The importance of complying with the Trade Agreements Act (TAA compliance) cannot be overstated for manufacturers, prime contractors and subcontractors selling products to the federal government. Criminal liability and civil fines can ruin a company’s future if found non-compliant.
Our firm helps large and small businesses throughout the US and overseas to minimize the changes of criminal charges and civil liability. Avoiding the most costly legal mistakes should be your goal as a company selling products to the federal government under a GSA schedule.
WHAT IS TAA?
The Trade Agreements Act was established to oversee trade deals between the U.S. and other nations. A key provision of this Act restricts U.S. Government purchases to products that are only manufactured in the U.S. or TAA specified countries. These products are termed “TAA compliant” once they meet certain specifications. If you’re a government contractor selling or intend to sell goods to the U.S. government, ensuring the products adhere to TAA compliance requirements is essential, especially if they fall under GSA Schedule Contracts.
WHAT IS TAA COMPLIANCE
If you are selling products to the federal government and intend to certify that the product is TAA compliant, then you must be able to show that :
- At least 50% of its overall manufacturing cost originates from the US or designated countries.
- The product has undergone substantial transformation in the US or designated countries.
WHAT ARE THE CONSEQUENCES IF YOUR PRODUCT IS NOT TRADE AGREEMENTS ACT COMPLIANT?
If you fail to meet the TAA compliance requirements, then your product may be ineligible for GSA Schedule Contracts. Furthermore, if a contract is signed with an organization that sells non-TAA-compliant products, the government has the right to impose sanctions on the contractor and they may even terminate the contract. Criminal penalties can include fines and/or up to five years of imprisonment. Additionally, you may face civil penalties for any false certification or misrepresentation related to TAA compliance.
PER THE TRADE AGREEMENTS ACT, WHAT IS THE DEFINITION OF “SUBSTANTIALLY TRANSFORMED”?
The Trade Agreements Act (19 U.S.C. §2511(9)) defines “substantially transformed” as a change in the article or product which is subject to substantial change in tariff classification, including but not limited to all processes customarily incident to manufacturing or any other process of transformation, such as cutting, assembling, fabricating, or combining different parts. The article, or substantially transformed product must also be of a different class or kind than the original.
For example, when fabricating metal tubing into exhaust pipes, the fabricated pipe is considered to be substantially transformed from the raw material. Additionally, finished articles that are produced in whole by workers of two countries will also qualify as products that have been substantially transformed.
It is important to note that the change in article or product must be substantial in order for it to qualify for preferential duty treatment under GSP. For example, if a piece of machinery is imported from one country and then assembled with parts from another country, this will not generally qualify as substantially transformed unless a significant alteration is made to the original product.
WHAT ARE TAA-DESIGNATED COUNTRIES?
The designated countries are ones that are:
- World Trade Organization Government Procurement Agreement Countries (such as Australia, Germany, South Korea, Japan)
- Free Trade Agreement Countries (such Mexico, Canada, or Singapore)
- Least Developed Countries (Afghanistan, Cambodia, Samoa, Yemen, etc.)
- Caribbean Basin Countries (Antigua and Barbuda, Aruba, Bahamas, Curacao ETC..
TAA compliant countries are designated countries and the U.S. You can find the complete TAA compliant countries list in FAR, part 25. Correspondingly, non-TAA compliant countries are outside this list, for instance, China, Russia, and North Korea. Government contractors and manufacturers MUST stay current on TAA requirements under FAR Part 25.
WHAT IS A U.S. MADE END PRODUCT ?
A “U.S. made” end product is defined as an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the U.S. into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.
A country end product refers to various classifications, including WTO GPA country end product, FTA country end product, least developed country end product, or Caribbean Basin country end product. Additionally, if an article comprises materials from another country, it must undergo significant transformation to become a distinct article of commerce, possessing a unique name, character, or use compared to the original article(s) used in its creation.
Designated countries that are not TAA approved include China, India, Indonesia, Iran, Iraq, Malaysia, Pakistan, and Russia. It is crucial for GSA Schedule contractors to have a clear understanding of “substantially transformation” and the “Country of Origin” for each product and service offered under their contract. This is particularly significant for Dealers/Resellers who lack control over the manufacturing process and often rely on box markings and incomplete information.
Here’s a complete list of TAA approved designated countries.
WHAT ARE NON-TAA COMPLIANT COUNTRIES?
Non-TAA compliant countries are any country not included in the TAA list. This includes all countries that do not have a Free Trade Agreement with the United States, or other special agreements such as those found in the Caribbean Basin and Least Developed Countries. Some of the Non-TAA compliant countries include China, Russia, and North Korea.
WHAT IS THE MEAINING OF A “TAA COMPLIANT PRODUCT” IN GOVERNMENT CONTRACTING?
If a product originates from a designated country, it is considered “TAA compliant”. This means you can legally sell your product under your GSA Schedule contract. Every government contractor has the legal esponsibility to control and make sure that all products listed on your GSA contract are U.S. made or designated country-end products. If you have doubt that your product is Trade Agreements Act compliant, then you should immediately seek help from a Trade Agreements Act lawyer, who can reduce your chances of criminal liability. If the government determines that your product non TAA compliant because the contribution of designated countries to the overall cost of the product drops below 50%, your GSA Schedule contract will be rendered void.
WHAT ARE EXAMPLES OF TAA COMPLIANCE?
Imagine scenario: you have a bustling assembly facility in the U.S. that churns out an impressive product made up of three integral parts. Part A hails from Canada, accounting for 25% of the cost. Part B, an essential piece imported all the way from Taiwan, commands a hefty 40% of the cost. And let’s not forget about Part C, responsible for 15% of the expenses, making its journey from China. Now, alongside these critical components, the ever-important labor element chips in with 20% of the manufacturing costs.
But here’s where it gets interesting: since a meager 15% of the overall cost stems from a non TAA compliant country (yes, you guessed it, China), this product undergoes a substantial transformation in the good ol’ U.S. of A and a few other designated countries.
HERE ARE REAL CASES WHERE COMPANIES HAVE BEEN CRIMINALLY HELD LIABLE
Defense Contractor to Pay $3.3M to Resolve False Claims Act Allegations
CALL US IMMEDIATELY TO AVOID BEING ASSESSED WITH TAA FALSE CLAIMS ACT PENALTIES. 1.866.601.5518.
COMMERCIAL SOFTWARE AND TRADE AGREEMENTS ACT (TAA)
Trade Agreements Act (TAA) compliance is required for federal government agencies procuring commodity software. Therefore it is important for the procuring authority to validate that contract vehicles are in compliance with the Trade Agreements Act (TAA). Agencies, in establishing a government contract or IDIQ task order, must ensure that all of your products listed on a GSA contract, including third-party software, included in the license or service are manufactured (created) or “substantially transformed” in a “designated country” under the TAA requirements.
Software sold to the federal government can contain many components from various countries. These components may also be compiled in a different country. Therefore, it can be difficult for contractors and manufacturers to determine which country is the “country of origin.” The trade agreements test to determine the country of origin is “substantial transformation” (e.g., transforming an article into a new and different article of commerce, with a name, character, or use distinct from the original article) (refer to FAR 25.001(c)).
WHAT ARE TAA COMPLIANCE THRESHOLDS UNDER FAR 25.403
(1) The Trade Agreements Act ( 19 U.S.C.2501, et seq.) provides the authority for the President to waive the Buy American statute and other discriminatory provisions for eligible products from countries that have signed an international trade agreement with the United States, or that meet certain other criteria, such as being a least developed country. The President has delegated this waiver authority to the U.S. Trade Representative. In acquisitions covered by the WTO GPA, Free Trade Agreements, or the Israeli Trade Act, the U.S. Trade Representative has waived the Buy American statute and other discriminatory provisions for eligible products. Offers of eligible products receive equal consideration with domestic offers.
(2) The contracting officer shall determine the origin of services by the country in which the firm providing the services is established. See subpart 25.5 for evaluation procedures for supply contracts covered by trade agreements.
(b) The value of the acquisition is a determining factor in the applicability of trade agreements. Most of these dollar thresholds are subject to revision by the U.S. Trade Representative approximately every 2 years. The various thresholds are summarized as follows:
| Trade Agreement | Supply Contract (equal to or exceeding) | Service Contract (equal to or exceeding) | Construction Contract (equal to or exceeding) |
| WTO GPA | $183,000 | $183,000 | $7,032,000 |
| FTAs | |||
| Australia FTA | 92,319 | 92,319 | 7,032,000 |
| Bahrain FTA | 183,000 | 183,000 | 12,001,460 |
| CAFTA-DR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua) | 92,319 | 92,319 | 7,032,000 |
| Chile FTA | 92,319 | 92,319 | 7,032,000 |
| Colombia FTA | 92,319 | 92,319 | 7,032,000 |
| Korea FTA | 100,000 | 100,000 | 7,032,000 |
| Morocco FTA | 183,000 | 183,000 | 7,032,000 |
| USMCA | |||
| -Mexico | 92,319 | 92,319 | 12,001,460 |
| Oman FTA | 183,000 | 183,000 | 12,001,460 |
| Panama FTA | 183,000 | 183,000 | 7,032,000 |
| Peru FTA | 183,000 | 183,000 | 7,032,000 |
| Singapore FTA | 92,319 | 92,319 | 7,032,000 |
| Israeli Trade Act | 50,000 | – | – |
CAN GOVERNMENT CONTRACTORS SELL NON TAA PRODUCTS?
TAA compliance is only required for federal procurements. Governmental agencies cannot purchase non TAA products for contracts above the threshold of $183,000 (the value may change). Practically, each GSA Schedule value exceeds the threshold, so one could say that the TAA is applicable to all Schedules.
However, the TAA requirements do not limit foreign trade outside of federal procurements. This means you can sell non TAA compliant products on the commercial market unless prohibited.
WHY TAA COMPLIANCE CRITICAL FOR GOVERNMENT CONTRACTORS
Simply put, it is imperative that you do not sell products to the government that are not compliant with the Trade Agreements Act. Therefore, if you intend to compete for a GSA Schedule contract, it is crucial to thoroughly evaluate the true origin of your products. Moreover, if you have already been awarded, it is essential to ensure ongoing TAA compliance.
HOW TO ENSURE YOUR PRODUCTS ARE TAA COMPLIANT?
Ensuring TAA compliance is crucial for maintaining GSA Schedule contracts. Throughout the contract duration, it is essential to uphold TAA requirements for all products. To help you ensure the TAA-eligibility of your goods, consider following this concise checklist:
1. Thoughtfully select suppliers of components, parts, and materials for your manufactured goods. Ensure that at least 50% of the product’s value originates from the U.S. or designated countries.
2. If your GSA contract involves shipping goods manufactured by a third-party, verify that these products originate from TAA-compliant countries.
3. Always clarify the origin of each source part and material provided by your partners. Thoroughly review supply documentation and agreements for each component.
4. Insist on maintaining a detailed inventory if you rely on multiple parts or goods for your product. This helps ensure that the country of origin aligns with TAA requirements.
5. Periodically (quarterly or with each pricelist update), verify the TAA status of ordered components to avoid missing any changes in their origin.
6. Stay vigilant for any updates or amendments to the TAA and FAR regulations. Keep track of changes in thresholds, margins, and the list of GSA compliant countries which may be found at Acquisition.org
By following these guidelines, you’ll maximize yourTAA compliance efforts and safeguard your GSA Schedule contracts.
HOW TO KEEP IN COMPLIANCE WITH TAA?
To achieve TAA compliance, the products listed on one’s schedule must either be manufactured in the USA or another approved country, or have undergone significant transformation in such a country. The substantial transformation criteria can be met by demonstrating that either at least 50 percent of the production occurred there, or that the alterations made in a TAA-approved country were essential to the final product’s purpose and function.
DOES TAA REQUIREMENTS APPLY TO IT SOFTWARE ?
Yes, software under TAA requirments rules is judged by the same standards as tangible products.
The U.S. Customs and Border Protection CBP would look at where the software originated; in case the inception took place in a forbidden country, the CBP would then follow through the development stages to see if any major alterations or additions took place in a designated one.
TAA Compliance FAQs
Q: How can you ensure TAA compliance?
A: Unlock the secrets to showcasing product origin from a TAA compliant country! Dive into the possibilities: a letter from the manufacturer, a Certificate of Origin, or even quality assurances from internationally recognized organizations. Let’s stay on the right side of compliance!
Q. How Much at Risk is my Company if My Prodcuts Originate from China Under TAA?
A: The Trade Agreements Act of 1979 (TAA) is a critical part of international trade. Generally speaking, if you are selling products or services in the United States that originated in China (or any other nin-designated country), then you need to make sure it’s TAA compliant. Simply coming from China does not automatically disqualify your company. You would have to at least meet the substantial transformation Test. Call us at 1.866.601.5518 for immediate help.
Q: What Can I do If We are Under Investigation for TAA Non-Compliance?
A: The best way to stay on the right side of compliance is to get proactive! Consult with TAA compliance attorney advisor to ensure that all operations and additions substantiallu comply with TAA requirements. Documenting all changes made, from the outset, can help prove your case should an investigation arise. It’s always important to keep up-to-date records for every transaction.
Q: Is Medical Equipment Subject to the Trade Agreements Act?
A: Yes, medical equipment is subject to the Trade Agreements Act. This includes any device that aids in diagnosis, treatment, mitigation or prevention of disease or injuries. To ensure compliance with TAA requirements, you must provide proof of the origin of the product through appropriate documentation such as a Certificate of Origin from the manufacturer on official letterhead. Additionally, it’s always important to work with Trade Agreements Act lawyers that can work through the complex legal issues.
Need Help Reducing Criminal Liability for Not Being TAA Compliant?
At Watson & Associates, LLC our government contract TAA compliance lawyers help companies within the US and overseas reduce their chances of becoming civil anf criminally liable for not meet Trade Agreement Act compliance requirements. Call us immediately for help. Call Toll Free at 1.866.601.5518 and speal to Theodore Watson, Lead TAA compliance attorney.