The need to regulate the purchase and production of construction materials for public works in the US facilitated the implementation of the Buy American Requirements Act in 1933. The provisions mainly apply to the construction of buildings and public works, excluding other professional services. The Act was geared towards balancing trade in the procurement of materials due to the ever-changing infrastructural development. The federal government was required to oversee the implementation of the Act whereby construction materials such as steel and complementary fittings were to be manufactured in the US. This paper will investigate the provisions of the Buy American Requirements Act of 1993 and its impacts on companies in and outside the US.
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Main points of the Buy America Requirements Act
The Buy America Requirements Act based its main provision on a number of issues pertaining to public works and the construction in the transport industry. For funding of any grantee project in a state, the Federal Transit Association (FTA) must ensure that materials such as steel, iron, and other required manufactured products are produced and processed locally in the US. An exception is provided for the need to refine materials such as steel additives.
This provision encompassed steel and iron materials needed for the construction and maintenance of railway lines, bridges, and other transit infrastructures (Wyatt, 2013). The implication of this aspect is that all required materials for the construction of transport-affiliated infrastructure must be manufactured locally in the US. Therefore, certification is bound by this provision, whereby procurement scrutiny is essential before a company is granted a tender.
The Buy American Requirements Act also provides waivers that consider the practicability and economic impacts of some infrastructural projects. For instance, section 1605 of the American Recovery and Reinvestment Act provides that waivers may be imposed if the requirements are contrary to the public interest. The Federal transport department could also waive the construction companies in the event that local production of steel and iron would not match the required quantity and quality. Instances of local manufacture of steel and iron, leading to over 25% increase in the overall cost of the project would also require waivers for economic considerations (Wyatt, 2013).
Rolling stock procurements are also controlled under the FTA according to the provisions of the Buy American Requirements. The procurement of stock required for infrastructure projects such as buses and other items should be based on a 60% cost of the final assembly of such items domestically. In this sense, a component of the procured rolling stock may be assembled at the site of construction for purposes of compatibility with the project’s specifications.
The responsibilities of the grantee company are also clearly stipulated for efficient execution of the projects in compliance with the Buy American Requirements. Bidders are expected to fill the required specifications in their tenders and present a properly filled proposal accompanied by the required certificates. The objective of the provision is to secure compliance with all aspects of the local manufacture of the construction and public works project materials (Wyatt, 2013). The FTA oversees the compliance with these responsibilities whereby investigative procedures should follow the suspicion of failure to undertake duties. The application of sanctions is also provided to enhance adherence to the requirements and control operations in the incident that a grantee fails to comply with the certification requirements.
Benefits of the Buy American Requirements Act to VectorCal and the start-up company
The Buy American Requirements Act has various substantial implications that could be of interest to contractors in the infrastructure development sector. Companies such as VectorCal and the new company can use the requirements to their advantage and create a reputable image in the industry, thus leading to competitiveness. In this light, both companies would get an equal chance to bid alongside established companies because constraints surrounding sourcing of steel and iron are minimised (Wyatt, 2013).
This aspect has been facilitated by the development of the manufacturing industry that provides companies with raw materials for such projects. Consequently, the equal competition created implies that VectorCal and the new company can benefit from the fair competition from local firms given that they are not as established as opposed to some of the foreign companies in the industry.
Domestic production and manufacture of construction materials necessitate the need for quality. VectorCal and the new company can take advantage of this provision enshrined in the Buy America Requirements by ensuring that items required for projects are of the highest quality, and thus they demand a substantial market share in the industry. Sourcing steel and iron materials from the US economy further establishes their presence among state manufacturers meaning that access to credit facilities becomes easier since they could conveniently deal with local suppliers. In the long term, the companies would establish their reputation by enhancing their construction and public works services through domestic manufacture and assembly of high-quality materials.
The fundamental contradiction between Buy American Requirements and Capitalism Ethos
There is an incompatibility between the Buy American Requirements and the ethos of capitalism. The ethos of capitalism provides free and fair competition with the aim of making profits. In this sense, players in the market are granted free entry, and they can exit voluntarily provided they comply with the enactments governing the industry that they deal within the process. In this case, the FTA tends to lock out foreign contractors that depend on materials from their native countries of origin (Hufbauer & Schott, 2013). Therefore, discrimination arises due to unfair competition experienced by denying foreign companies the opportunity to capitalise on the available transport development projects in the US. In this regard, the US government contradicts itself when it locks out other players despite advocating free and fair competition.
A good example of unfair competition can be seen in the US-Japan Public Works Agreement of 1994. In this agreement, the US was granted the rights to bid on public works projects in Japan. The agreement did not impose discriminative provisions on the origin of materials for the execution of the public works. In this case, from an ethical perspective, unfairness tends to exist when the provisions of the 1994 US-Japan Public Works Agreement and the Buy American Act are scrutinised.
Therefore, it is evident that the application of fairness was not observed for the facilitation of reasonably competitive capitalistic societies to exist. Another example can be portrayed in the retaliatory moves by foreign countries in situations whereby they opt to pull out of the US economy. The jobs that would be lost in such an event are estimated to be over 57 million, which are dependent on international trade. Consequently, the rift between the poor and the rich would be widened significantly.
Advantages of the Buy American Requirements exceptions to the US economy
The Buy American Requirements Act provides for the exceptions that consider various factors that may inhibit its practicability. A number of waivers can be applied to enhance the successful implementation of public works and infrastructural projects concerning economic factors, availability, and public interest (Wise, 2009). On the issue of public interest, exceptions can be tolerated whereby the common good becomes an issue of concern. This aspect implies that the rationale behind sourcing steel and other building materials can be justified so long as the public is in support of it. According to Wise (2009), the motive for carrying out public works and development of the transport infrastructure in the US is meant for the social and economic development of the citizens, thus translating into the common good. Additionally, the public’s satisfaction is useful for the evaluation of such projects.
Exceptions on the unavailability of resources domestically have an impact on the US economy. Construction materials that are not locally manufactured should not prevent the execution of a project if the materials can be outsourced. The FTA ensures that the bidders present portray proposals that both quality and quantity of items that would be used for the developmental projects. In the case that either of the two requirements is compromised due to domestic non-availability, the application of the Buy America Act would be compromised too in a bid to pave the way for the projects to proceed.
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For instance, the Department of Defence has partnered with foreign manufacturers spending to the tune of $163 trillion for the execution of public works since 2007 (Wise, 2009). Consequently, this aspect attracts international trade, hence creating more opportunities in the process as procurement of the required materials is done. In turn, various purchases and supplies departments become highly active, thus generating more resources that have a bearing on the GDP.
The cost-efficiency of a project is usually a primary consideration for the successful implementation of projects. The transport sector is a significant aspect of the economy, and thus projects surrounding it should be done in the most economical manner without compromising quality. Unreasonable costs in the name of local production of materials are avoided. In this perspective, cost-effectiveness in the implementation of projects relieves Americans the unnecessary expenditure, hence reducing the chances of budgetary deficits.
Advantages and disadvantages of Buy American Products to VectorCal and the new company
The Buy American Act of 1993 has both beneficial and detrimental implications for firms affected by its provisions. VectorCal and my start-up company lie in the category of firms directly affected by the Act in its operations. The waivers provided for in the Act mean the operations of VectorCal and the new enterprise could cut its production costs in the event that manufacturing steel, iron, and other materials for projects is high. The outsourcing or importation of cheaper input results in increased profit margins for the firms, and thus it efficiently propagates goal attainment (Wise, 2009). Additionally, the non-availability of construction materials in the domestic market becomes less of a hindrance to the navigation of the companies since a go-ahead to purchase from foreign manufacturers is provided for in the Act. Therefore, the exceptions of the Buy America policy, tend to favour normal operations to existing and new companies, especially those in the transport sector by factoring the production costs and availability of inputs.
Competition is healthy for the growth of a company such as VectorCal and other start-ups in the industry. Such firms usually face stiff competition from established entities, and thus they need to be protected for survival. The Buy American Act creates a sense of healthy competition whereby foreign firms are limited in terms of the entrance of foreign materials for local projects (Hufbauer & Schott, 2013). For this reason, native firms are given priority to bid for projects aimed at improving the economy. Although the move might bring about retaliatory strategies from other countries, safeguarding the US-based industries from unhealthy competition seems to be advantageous to the native firms.
On the other hand, the Act poses some detrimental impacts on the navigation-related industries. In some cases, the importation of foreign manufactured steel and iron tends to be more economical as compared to manufacturing them in the US. Hufbauer and Schott (2013) argue that manufacturing inputs locally could increase production costs, which means that start-ups are somehow disadvantaged. Procuring materials from external sources that could be cheaper implies that such firms can allocate funds to harness smooth navigation of their operations. Therefore, the economic aspect of manufacturing materials domestically party interferes with the cost-effectiveness of project implementation.
The enactment of the Buy America Requirements Act in 1933 has controlled the logistics involved in the procurement of material for construction and building works. Provisions stipulated in the Act aim at promoting local production and manufacture of building materials such as steel and iron in a bid to boost the domestic economy. The Act has benefitted and various disadvantaged firms considering the dynamics of the capitalistic economy of the US. The navigation of operations involving companies like VectorCal is directly affected by the Act since bidding specifications emphasise on the origin of items required. However, waivers exist to get rid of the impracticability of the Act concerning costs, availability of materials, and the public interest. The Buy America Requirements Act aims at regulating the construction and public works sector through the FTA before granting projects to bidders, which affects firms and the US economy at large.
Hufbauer, G., & Schott, J. (2013). Local Content Requirements: A Global Problem. Washington, DC: Peterson Institute for International Economics. Web.
Wise, D. (2009). Federal-Aid Highways: Federal Requirements for Highways May Influence Funding Decisions and Create Challenges, But Benefits and Costs are Not Tracked. Hershey, PA: DIANE Publishing. Web.
Wyatt, T. (2013). Buy America Requirements for Federally Funded Airports. Washington, DC: Transportation Research Board. Web.