Pentagon says buying American "IMPOSSIBLE"

Date: Tuesday, July 08, 2003 12:53 PM

JOB DESTRUCTION NEWSLETTER

www.ZaZona.com

Harris Miller of the ITAA is in the news again. Now he is defending the
rights of the Pentagon to outsource their manufacturing overseas to cut
costs.

The Pentagon said that they cannot build military equipment if 65% of
it is made in the U.S. If that's the case, our national defense is in
serious trouble. There were no discussions in the article about the
fact that tax payer money will be used to pay foreign workers to build
our military equipment. Apparently the only issue is whether Pentagon
outsourcing compromises national security.

http://www.siliconvalley.com/mld/siliconvalley/6248859.htm

Posted on Mon, Jul. 07, 2003

'Buy American' rules problematic for tech

FOREIGN COMPONENTS MAKE PENTAGON REQUIREMENTS IMPOSSIBLE, INDUSTRY SAYS

By Heather Fleming Phillips
Mercury News Washington Bureau

WASHINGTON - Patriotism is sweeping the halls of Congress after the
fight against terrorism and Iraq. So what better way to promote U.S.
industry and protect the homeland than requiring the Pentagon to
purchase more American products?

At least that's the intent of legislation passed by the House last
month. The 2004 Defense Authorization Bill would strengthen ``buy
American'' laws, requiring the Pentagon to purchase products with at
least 65 percent U.S.-made parts. Current regulations on Pentagon
purchases require that at least 50 percent of a product's components be
made domestically.

Rep. Duncan Hunter, R-San Diego, is the force behind the latest ``buy
American'' legislation. ``Having a dependency on foreign countries for
our military resources is not in the best interest of America's
national security policy,'' explained Hunter spokesman Michael
Harrison.

But the technology industry says the requirement is impractical, even
ludicrous, because what tech product today does not have a significant
amount of foreign-made parts?

>From software to hardware, and telecom equipment to chips, scores of
tech products would fail to meet the Defense Department's new
requirement, says the Information Technology Association of America.

For Pentagon suppliers, ``it's putting them in a position where they
have to provide a unicorn,'' said Harris Miller, president of the
Information Technology Association of America. They would have to
provide products that simply don't exist, he said.

Miller says the first suppliers to feel the impact would be big
``systems integrators,'' such as Lockheed Martin, Northrop Grumman and
Raytheon, that work with dozens of sub-contractors to build
cutting-edge battlefield technologies.

Flat panel displays for notebook computers and hard drive disks are two
critical components for computers that are simply not manufactured in
the United States, ITAA said in an eight-page white paper on the issue
released last week. But it's not just that so many electronic parts are
made overseas; it's also that it isn't always black and white where a
product is ``made.''

Take for instance software. In many cases, software developers are
setting up global work groups so that a product can be worked on around
the clock. So is that final product made in the United States? Or the
United Kingdom? Japan? Or maybe even India?

Hardware has similar issues. For instance, semiconductor chips that
power everything from cell phones to PCs could be made in the United
States but sent to foreign plants for ``encapsulation'' -- a high-tech
packaging process. Under existing U.S. Customs rules, the country of
origin is considered the place where the chip is encapsulated. It's
questionable under the proposed rule, whether enough chips are ``made''
in the United States to meet the Defense Department's demand, the ITAA
white paper said.

The tech industry is joined in its opposition to Hunter's proposed rule
by the defense industry and the Bush Administration. The Defense
Department says Hunter's legislation could jeopardize a number of
critical military projects, including the missile defense system and
Joint Strike Fighter project. Other countries, including the U.K., have
contributed $4 billion toward the fighter project.

If the United States is forced to back out of existing contracts for
the fighter project, it would disrupt relations with key allies, said
Suzanne D. Patrick, deputy undersecretary of defense for industrial
policy.

The fate of Hunter's ``buy American'' provision is uncertain. The
Senate's version gives the Pentagon more flexibility in its purchases.

Yet, Hunter, as chairman of the House Armed Services Committee, carries
significant political weight and he'll be a chief negotiator as the
House and Senate hammer out the differences between the two versions of
the legislation.

``He's a very formidable opponent,'' said ITAA's Miller.

Yet, tech has an important ally on the issue -- Secretary of Defense
Donald Rumsfeld.

``The broad and insidious nature of the consequences of this
legislation are such that we don't see a lot of room for negotiation on
the various provisions, and that makes it particularly problematic,''
said Patrick. ``We've just been surprised, mystified and disappointed
that this legislation is there.''

Contact Heather Phillips at hphillips@krwashington.com or (202)
383-6020.

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