Complying with the FAR’s Trade Agreements Act Provisions

Two domestic preference statutes dominate federal government contracts: the Buy American Act (BAA) and the Trade Agreements (TAA) Act. We previously discussed the FAR’s Buy American Act provisions. So it’s time to learn a little about the FAR’s Trade Agreements provisions.

Differentiating the BAA and TAA

The United States has free trade (and other) agreements with several countries or groups of countries. The TAA places products and services from those designated countries on par with American-made goods in many Government acquisitions. In other words, where the TAA applies (and the BAA thus does not apply), a contractor can supply U.S.-made end products or designated country end products (we’ll discuss these terms in a moment).

Before continuing, however, it’s important to point out another key difference between the TAA and BAA: the BAA doesn’t impose a strict prohibition on supplying the Government with foreign goods; instead, the BAA bestows a price preference on domestic goods during evaluation. By contrast, the TAA categorically prohibits contractors from supplying a product that isn’t either a U.S.-made end product or a designated country end product.

Applicability of the TAA provisions

First off, let’s throw out this concept: the TAA doesn’t apply to small business set-aside contracts. The BAA, in contrast, does; it applies to all small business set-aside contracts above the micro-purchase threshold.

In non-small business contracts, however, the TAA’s applicability is triggered by a dollar threshold. The U.S. Trade Representative establishes (about every two years) this threshold (in truth, there are multiple thresholds, but we will only discuss the principal one here), which currently sits at $182,000.

So, if a procurement for supplies exceeds $182,000 (except small business set-asides), we’re no longer in BAA land. Thus, a contractor can offer the Government a U.S.-made end product or a designated country end product.

That raises two key questions: (1) What are the designated countries? And (2) what constitutes a designated country end product?

Designated Countries

Designated countries can be grouped into four general categories: World Trade Organization Government Procurement Agreement countries; Free Trade Agreement countries; Caribbean Basin countries; and Least Developed countries. You can access a complete listing of these various countries here.

If you take a second to scan the list of designated countries, you’ll quickly realize that some major countries are missing—e.g., China, India, Malaysia, and other manufacturing centers.

So, what does that mean? A product from, say, China does not qualify as a designated country end product and, thus, cannot be furnished to the Government where the TAA applies.

What are U.S-made end products and designated country end products?

Defining these terms turns on the concept of substantial transformation. If a good is wholly produced or manufactured in the United Stated or is substantially transformed in the United States, then it is a U.S.-made end product. Likewise, if a good is wholly produced or manufactured in a designated country or is substantially transformed in a designated country, it is a designated country end product.

So what does it take to substantially transform something? Well, the original item or material must undergo a process by which its name, character, or use becomes something different. For instance, converting a steel sheet into a wrench or other hand tool likely constitutes substantial transformation. But assembling, inspecting, packaging, and other superficial processes likely don’t constitute substantial transformation.

Services

Unlike the BAA, the TAA specifically applies to services. So, where the TAA applies, a contractor can provide services from a designated country. In that regard, the services originate in the country where the service provider is “established.” The FAR doesn’t further define this term, but GAO has interpreted this to mean the country where the firm is “legally established” (i.e., incorporated). In short, in a contract governed by the TAA, a contractor can offer services from a firm legally established in a designated country.

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That’s a quick run through the TAA. If you have any questions about TAA or BAA compliance, give us a call at 913-354-2630.