BAA (Buy American Act) and the future of Asian Economy

[MarkZane]

I work for a large company and part of my job is to make country of origin determinations for domestic preference laws for US government procurement. Most US federal procurement is governed by the Trade Agreements Act (TAA) which is a waiver to the Buy American Act. This waiver kicks in for supply contracts generally when the contract is over $202,000.

Much federal of government procurement is run through General Service Administration who collective buys standard supplies for the rest of the federal government. The contracts awarded under this program are for 5 years with three 5 year options so most contacts are waived into the Trade Agreement Act.

The TAA restricts government procurement from countries with whom the United States had a free trade agreement, a member of WTO - Agreement on Government Procurement , or other countries that the United States Trade representative deems to be economically disadvantaged. Notably countries that are not TAA eligible are India, China, Indonesia and others.

The Buy American Act itself when it applies also as many exemptions and waivers and is not a prohibition against foreign procurement but a preference in bidding. For large US companies the cost preference is 6%.

The Buy American Act has been changed recently to eliminate the component test for commercial off the shelf items. Originally for an item to qualify as a domestic product 50% of the value of the components had to come for domestic sources. This requirement is now waived for commercial off the shelf items and is only required for items that are made solely for the government.

Besides the Buy American Act, there are various mini Buy American Acts that apply to specific federal agencies each with their unique rules and waivers.

I originally put links to the relevant laws and qualifying countries list, but I have never posted here before so the forum is not letting me post any links.

 

[Randy]

You did a great job Mark

 

[somashekar]

Welcome to the Cove Markzane and a great post to open with ~~~
Looking for more from you here.

 

[john.b]

This has nothing to do with business continuity, by the way.

It sounds like this is only one kind of protection against free trade relating to the US government but there are others. I hope some other ideas help move the discussion forward.

I'm not completely familiar with all the background but the US government also limits free trade to companies that violate copyrights, including software piracy (see links). This also seems to translate into a more general form of restrictions against suspected suppliers. The critical issue is how such restrictions are applied, parts I don't know.

I had a meeting with a major Chinese supplier of IT equipment that showed me where they were doing implementation work on a map of the globe and it was odd to me that the US was just about the only place they had no presence, outside of one research facility. According to that sales agent they couldn't access the US market due to trade restrictions, which we didn't discuss in detail.

Since they hadn't been manufacturing many of the types of products only a few years ago it seems possible reverse engineering and potential copyright infringement did speed up their R & D process. But I couldn't really know the truth of that.

Here in Thailand software piracy restrictions are reportedly used to enforce blanket restrictions against major companies, but again I'm too busy to read a lot of news on that to know reported details, much less have an opinion on the underlying facts of the matter.

From a US perspective one main concern seems to be that these restrictions protect the US markets but still end up leaving the US companies as not competitive outside the US. The degree of real violations issues versus mis-application as protective trade barriers doesn't seem to matter that much in the end.

Whether there is an unfair advantage due to illegal foreign activities, or there are mostly only fair advantages due to reduced tax and wage burdens on companies based on less social protections or just lower earnings, or it's a combination of both, in any case from what I'm seeing in many cases US companies can't compete outside the US. This applies to a broad and growing range of products and markets. US companies try to work around this with two-tier pricing but there are problems with this.

Developed nation markets are far more significant per person but there is a lot more of the rest of the world, with those economies developing relatively quickly while the US and others like it do not.


http://en.wikipedia.org/wiki/Anti-Counterfeiting_Trade_Agreement

http://www.stopacta.info/

 

[TPMB4]

There are a lot of rules and regulations that come into play when dealing specifically with USA I reckon. My old company used to ship to USA a lot and the same customer with the same mix of product placed orders with different restrictions and conditions.

One typical restriction I thought was a bit of a last strike at promoting USA was the need for certain contracts only to use a US registered shipping line. The thing is they HAD to come to us for the parts (noone else supplies the products to as high a specification so as to meet the requirements). However at least they could use an American company to ship it. The issue was that each container was very expensive if you used a US container line. I think we just left it to them to collect the goods as it kind of annoyed us a bit.

What got me was the extra cost of using a US shipping line was something like +60-70% on the normal cost. Now since shipping was actually a high cost for the product then the restriction was actually making the final system price significantly more expensive. Still, the main contractor charged it out and the US federal government paid up so I guess it all got sucked out of American tax payments in the end.

Just my point is that protectionism of any kind has a point at which it hurts the country in question more than it helps. Someone kind of put that at 6% on costs (if I read his post and interpretted the end result right).

 

[TPMB4]

PS I hope the US and EU can sort out that bilatteral trade deal. I think it will be something worth having in place in the future. A kind of view as to what things should be like. That's if they don't screw the deal up and tag on a load of exceptions to protect their important sacred cows. Thinking French wine was a popular thing US liked to raise tariffs on and US cotton the EU did likewise (ostensibly due to the subsidies that both sides put on to protect their products).