenson, 2001). The U.S education sector, for example, is heavily reliant on information technology. Through this exception, the U.S citizens can thereby gain access to foreign technology and make use of it to better their livelihoods and the economy as a whole.
Advantages of Buy American Requirements
Needless to state, the Buy American Requirements would lead to an increased market for the products from VectorCal and my company. This is because of the policies it enacts in a bid to safeguard local firms. The high market base will result in an increase in the industrial base of the companies, with the general effect of more profits and assurance of continuity of business (Hirschman, 1998). The favorable business conditions will lead to an expansion of business activities which in turn will bring about employment opportunities for the U.S population, and in turn boost their livelihoods and the economy. The requirements Act requires that local companies provide the advantage to produce high-quality products and that meets the interests of US citizens (Luckey, 1997). What this means is that the navigation system of VectorCal and my company will be of great standards, and since it will be used in the defensive industry, this will boost the United States’ defense. When we consider the fact that most defensive threats have arisen from terror attacks from foreign countries, entrusting a local company like VectorCal and my company with the defensive task will ensure that information related to the security systems will not be familiar with the foreign countries. Thus, this will increase the efficiency of the systems to provide defense.
Disadvantages of Buy American Requirements
Even though the advantages arising from the Buy American Act requirements are many, the Act has a number of resultant negative effects. VectorCal and my company would be prone to these disadvantages. One of them is that by the U.S seemingly closing its market to the foreign companies in favor of local ones, it inadvertently caused other nations, particularly the European ones, to adopt policies that also promote the purchase of their domestic products. The effect of this is that U.S companies will have limited markets for their products outside of their country. VectorCal and my company fall under the bracket of U.S companies and, hence they will encounter similar fate: little markets for their products internationally. This limited market will lead to lower financial yields in comparison to their capability. Another disadvantage of the requirements policy is that by limiting access to cheaper foreign materials that are included in the manufacture of the navigation systems, it will lead to high costs of production of the navigation systems. Hence, the cost of manufacturing will be more than the cost of importing the systems entirely from foreign companies. This will increase the cost and budget of the U.S government, and this may have to be offset by means such as increasing the tax rate for the U.S citizens. The other disadvantage from the requirements Act policy is that it may result in systems that do not match the international ones of the same type. This is because the navigation systems that VectorCal and my company are producing are highly reliant on technology. By restricting foreign technology, this means that the systems will only incorporate the U.S technology, which may result in them not having the quality they would possess if different technologies have been embraced.
Luckey, J. R. (2012). Domestic Content Legislation: The Buy American Act and Complementary Little Buy American Provisions. Retrieved on 12 May, 2017 from http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1917&context=key_workplace
Scott, B. R. (2011). Capitalism: its origins and evolution as a system of governance. Springer Science & Business Media.
Jorgenson, D. W. (2001). Information Technology and the US Economy. American Economic Review, 91(1), 1-32.
Hirschman, K. A. (1998). The Costs and Benefits of Maintaining the Buy American Act. Retrieved on 12 May, 2017 from http://www.dtic.mil/dtic/tr/fulltext/u2/a350159.pdf
Maxwell, P. J. (1984). Computing Lost Future Earnings in Light of Jones & (and) Laughlin Steel Corp. v. Pfeifer. Fla. St. UL Rev., 12, 375.