Executive Decree “Made in America” affecting international companies and FDI

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On January 25, President Biden issued one of his first executive orders, making changes to the “Made in America” ​​program. The ordinance left many questions about its impact on international trade and investment in the United States.

About the executive decree

  • The Executive Order is designed to strengthen requirements for federal government procurement in the United States, allowing for an increased preference for domestic products and supply chains (eg, components) of domestic products.
  • The order creates a new “Made in America” office to administer the new processes, which will be hosted by the Office of Management & Budget (OMB) and will have its own director.
  • All federal agencies have been made responsible for “suspending, reviewing or canceling” agency actions that are inconsistent with this policy, or to propose additional actions necessary to enforce the policy. Federal agencies have also been urged to work with the Manufacturing Extension Partnership (MEP) offices (located in all 50 states) to try to identify domestic sources of supply where possible.

  • Executive Order is Designed to Strengthen Federal Government Procurement Requirements in the United States

  • All procurement exemptions for non-domestic suppliers must be approved by the OMB and / or the “Made in America” ​​director. Most waivers and justifications (except those of national security interest or executive privacy interest) will be publicly available online.
  • Over the next six months, the Federal Acquisition Regulatory Council (FAR Council) will draft amendments to the Buy American Act of 1933 (Federal Procurement Act) to:
    • Replace the current component test with one that focuses on “added value” through US production;
    • Increase numerical thresholds for national content requirements for domestic finished products and domestic building materials; and
    • Increase price preferences for domestic finished products and domestic building materials.
    • The FAR Council is also responsible for examining the existing constraints on information technology which is a business element.1

Who should we pay attention to?

  • International information technology companies – These companies were previously exempt from “Made in America” standards for federal government procurement. While we don’t know what will happen after the FAR Board review, we do know that this exemption is now under the microscope and companies should start planning to change or even remove it altogether.
  • International component manufacturers – Currently, under the Buy American Act, a product must be made in the United States, with at least 55 percent2 the cost of all components sourced from domestic components to be considered a domestic final product. This is also now a consideration for the FAR Council, which has been tasked with raising the national content thresholds (although we don’t know to what extent). International component manufacturers that export to the United States risk having their U.S. contracts undermined if they do not start producing domestically once the threshold increases, especially where there are domestic companies producing the components. same articles.

  • The Federal Procurement Regulatory Council has been tasked with increasing the national content thresholds.

  • National Federal Suppliers – With new regulations expected, companies with large federal contracts should begin to proactively re-evaluate international supply chains for more stringent requirements in the near term.
  • International federal suppliers with national competition – Although the vast majority of federal contracts are already awarded to national companies, federal contracts for international companies will certainly be watched more closely in this administration, especially with the increased public transparency that the executive decree brings. Although waivers will remain a possibility, it appears that the FAR Council will consider ways to provide an even greater advantage to domestic companies under the amended requirements. International firms that have been successful in previous tenders may not win if preferences are adjusted to be even more favorable to their domestic competitors.
  • NOT companies that only supply consumers – It is important to note the distinction between the Buy American Act and the “Made in USA” labeling. The Buy American Act covers federal government procurement. “Made in USA” is a standard enforced by the Federal Trade Commission (FTC) that is designed to protect American consumers. “Made in the USA” follows a different set of standards than the Buy American Act.

Some of the remaining questions

  • What will the revised requirements be? Over the next six months, the FAR Council will be busy analyzing existing requirements and drafting new ones, taking into account a host of issues that these important decisions will bring. There will then be a public comment period prior to adoption. This means that – although we have an idea this summer of what some of the changes might look like – it will likely be late 2021 or early 2022 before we know for sure what the new regulations will require from businesses and the public. federal government. agencies.
  • What impact will this have on trade? Major US trading partners, such as Canada, have already expressed their intention to push back these restrictions. Will loopholes be created for some trading partners? Will our trading partners create similar restrictions in retaliation that will hurt US exporters?
  • Will States follow suit? US states follow their own procurement regulations. It will not be surprising to see states choosing to make adjustments to their procurement codes as well.

  • It will likely be late 2021 or early 2022 before we know for sure what the new regulations will require from businesses and federal agencies.

  • Will unions have a role? While the executive order itself did not specifically mention unions, the White House press release on the executive executive order made three distinct references not only to “American jobs” but to “union jobs”. Right to work and work climate laws vary widely from state to state, and many states boast low unionization rates. Work climate / unionization is also an important site selection factor for many companies, especially international clients. The Biden administration’s specific references to union jobs in its briefing could indicate that unions could play an increased role during this administration.

For international companies in the above categories that were considering manufacturing plans in the United States during Trump’s day, Biden’s executive order might be the nudge they needed to pull the trigger. National companies aiming to pursue federal bids – or deriving a large chunk of their revenue from federal contracts – will certainly be watching this closely, and may even start proactively looking for an increased national supply chain.

There are many challenges associated with this command, much of which has not been covered in this article. The Buy American Act and its interpretation have always been (and remain) quite complex. However, while there will certainly be some implementation issues and ensuring that the positives outweigh the negatives, this recent order creates additional momentum for US manufacturing and is sure to entice some global companies. to consider production in the United States.

2 Finished iron and steel products have a national content requirement of 95 percent.

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