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Buy American: Or What?

March 31, 2009

On the Supply Excellence blog, Mike Petro has written an excellent article regarding the evolving ‘Buy American’ policy.

 

Petro describes much of the confusion such policies create and the nightmare that they represent for those charged with either writing or performing contracts. He highlights the threat to project costs, as well as the many areas of unanswered questions (e.g. when is a company or its goods deemed ‘foreign’?)

There are two particular areas that should concern IACCM members:

  1. As with all Government -initiated clauses, it can be extremely hard to obtain clarity over the steps needed to be in compliance. Therefore we are entering into uncertain commitments – always a practise to be avoided. Companies face the very real risk that accusations of non-compliance will be driven by political interests, rather than any sense of equity or justice. For example, NGOs or publicity-seeking politicians will start campaigns that cause severe reputation damage, even though it may eventually be decided that there was no infringement.
  2. This clause sets an unfortunate example to the rest of the world. If copied elsewhere (almost certainly the case), it will create tremendous uncertainty for companies everywhere. It potentially implies the need to monitor whole supply chains for compliance with a hodge-podge of hastily passed laws. Recent US research into monitoring of the supply chain for food products (a legislative requirement) showed that more than 70% of outlets do not comply; most companies have no clue about the origin of goods or the hands they have been through. It is therefore clear that this clause will increase risk, increase workload and delay contracts (including slowing down the very public works projects that are supposed to kick-start the economy).

Whether or not one agrees with protectionism, no contracts expert should support laws that drive uncertainty and risk. Many argue that this uncertainty is inevitable because global markets no longer allow such discrimination. IACCM’s view is that, unless the law can be improved to create contractual predictability and certainty, it should be scrapped.

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