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New U.S anti-counterfeit part measures will have global supply chain impact

New Department of Defense counterfeit parts regulations could have a broad impact on hundreds of global companies that supply billions of dollars of parts and products to the US government, according to researcher IHS.

The 2012 U.S. National Defense Authorization Act (NDAA) will impact not only U.S. companies doing business with the government, but with overseas suppliers as well.

Non-U.S. suppliers accounted for more than $2 billion in parts and products sold to the U.S. government from 2007 to 2011. European Union (EU) and Middle Eastern companies accounted for most of the American government’s procurement spend, IHS reported.

The researcher estimates that 362 non-U.S. companies worldwide currently supplying the U.S. government could be directly impacted by the NDAA counterfeit regulations, with many more that could be indirectly affected.

On December 31, 2011, President Obama signed the NDAA into law. The law creates regulations for counterfeit part detection and avoidance. All suppliers in the defense supply chain are required to put counterfeit risk mitigation procedures in place.

Under the law, contractors are responsible for detecting and avoiding the use or inclusion of counterfeit electronic parts. They are also responsible for any rework or corrective action that may be required to remedy the use or inclusion of such parts. In addition, qualification procedures and processes must be established to employ trusted suppliers and procure electronics from authorized suppliers.

A congressional investigation into the problem of counterfeit parts in the defense supply chain revealed there were at least 1,800 cases of counterfeit electronics in U.S. weapons systems. Approximately 70 percent were traced to Chinese firms.

While the focus of the law is the defense industry, most of the components are commercial electronics and can impact any company that uses them. Counterfeit parts could pose a serious threat to human life or national security. For instance, a counterfeit semiconductor in a pacemaker could result in a patient's death. A counterfeit part in a warplane could result in the aircraft crashing.

IHS noted that the problem of counterfeit parts is worsening. In 2011, there were 1,363 separate verified counterfeit part incidents worldwide, a four-fold increase from 324 in 2009.

The bulk of these incidents were for commercial electronic components that have wide usage across every major technology end market.

Counterfeit parts often are often cheap substitutes or recycled parts. Sometimes counterfeit parts were made by a reputable manufacturer, but failed to meet spec and were supposed to be destroyed. However, the parts were then somehow sold into the electronics supply chain.