Interview transcript
Terry Gerton You know, our timing on this topic is pretty lucky since the president’s management agenda just dropped. One of its three goals is to deliver results and buy American. It specifically has an objective to rebuild American industry through prioritizing and enhancing “made in America” execution. But right there, we see a conflict. One is buy American, and the other is made in American. And you’re an expert in this space, talk to us about the difference between those two concepts and what makes it so confusing.
Julia Ensor Yeah, that’s a great question and one that I’ve heard many times. So when we’re talking about Buy American, we’re generally talking about federal procurement. We’re talking about if government is the buyer and you’re supplying goods to the government in accordance with a contract, there are very, very specific requirements that you have to fulfill in order to be Buy American compliant. When we talk about “made in America” or “made in the U.S.A.,” in general, we are talking about an advertising claim. We’re talking about how you position your product, how you market your product to consumers. So the standard for making a “made in the U.S.A.” or “made in America” claim, it’s very different. It’s tagged to how reasonable consumers understand your claim, and it’s aimed at preventing consumers from being misled, completely different from the very formulaic requirements of responding to a government contract for Buy American purposes.
Terry Gerton Could you give us an example of a product that might meet one requirement, for example, Buy America, but not “made in the U.S.A.” or vice versa?
Julia Ensor Yeah, so when we talk about “made in U.S.A.” as a marketing claim, in general, the Federal Trade Commission is going to expect products to be all, or virtually all, made in the U.S.A., all the way back to raw materials. So that means to advertise a product to consumers without misleading them, your product needs to have no more than de minimis foreign content in it. That’s very from a product that could be supplied to the government in response to a contract that is covered by Buy American, where you can have a fairly significant proportion of the products attributable to foreign costs. So under Buy American you only need about 65% of a manufactured product’s cost to be attributable to U.S. Costs. So it’s different from the “all or virtually all” standard.
Terry Gerton That 65% threshold under the Buy American Act, that content threshold is going up to 75% in 2029. Does that change compliance strategies for contractors?
Julia Ensor It’ll mean that everybody needs to continue to review their supply chains. So you need to be in continuous contact with your suppliers. You need to understanding where all of your components are coming from and monitoring to make sure that you are ready to meet that 75% when it snaps into place, if you’re supplying products to the federal government.
Terry Gerton Supply chains have been under such pressure since the pandemic and continue to be shifted and realigned. Do you think that suppliers and supply chains are ready for that shift?
Julia Ensor That’s a great question. I think that supply, because supply chains are so constantly in flux, certainly when I was at the Federal Trade Commission, we saw problems arising from this all the time. I think it’s incredibly difficult for marketers, for suppliers to stay on top of what’s going on. That’s why it’s so important to have open lines of communication, to have procedures in place for routine audits, for routine certifications that you’re seeking from your suppliers to really understand where every part of your supply chain is and what’s going on.
Terry Gerton I’m speaking with Julia Ensor. She’s counsel at Reed Smith and former “Made in the U.S.A.” program manager for the Federal Trade Commission. We talked about Buy American, and we talked about “Made in the U.S.A.” In the Defense Department, there’s the Berry Amendment that plays a role in these kinds of considerations as well. Talk to us about how that fits into this picture.
Julia Ensor Yeah, so if you are supplying to the Department of Defense, the standard that you have to meet is even higher when it comes to certain products like food, clothing, fabric, specialty metals. In the case of those products, if you’re supplying to Defense, your products must contain exclusively U.S. Content. So that means that a product that could be compliant with Buy American that could very potentially not be sufficient under the Berry amendment.
Terry Gerton So contracting officers have a lot to watch out for here, as do suppliers. You’ve warned that sourcing changes can trigger compliance problems. And so what should companies be proactively disclosing? What should contracting officers be sure they’re asking to make sure that everybody is on the right side of these laws?
Julia Ensor So you need to be going back and talking to every person in that supply chain. Make sure that your suppliers are providing reliable certifications and that they have all appropriate documentation of where components are coming from, that they understand early inputs to the manufacturing process, which is where problems can occur. And then have a process in place to communicate routine supply chain changes. Don’t just restrict this to annual review. Make it a term of your contract with your suppliers. Require them to notify you as soon as possible if something changes so you in turn know whether you need to talk to your contracting officer, whether you to make supply chain changes to bring your products into conformance.
Terry Gerton Sometimes in spite of everybody’s best efforts, there are mistakes. Are there any safe harbors, little loopholes for places where they report 70%, but it’s 65% or something like that?
Julia Ensor I don’t know about loopholes per se, but open lines of communication are always the best policy. Make sure that you are reporting issues. Don’t wait for an insider to report an issue to the government. Significant penalties can be on the line if you make mistakes in this area. So have open lines and communication. Be just talking when changes happen so that you can remediate issues as they occur.
Terry Gerton You mentioned significant penalties. What actually could happen if a company is in violation of any of these laws or restrictions?
Julia Ensor Right, so the government can sue you directly. You can be liable for significant penalties under the False Claims Act. And then the False claims Act also allows whistleblowers to file confidential lawsuits on the government’s behalf and receive a percentage of any resulting recovery. So that means that if there’s an insider who sees your issue, those insiders are incentivized to let the government know if compliance falls through the cracks. So, potentially significant penalties on the line.
Terry Gerton How common are those whistleblower cases?
Julia Ensor Fairly common and increasingly common.
Terry Gerton And what kind of incentive are we talking about here?
Julia Ensor So it’s a percentage of the recovery and recovery could be in the millions.
Terry Gerton Wow, so everybody really does need to pay pretty close attention. Certainly given your experience here, if you could rewrite the rules, are there things that would make compliance clearer or maybe disentangle some of the rules that seem to conflicting?
Julia Ensor So certainly consistency across the board would make it a lot easier for everyone. I mean, right now you have a system where marketers and contractors are having to comply with so many different standards, so many different laws, and it makes it really, really challenging. And marketers that think that they’re doing their best, that know that they are, for example, compliant with Buy American, and wanna go out and tell that story about their US manufacturing to consumers, can find themselves in trouble with the FTC, can find themself the subject of a consumer protection action. And that’s a real challenge. So if there were an opportunity to harmonize the rules and the regs, it certainly would make things better for marketers. On the other hand, that could lead to additional consumer confusion or deception, so it’s a really hard place to be. And to some extent, that tangled regulatory web is somewhat necessary to harmonize the joint goals. You have the government and the administration on the one hand wanting to prioritize buying American goods, wanting to incentivize marketers to reshore manufacturing. And on the other hand, you have a push and pull with consumer protection authorities whose job is to make sure that consumers are not being deceived or misled by claims. So while it would be great if there were some harmony across the board, while it would be very helpful to marketers and to businesses, there’s also some tension here in the competing goals that the different laws and regulations are on the books to serve.
Terry Gerton Do you see any interest or momentum in Congress or amongst the regulatory community to actually move towards that kind of streamlining or simplification?
Julia Ensor So over the years, I’ve seen movement in all directions. And then the problem is that there are really strong arguments for harmonization. You know, it’s helpful to business, may result in reshoring of more jobs and encouraging more US manufacturing. But on the other hand, when you look at consumers, when consumers see claims that products are “made in U.S.A.,” they have really high expectations for what that means. They expect that the thing that they pick up is all or virtually all, is no more than de minimis foreign content. And so on the one hand, while there is a great argument toward streamlining and fostering the development of U.S. Manufacturing, it’s so important to make sure that consumers are getting the product that they bargained for. So for now, the best balance that I think that we’ve been able to strike is, on the one hand, having those technical requirements in place on the procurement level to help businesses and manufacturing on the margin where we can there, but at the same time recognizing that when you’re marketing to consumers, we have to protect consumers and impose that higher standard. So that’s really tricky for marketers, for businesses, but, at the moment, it may be the best we can do.
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