Are Stars Aligning for a Major Shakeup of the Buy American/ TAA Domestic Preference Regime?
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COMPETENCIES 2.0 2.5 3.0 3.4 Are Stars Aligning for a Major Shakeup of the Buy American/ TAA Domestic Preference Regime? A recent Federal Circuit decision and the current administration’s threatened GPA withdrawal may seriously impact U.S. domestic sourcing policies. BY JEFFREY A. BELKIN, MICHAEL J. MORTORANO, and MJ KIM 44 CONTRACT MANAGEMENT APRIL 2020 NCMA omestic sourcing policies may promoted in domestic procurement products delivered to the U.S. govern- soon see a major shakeup af- markets. With government procure- ment to new competition—Acetris ter a one-two punch from the ments accounting for 10–15% of a Health LLC v. United States.2 DTrump administration and U.S. Court country’s economy and additional As government purchasers and of Appeals for the Federal Circuit in countries moving to join the GPA, the customers are likely aware, many February. GPA continues to play a critical role in U.S. procurements require goods to the procurement marketplace. comply with either the Buy American The WTO GPA Withdrawing from the GPA would statute3 or the Trade Agreements Act First, government officials circulated seriously impact the U.S. procurement of 1979 (TAA).4 These statutes limit the plans for the Trump administration to market, to say the least. In a 2017–2019 U.S. government’s ability to purchase issue an Executive Order threatening study of foreign sourcing in govern- products with a foreign origin and, in the United States’ withdrawal from ment procurements,1 the U.S. Gov- turn, sellers’ abilities to procure and the World Trade Organization’s (WTO) ernment Accountability Office (GAO) resell certain foreign products to U.S. Government Procurement Agreement found that the United States awarded government end users. Generally, pro- (GPA) unless undisclosed changes fa- $12.1 billion in contracts to foreign curements subject to Buy American vored by the administration are made. firms ($16.5 billion for foreign goods requirements require manufactured The WTO GPA provides the baseline of and services) in fiscal year 2015, with products to have been substantially international participation in gov- 80% coming from U.S. Department all “manufactured” in the United ernment procurements around the of Defense contracts. Should the U.S. States using a majority of U.S. “compo- globe, with signatories earning equal withdraw from the GPA, foreign firms nents,” with certain exceptions—such status to domestic manufacturing in contracting with the United States as for commercially available off-the- procurements by participating central would lose their GPA access to the U.S. shelf5 products. Procurements subject governments. procurement market and instead be to the TAA generally require goods The GPA is a plurilateral agree- left to rely on limited bilateral deals that are manufactured in, or “sub- ment to open government procure- and USMCA-like treaties. stantially transformed” in, designated ment markets among its parties. The Likewise, U.S. firms contracting countries (including those signatories GPA currently has 20 parties covering with foreign countries would lose to the WTO GPA). 48 WTO members, 10 WTO members their GPA access to the internation- A provision seen in many U.S. gov- in the process of acceding, and 34 al procurement marketplace. That ernment procurements is the “Trade WTO members/observers observing said, foreign contracts do represent a Agreements” clause,6 which requires a the GPA. Parties to the GPA include minority share of the United States’ contractor to deliver only “U.S.-made economies large (such as the Europe- overall procurement awards. By or designated country end products.” an Union and United States) and small threatening to withdraw from the In its Acetris Health decision, the Fed- (such as Armenia and Moldova), from GPA, the Trump administration may eral Circuit clarified this requirement, the Americas (Aruba) to the Middle be using the GPA as another oppor- stating: East (Israel) to East Asia (Singapore). tunity to gain an upper hand in its Parties to the GPA have opened continued pursuit of re-forming the [A] product need not be wholly manufactured procurements worth an estimated U.S. approach to international trade. or substantially transformed in the United $1.7 trillion annually to internation- States to be a “U.S.-made end product.” al suppliers of goods, services, and The Acetris Health Decision Instead, such products may be—as Acetris’ construction work. Through the GPA, Secondly, the U.S. Court of Appeals for products are—“manufactured” in the United domestic suppliers are ensured access the Federal Circuit issued an opinion States from foreign-made components.7 to foreign procurement markets, and that may have a major impact on U.S. competition and transparency are government procurements, opening In other words, the Federal Circuit NCMA APRIL 2020 CONTRACT MANAGEMENT 45 The Buy American held that products such as Acetris nent origin of those very products. In Health’s pharmaceutical pills, com- combination, domestic production for statute and TAA posed of active pharmaceutical ingre- domestic U.S. government consump- dients from India, can be “U.S.-made tion may increase dramatically as a limit the U.S. end products” and “manufactured” result of these two developments. government’s in the United States, even if they are Let us hope that decreases in U.S. not “substantially transformed” in the manufacturing exports to foreign ability to purchase United States. governments, previously covered by The Acetris Health decision could the WTO GPA, do not drown out those products with a represent a major shakeup in the potential gains. world of Buy American/TAA procure- foreign origin ments because a significant amount Jeffrey A. Belkin j Partner, Alston & Bird and, in turn, of qualified U.S. “manufacturing” may j Leader of Alston & Bird’s Government look more like packaging or assembly Contracts Group of largely foreign materials or compo- sellers’ abilities Michael J. Mortorano nents. In larger federal procurements, j Senior associate, Alston & Bird to procure Acetris Health might effectively elim- inate the TAA’s substantial transfor- MJ Kim j Associate, Alston & Bird and resell mation test or the Buy American certain foreign statute’s “components” test in favor of a streamlined Acetris Health manufac- ENDNOTES turing test. 1 U.S. Government Accountability Office (GAO), products to U.S. GAO-19-414, “International Trade: Foreign Sourcing in Government Procurement” (Wash- ington, DC: GAO, May 2019), available at https:// government Conclusion www.gao.gov/assets/700/699393.pdf. The effect of Acetris Health may be 2 Acetris Health LLC v. United States, No. 18-2399 (Fed. Cir. 2020). (Hereinafter “Acetris Health.”) end users. even greater if the Trump administra- 3 41 USC Chapter 83 (formerly known as the Buy American Act (BAA)). tion makes good on its threat to with- 4 Pub. L. 96-39, codified at 19 USC Chapter 13. draw from the WTO GPA. Far fewer 5 The Federal Acquisition Regulation (FAR) defines a commercially available off-the-shelf item,in products manufactured overseas may relevant part, as “any item of supply (including construction material) that is (i) a commer- be eligible for TAA coverage because cial item (as defined in [FAR 2.101]); (ii) sold fewer “designated countries” appear in substantial quantities in the commercial marketplace; and (iii) offered to the govern- in the TAA list, serving in the short ment, under a contract or subcontract at any tier, without modification, in the same form in term at least as a boost to domestic which it is sold in the commercial market- manufacturing. Further, the ruling in place….” (FAR 2.101.) 6 FAR 52.225-5, “Trade Agreements (Oct 2019).” Acetris Health may have a multiplying 7 Acetris Health, see note 2. effect, encouraging suppliers to the U.S. government to alter their supply chains to ensure that final “manufac- turing” occurs in the United States, while ignoring previously challenging regulations that limited the compo- POST ABOUT this article on NCMA Collaborate at http://collaborate.ncmahq.org. 46 CONTRACT MANAGEMENT APRIL 2020 NCMA .