Buy Lines: Why should we pay more for free trade?

Steve Charles

Ever since Congress created the Trade Agreements Act exemption to the Buy American Act, the U.S. Trade Representative has been able to use the purchasing power of the federal government as a lever in free trade negotiations.

The principle is that our government won't buy products made in a country that restricts the purchase of products made in the United States.

This has been successful in a quite a few instances. The most recent examples are Australia and Morocco; Jan. 1, they joined the ranks of countries whose products now can be purchased by the federal government.

This may be great news for companies that manufacture in Australia or Morocco, but it is of little comfort to those of us selling commercial electronics hardware that almost universally is assembled in China, Malaysia, Taiwan or Thailand.

Many major electronic hardware manufacturers are forced to maintain, in countries such as Mexico, Singapore and South Korea, redundant manufacturing facilities that are dedicated to producing items for U.S. government customers.

This may seem like a simple workaround, but the costs of tracking origin points of items through a global distribution system are significant and provide no incremental value to the government customer.

The situation is becoming dire when entire categories of products, such as personal digital assistants, simply are not manufactured in a country that has signed a free trade agreement with the United States.

Thus, for certain commodities, the Trade Representative's position on government trade is preventing the
government customer from buying commercial items or, worse, forcing them to buy in amounts under the micropurchase threshold guaranteeing higher costs.

When Congress passed the Federal Acquisition Streamlining Act in 1994, it exempted commercial items from many of the federal procurement contract clauses, so that government buyers would be able to source in a manner that is more like the way that their commercial counterparts do.

We all know that inventors and manufacturers of high-volume commodities really don't have choice about where to manufacture. The global economy dictates the final assembly point for truly commercial items.

Fortunately, some policymakers now are asking whether requiring country-of-origin tests for certain commodities is consistent with procurement law, given the government's mandate to buy commercial items.

They also are questioning whether it is fair to require manufacturers, especially those based in friendly countries, to maintain country-of-origin tracking systems ? solely to get the benefit of selling to Uncle Sam ? when those
systems and processes add significant cost to the supply chain without adding one iota of value.

For the next several months, trade will be on the national agenda. In March, the United States Trade Representative's office submits its five-year report to Congress. This starts a review process of our country's participation in the World Trade Organization culminating in a vote regarding our continued participation in the WTO.

Concurrently, it appears momentum is building to exempt certain categories of commercial products from the country of origin requirements of the Trade Agreements Act.

Manufacturers that have a stake in the outcome of this issue should be working with their industry trade associations now.

If you are not sure who to contact, send me an email message and I will forward you my list of the associations and points of contact working on this issue.

Steve Charles is cofounder of immixGroup, a government business-consulting company in McLean, Va. Steve welcomes your comments at Steve_ Charles@immixgroup.com.

About the Author

For the past two decades Mr. Charles has helped hundreds of technology manufacturers succeed in the government marketplace. His breadth and depth of expertise on every dimension of the government technology ecosystem provide technology manufacturers with a strategy and clear focus for the greatest success. Mr. Charles is adept at mapping technology product lifecycles and revenue models with appropriate channel and contract vehicle strategies in light of current procurement law, regulations and policy. He receives glowing reviews from the training workshops he facilitates to help sales teams understand the sales tactics needed to address each step in the government acquisition process. Mr. Charles is actively involved in government-industry associations including TechAmerica, ACT-IAC, Coalition for Government Procurement, and the National Contract Management Association. He meets regularly with leaders in government and industry to increase understanding and positive action. Mr. Charles co-authored The Inside Guide to the Federal IT Market, a how-to book for technology companies selling to the government. He is regular contributor to Washington Technology.

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