Demystifying the Buy American Regulation - Essay Example

Demystifying the Buy American Regulation

The buy American requirement applies to all the purchases made by the Federal government agencies. Under this Act, all goods that are sold in the market must be manufactured in the United States and from local materials. The Act was enacted in the 1930s when the country went through an economic crisis during the great depression (Hufbauer & Schott, 2009). The buy American requirement was put into place to ensure that domestic goods are given preferential treatment. When the need arises, locally manufactured goods are given the priority. The Act requires that the Federal Government purchases domestic supplies for use. The requirement is emphasized especially in the purchase of construction materials (Hufbauer & Schott, 2009). The Act further requires that there is a marked preference for reliance on price analysis techniques rather than on cost analysis. Pricing is based on adequate and fair competition. For easier operations, businesses are required to use spread sheets.

The Act also includes an evaluation of the effects of the current practices on the future cost of products. The make-or-buy review programs which form part of the Act help in evaluating the cost of contracts. The buy American requirement also comes with a proposal for contract pricing whenever pricing data is required. Contained within are elements of cost, royalties, indirect costs, direct labour and other factors which must be taken into consideration when doing the proposal (Hufbauer & Schott, 2009). Some of the basic facts about Buy American regulations include the fact that they create a preference for prices that tends to favour domestic end products from various American firms on the US federal government contracts. This includes both the manufactured and mined products. An excerpt from the Federal Acquisition Regulation (FAR subpart 25.003) states that Buy American regulations must factor in the manufactured goods in the United States whose production includes at least 50% of local materials (Kruckeberg, 2002).

Benefits of Buy American requirement to Vectorcal and Aerial Fly Drones

The Buy American Regulation would be of great benefit to Vectorcal and Aerial Fly Drones in many ways. The fact that both Vectorcal and Aerial Fly Drones are located in the United States implies that they form part of those companies that are protected by the Act. The overall goal of this Act is to benefit citizens of the United States. In the past few years, a large number of American companies have benefitted greatly from the Act as it serves to protect their interest (Luckey, 2012). Selling and supplying of local products to various contractors and various government agencies across the country will be made possible. Competing with established multinational companies can be quite a task especially for an upstart company like Aerial Fly Drones. The regulations will, therefore, try to ensure that there is a level playing field on which small companies can compete with established multinationals. Vectorcal and Aerial Fly Drones being American companies will have an added advantage over the other companies.

Vectorcal and Aerial Fly Drones will also be able to win tenders just like the foreign companies. These tenders try to promote local businesses and also provide more openings for growth. Both Vectorcal and Aerial Fly Drones will have an advantage in that they will be the preferred tender winners compared to the other foreign-based companies. In case, both Vectorcal and Aerial Fly Drones do not meet the criteria for the required capacity to win the tenders; the regulations provide channels through which they can be involved in businesses these companies indirectly. They can be subcontracted to supply goods to the firms that won the tender (Luckey, 2012). The Buy American Act requires that firms that are awarded a contract/tender will source out for resources from suppliers within the US. It is important to take into consideration the fact that the two companies are local, and they utilize local resources to manufacture their products. They are therefore better positioned to win government tenders as compared to the foreign-based companies (Hufbauer & Schott, 2009).

Buy American Regulations and the capitalist ethos

The Buy American Regulations are a complete contradiction of the capitalist ethos. The requirements are a means of protecting local firms from foreign domination. The move is practically and acts of interference with the requirement for fair play in business. In capitalists markets, fair competition is not interfered with (Scott, 2011). Companies are usually allowed to compete with each other by their ability to deliver quality products. However, the Federal Government gives the local companies a competitive edge over foreign-based companies. Local companies are also favoured when awarding government tenders as opposed to capitalism where the company that presents the best deal wins the tender regardless of whether it is local or foreign. Contractors who win tenders are also not allowed to use foreign goods once they win tenders and can only be allowed to use them through exceptions requirements (Luckey, 2012). This further kills the spirit of fair competition.

The existent of government intervention in Buy American Regulations contradicts capitalist ethos which advocates for a level field for competition. The presence of the government in the picture interferes with the fair market. In American, the government successively achieves this by introducing regulations that serve to favour local companies. Capitalism is only characterized by fair competition and survival for the fittest (Scott, 2011). It is only the strong companies which can stand the test of time while the weaker ones are eliminated. With government interference, the spirit of fair competition no longer exists, making it difficult for all companies to engage in fair competition (Luckey, 2012). In the end, the winner is the local company that is more favoured by the dynamics. Foreign-based companies are beaten hands down. The approach also compromises the issue of quality. These local companies may not be offering the best solution as compared to the foreign firms. The regulations also stipulate that local companies should supply goods and other services to the US government. This is indeed a contradiction of the capitalistic ethos. Capitalistic markets are not dictated by the government and control is not only to market forces of competition (Scott, 2011). Companies only compete by their capacities.

Impact of Buy America Regulations on the American Economy

The Buy American requirement's exceptions are advantageous to the general economy of the United States. There are five main exceptions that are taken into consideration in the Buy American Requirements. First, the application of these requirements should not interfere in any way with public interest. Secondly, the requirement should prefer locally produced goods if their prices are reasonable enough. The third exception is the exclusion of goods that are not used locally within the US. The fourth consideration excludes deals not worth $ 2,500 or more from this requirement. Finally, foods manufactured in the US and their quantities falls below the reasonable levels are excluded. All these exceptions are meant to operate in favour of the American economy.

Some benefits can be realized form the mentioned exceptions. First, the general interest of the public is safeguarded from these exceptions. The goods that are produced within the local market are safeguarded from unfair competition. Therefore, local companies are always certain of government support in their growth. The amount of money that is spent on expensive tendering processes by the government is reduced by a certain margin as tenders are awarded to local companies. Interference of the American economy by foreign-owned companies is much more reduced. The government is also able to cut down on wastage of resources. Finally, the local firms are given the necessary freedom to their operations. In my view, these exceptions are advantageous and fair to the US economy.

Advantages and disadvantages

There is a wide range of advantages that will be realized by Vectorcal and Aerial Fly Drones as both of them are local companies. They are therefore likely to benefit fully from the application of these regulations. The two companies can combine efforts to provide local products that are of high quality and reasonable prices. This will make them much more competitive. The companies can also take advantage of their resources and combine efforts to achieve competitiveness in the market. The move can be very instrumental in fully realizing their potential in the market. This will prevent domination by foreign companies and at the same time put them a notch higher than the local companies. Companies with combined effort and proper planning and management would easily beat such a competition. Such a move would, however, require proper strategizing (Hufbauer & Schott, 2009).

The two companies will also be able to go for government tenders that are set aside for local companies thus giving them headway in winning them. The two companies may win the tenders, and that would be good for business. In case they fail to win the tenders, the two companies still have a chance of being suppliers to the winning companies. With the proper strategies in place, it is much easier for the companies to succeed in the market. The market forces are favourable, and competition is controlled by the law (Luckey, 2012). The fifth exception is that local firms are given the necessary freedom to their operations. This means that laws are not so strict on local companies. Thus, it is easier for the two companies to start up and operate in a stress-free environment (Scott, 2011). Both companies will, therefore, enjoy the full benefits of the application of buy American requirement in the production and sale of the navigation system. This will open up many opportunities for the companies.

On the other hand, some of the possible disadvantages include the ownership of the products they sell. If the two companies were to bid for government tenders as separate units, then the possibility of being unsuccessful in the bids is quite high. The possibility of such a company engaging in government supplies now and in the future also becomes much more reduced. Another disadvantage would be that the market would not have an opportunity to get the best product. The buy American regulation unfairly locks out foreign competition which at times may offer the best product (Scott, 2011). The market or consumers are thus limited in the variety from which they may choose.

Another factor to consider is that goods in a particular region seem to follow similar patterns of production. This means that consumers in America are limited to one way of production. At times, foreign competition brings in new ways of doing things. The foreign competitors may offer the same product at a lower price which may be advantageous to the customers who will, in this case, be denied a chance to enjoy the same product but at a lower price. Due to the reduced competition, local products from the two companies may be inferior regarding quality (Luckey, 2012). The management in the two companies may feel that there isn't enough competition in the market, and therefore, their product would not be subjected to competition. They may be unwilling to improve their products so as to make them more appealing to the consumers.

Another disadvantage concerns the government. The company stands to lose a lot of revenue that would have otherwise been received through the payment of taxes. For instance, when foreign companies import their goods to sell in the country, a lot of revenue comes in for the government from the payment of duty. A lot of investment money will be lost which may have been paid to the government once a foreign company set base in the country. The possibility of creating a market battle out of hostility is quite high. The fact that the navigation system may not be exposed to fierce competition within the local market means that it may not perform very well on the international scene.

Reference

Hufbauer, G. C., & Schott, J. J. (2009). Buy American: bad for jobs, worse for reputation. Peter G. Peterson Institute for International Economics.

Kruckeberg, J. J. (2002). Can Government Buy Everything: The Takings Clause and the Erosion of the Public Use Requirement. Minn. L. Rev., 87, 543.

Luckey, J. R. (2012). Domestic Content Legislation: The Buy American Act and Complementary Little Buy American Provisions.

Scott, B. R. (2011). Capitalism: its origins and evolution as a system of governance. Springer Science & Business Media.