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Summary of the main points of the Buy American Requirements
The Buy American Requirements is a provision within the American Recovery and Reinvestment Act (ARRA). The provision prohibits the use of stimulus funds to repair, maintain or construct public building or public works if the iron, steel land other manufactured goods utilized in the project are not made in the United States (Krucks, 2011). However the provision provides three circumstances that are exempted from the above mentioned prohibition. First, exemption is granted if the available quantity and quality of good produced in the United States is insufficient to meet the project standards. The second ground for exemption is when use of American goods would cause more than 25% rise in contract cost. Lastly, exemption is applicable if the use of domestic goods would antagonize the public interest. The provision further requires agencies that must publish detailed justification, of all accepted proposals that have exemptions, with the federal register. This is meant to prevent fraudulent exemption through collusion between contractors and corrupt public servants, hence enhancing the enforcement of the provision.
According to ZirkelBach (2009), the regulation within the “Buy American” requirements may not be applied to “construction material produced in certain designated countries, known as “Recovery Act Designated Countries” (RADC”).” These are mainly less developed countries which are signatory to trade agreement with the United States. It is important to note that under the “Buy American” requirements, a good is defined to be made domestically if final processing in done in the United States. This implies that commodity is transformed into a particular form or shape in the United States or combination of raw materials to create the commodity which has differing properties with the original ingredients takes place in the United States.
Appropriateness of the “Buy American” Requirements
The high rate of unemployment been experienced in the United States and the increasing deficit in the balance of payment with major trading partners requires protective economic legislations to reverse the situation. Therefore, the “Buy American” Requirements are an excellent provision. This provision seeks to promote spending of economic stimulus funds on domestic goods with an aim of promoting growth in the construction sector (Johnson, 2010). The stimulus fund is financed by taxes and it is important that it be utilized in a manner that benefits the tax them. The individual tax payer would benefit from employment opportunities created while corporate tax payers would benefit from increased economic growth and development. It would be unfair to the tax payers if the stimulus funds are used in a manner that promotes the economic welfare of citizens of foreign nations at their expense. Allowing use of imported goods in government funded infrastructure project is tantamount exporting much needed jobs and investment opportunities from the United States.
Competitively priced imported construction goods shrink job opportunities for domestic workers in this subsector. This is attributable to low cost of raw materials as well as labor in foreign countries. It is thus expected that without the “Buy American” Requirements contractors are likely to source products abroad to optimize profit margin (Sinclair, 2009). Thus, the provision deters profit minded contractors from using public funds to only enrich themselves while at the same time encouraging distribution of wealth through domestic sourcing of goods. The provision promotes increase in demand for domestic construction goods which translates into demand for direct and indirect labor. Working citizens implies consumers have money to spend which is an important driver of economic growth.
Does Buy American Requirements Contradict Capitalist Ideals?
The “Buy American” Requirements are contradictory to the United States government claim that it promotes competition and a free market economy. It is in fact a protectionist strategy. It dictates how constructions firms wishing to participate in the government fund project source materials locally which effectively puts restriction on imports. This is a regulatory barrier to market entry which characterizes protectionist economy policy rather than capitalist economy (Hawkins, 2012). Such protectionist strategies have the potential retarding economic growth due to inefficient allocation of resources. The United States is a leading advocate of free market economy and it has persistently pressured emerging economies such as China and India to abandon protectionist policies (Johnson, 2010). Therefore, the “Buy American” Requirements antagonize ideals of a capitalist society that the United States government purports to promote.
According to Fristch and Boles (2009), even American companies based in other nations are finding it difficult to bid for contracts in the U.S because of the stringent requirements. For example, Trojan Technology Inc. of Ontario Canada and a subsidiary of the Danaher Corporation (a Washington based U.S conglomerate) has been negatively affected by the requirements. It has been forced to relocate to the United States in order to meet the requirements of this provision. These requirements prevent the buyers and sellers construction goods market, from making purchasing decisions based on forces of demand and supply which are the factors that coordinate free market. Thus it is contradictory to government commitment to promote capitalism.
Are the Exemptions fair and Advantageous to the Economy?
The exemption for goods which are not produced in adequate quantity and quality are fair or advantageous to the United States economy. This is because; it allows acquisition of such commodities at competitive prices abroad without restrictions which may delay timely completion of projects. In addition, it promotes efficiency in allocation of scarce resources which is critical for economic growth (Chang, 2012). It encourages the local producers and manufactures of such commodities to minimize wastage of resources through adoption of innovative technologies in order to remain in business. This demands investment in research and development which is a key aspect of economic development.
The exemption for goods that may lead to of the contract cost by 25% is advantageous to the economy. It promotes efficient us of financial resources by preventing purchase of goods at unreasonably high prices. It thus saves tax payers money which could be allocated to other projects that promote economic growth. It promotes prudent utilization of public funds thus and reduces government spending which reduces the external debt burden.
The exemption based on conforming to public interest may not be fair to the economy. This is because public opinion is largely based on partisan interest which may not necessarily be in the best interest of economy. Public sentiment may lead to inefficient allocation of resources due to superficial benefits which mask the underlying economic implication of project procurement decisions (Krucks, 2011).
The exemption provides to less developing countries is beneficial to the economy since it encourages them to adopt free market economy. This provide greater opportunity for export by domestic industries which by large surpass what is imported. It expands export market thus increasing demand for America made goods which provide new job opportunities as well as new stream of government revenue in form of profit taxes.
Chang, H. (2012). New Breathing Space. Web.
Fristch, P & Boles, C (2009). How ‘Buy American’ Can Hurt U.S. Firms. Web.
Hawkins, J. (2012). The Real Problem with “Buy American”. Web.
Johsons, R. (2010). Implication of Buy American Act. Web.
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Krucks, N, W. (2011). The Stimulus Act’s “Buy American” Clause Presents a Challenge to Manufacturers and Suppliers. Web.
Zirkelbach, G. D. (2009). Anti-Fraud Regulatory Scheme Imposed on Stimulus Fund Contracts. Web.