Companies Need to Exercise Extreme Caution in Selling to the Federal Government

President Trump on April 18 signed an Executive Order (E.O.) intended, in the words of a senior administration official, to "usher in a new, more muscular Buy American policy based on the twin pillars of maximizing Made in America content and minimizing waivers and exceptions to Buy American laws."

The new E.O. will likely impact companies selling or planning to sell to the federal government.

By way of background, those selling to the government are often governed by either the Buy American Act ("BAA") or the Trade Agreements Act of 1979 ("TAA"). The BAA establishes a preference for domestically-manufactured goods in government procurements.  It provides that "only such unmanufactured articles . . . mined or produced in the United States, and only such manufactured articles . . . as have been manufactured in the United States substantially all from [domestic materials] . . . shall be acquired for public use," unless it is determined to be inconsistent with the public interest, or the cost to the government would be unreasonable. Similarly, a domestic "end product" is generally either an unmanufactured end product mined or produced in the U.S. or an end product manufactured in the U.S. for which the cost of its components mined, produced, or manufactured in the U.S. exceed 50 percent of the cost of all components (although this cost requirement may be waived for certain "commercial off-the-shelf" items).

Under the TAA, which controls most procurements above designated threshold amounts, the government waives the Buy American Act and other discriminatory provisions for eligible products from certain countries (called "designated countries") that have signed the World Trade Organization Government Procurement Agreement and who grant the United States reciprocal procurement opportunities. Products of these countries may be supplied to the U.S. government under federal procurements instead of U.S. goods. 

In addition, products of certain other countries to which the United States has given preferential tariff treatment (such as the Caribbean Basin countries, Mexico, Australia, Chile, Morocco, Singapore, and several African nations) are likewise exempted. For these procurements, the government applies a more liberal TAA definition of "country of origin" and does not follow the Buy American Act "domestic end product" analysis.  Per the TAA, a product's country of origin is the place where the end product is substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article(s) from which it was transformed; the government does not directly consider the value of the product's components.

The order now puts in motion, over the next 150 days, a comprehensive top-to-bottom "Buy American" performance review by each federal agency, including an assessment of the agency's use of waivers and exceptions to "Buy American" requirements.  

The review may also include an analysis and more restrictive interpretation of "substantial transformation" determinations under the TAA - which are already subjective by their very nature. In addition, a stricter enforcement posture in this area will likely result in additional scrutiny (including audits) of BAA/TAA certifications provided by suppliers under government contracts. 

The bottom line is that if your company is currently supplying goods directly to the federal government, or has issued BAA/TAA certifications based upon a request from its customers, it should conduct a thorough review of the basis for such certifications and prepare for likely increased enforcement activity in this area. It also should conduct training to those individuals/offices involved in government procurement regarding BAA/TAA requirements.  

Pisani & Roll LLP can assist in conducting such reviews, defending against enforcement, and providing training, as needed. For further information, please contact Brett Harris at bharris@worldtradelawyers.com or 1-845-255-1850.

We are is continuing to monitor trade policy changes and will update our clients and friends of the firm as events warrant.  In the meantime, if you have any questions about the potential changes in trade policy, please email info@worldtradelawyers.com.

(Source: Pisani & Roll LLP Attoneys at Law)