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With NATO Membership Official, Significant Business Opportunities Are Now Available to Swedish Companies

On March 7, 2024, Sweden officially joined the North Atlantic Treaty Organization (NATO) after Hungary’s parliament cleared the last hurdle to Sweden’s membership. Sweden and Finland began pursuing NATO membership following Russia’s invasion of Ukraine in 2022. Finland joined NATO in April 2023. Sweden’s accession, however, was met with significant opposition from Hungary and Turkey based on geopolitical concerns. NATO is an alliance of over 30 countries committed to working together to guarantee the freedom and security of its members through various political and military means. The admission of Finland and Sweden into NATO is monumental because it represents the most significant expansion of the alliance since the addition of eastern European countries after the Soviet Union collapsed in 1991.

Sweden’s membership in NATO will not only provide security and political benefits; it will offer opportunities to Swedish companies, particularly in the defense arena. Given Sweden’s advanced military and defense industrial base, along with its many emerging technologies needed for today’s defense capabilities, Swedish companies will be well positioned to take advantage of opportunities both through NATO and U.S. markets. For example, NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA) is a NATO body seeking to bring in industry, governments and academia to foster startups and other innovators in the development of ideas and solutions critical to safeguarding NATO members. Given the U.S. federal government’s large annual contracting spend ($765 billion for FY 2023, with $470 billion of that through the Department of Defense (DoD)), the U.S. represents an attractive market for Swedish companies. In addition, on December 5, 2023, shortly before Sweden’s accession into NATO, the U.S. and Sweden signed an Agreement on Defense Cooperation to establish a framework for enhanced defense and security cooperation between the two nations. This agreement was specifically designed to apply seamlessly before and after Sweden’s accession to NATO. This agreement establishes conditions for U.S. forces to operate in Sweden and, as a result, likely provides new opportunities for Swedish companies to contract with the U.S. government. This agreement also reinforces the shared commitment to the defense relationship between the U.S. and Sweden.

Non-U.S. entities often encounter barriers when trying to sell to the U.S. government due to domestic preference restrictions, including, most significantly, the Buy American Act (BAA). At a high level, the BAA restricts the delivery of foreign end products under U.S. government contracts by granting a price advantage to contractors offering domestic end products. Fortunately, however, the DoD has entered into reciprocal defense procurement agreements with certain “qualifying countries,” including Sweden. Under these agreements, both countries agree to remove domestic preference barriers and, for purposes of the BAA, qualifying country end products are treated the same as U.S. end products. This exception applies only to contracts with DoD agencies and not to contracts with civilian agencies. Thus, Swedish companies will have an easier time entering the U.S. defense market than companies from non-qualifying countries.

Swedish companies looking to enter the U.S. market should be aware of the various compliance requirements that accompany working with the U.S. government. As a gating requirement, companies must obtain a NATO Commercial and Government Entity (NCAGE) code and must register in the U.S. Government’s System for Award Management database, Not only is this process administratively burdensome, but it requires companies to make a series of certifications to the U.S. government. In the event that such certifications are inaccurate, companies could face civil and criminal liability. Thus, advanced preparation is key. Companies must also maintain a Code of Business Ethics and Conduct and institute other internal controls and procedures to ensure that they are meeting their ethical and contractual obligations. In addition, the U.S. government has recently rolled out detailed cybersecurity requirements that apply to contractors and their supply chains. The most notable of these requirements is the DoD’s Cybersecurity Maturity Model Certification (CMMC) program. In order to comply with CMMC, most DoD contractors will need to implement the security controls covered in the National Institute of Standards and Technology (NIST) Special Publication 800-171. Full implementation of these requirements can be time-consuming and expensive for companies.

In addition, as discussed above, the U.S. government imposes several domestic preference and country-of-origin requirements on its contractors (some of which apply notwithstanding as explained above, the general waiver of these barriers for NATO members holding reciprocal defense procurement agreements). These requirements can be burdensome for companies to comply with and can require extensive preparation on behalf of the contractor and, in some cases, its suppliers. For example, Section 889 of the 2019 National Defense Authorization Act prevents the U.S. government from procuring certain telecommunications equipment and services manufactured or provided by certain companies or their subsidiaries or affiliates with known ties to the People’s Republic of China. Thus, Swedish companies must be prepared to fully vet their supply chains before contracting with the U.S. government for such goods and services. We note that in addition to the government contracting requirements, there are regulatory requirements that companies need to prepare for including in the areas of export control, intellectual property rights, and foreign ownership and control.

In short, Swedish companies can take advantage of the significant opportunities to contract with fellow NATO members, particularly the U.S. However, they should ensure that they are ready and prepared for the numerous regulatory compliance obligations and requirements present for government contractors that do business with NATO and the U.S. Government.