An industry brief by Dr. Vinay Mishra, Technical Sales Manager
June 20, 2022
On May 5th, 2022, Bloomberg reported that the Chinese government has ordered its central agencies and state-backed corporations to replace all foreign-branded personal computers with domestic alternatives within an aggressive timeline of two years. This development aligns with China’s long-term campaign to become self-sufficient in sensitive technology. It so happens that the U.S. has been working on a similar policy, focusing on the domestic content of manufactured products purchased by various U.S. government agencies. The strategy is to fortify the Buy American Act, in effect since 1933 in various forms. Noteworthy amendments to existing rules are anticipated in short order. As reference, the Buy American Act already requires that:
- The end product must be manufactured in the United States; and
- A certain percentage of the end product’s cost must be attributed to US-produced raw materials or parts. This threshold is currently at 55% of the total cost of the end product (except for end products made predominantly from iron or steel).
Starting October 25, 2022, a new rule will be implemented, by the U.S. Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). The rule will increase the required domestic content in the affected products as per the following schedule:
- Minimum 60% (of total cost, up from current 55%), effective October 25, 2022
- Minimum 65%, effective 2024
- Minimum 75%, effective 2029
This rule will affect a broad group of organizations which directly or indirectly supply products to various government agencies, to the tune of over $600 billion annually. Noting current global geopolitical scenarios (Russia-Ukraine war, continued supply-chain woes, etc.) one can expect the new rules to be implemented as per schedule. Supplier organizations must comply or risk penalties under the U.S. False Claims Act. It is therefore vital that affected companies carefully review the domestic content of their products and begin increasing it to meet the above schedule. Many products supplied to the defense, aerospace, pharmaceutical or agrochemical markets require lengthy qualifications for any change to the composition or sources of raw materials. The first upcoming change in domestic content requirement (to 60%) is only a few short months away, with subsequent change (to 65%) less than 20 months away. It would be prudent for organizations to immediately begin a qualification process for any product in which a switch to domestically supplied raw materials is possible.
CABB Group’s U.S. business, Jayhawk Fine Chemicals Corporation, has been in operation for over 50 years in southeastern Kansas, the heartland of the USA. The site was originally commissioned to supply critical materials to the government for World War II. Today, the site is a custom manufacturer of active ingredients and advanced intermediates for clients in the agrochemical, healthcare, and specialty industries. Jayhawk is also a leader in the production of dianhydrides, such as BTDA and 6FDA, used in aerospace, marine and industrial applications.
References and further reading:
- China Orders Government, State Firms to Dump Foreign PCs, Bloomberg, May 5, 2022.
- Increased Domestic Content Requirements in the Final Buy American Act Rule, April 12, 2021.
- Federal Acquisition Regulation: Amendments to the FAR Buy American Act Requirements, National Archives, Federal Register, U.S. Govt., March 7, 2022.
- The False Claims Act, The US Department of Justice, February 2, 2022