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Trade Agreements Act and Substantially Transformed


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#1 MegB

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Posted 28 November 2012 - 11:25 AM

I am working on a purchase for items that are under the TAA but not a part of the Recovery Act. The issue I am having is that these items are from a country that is not a part of the TAA, however, they are modified in the United States. So what I am trying to do is to see if I can label them a US made end product. According to the definition in FAR Part 25.003 "US made end product is a product that is substantially transformed in the US into a new and different article of commerce with different name, character, or use distinct from that of the article or articles from which it was transformed."

I have found questions in determining substantially tranformed from the Department of Energy (DoE), however, I am with the DoD and cannot find anything specific for the DoD. Does anyone know of any specific determination for the DoD and who would make this determination? I don't think this determination should lie within the Contracting Office, but here I am having to deal with it.

#2 Reciffo Laredef

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Posted 28 November 2012 - 12:09 PM

Can you explain what you mean by "items that are under the TAA" and "Iterms are from a country that is not part of the TAA"? Otherwise, if the items are from a country that is not a signatory of the WTO GPA or an FTA, then the BAA is not waived and it's the BAA's definition of "domestic end product" that should determine your course of action.

#3 MegB

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Posted 28 November 2012 - 12:18 PM

I mean the items fall under the WTO GPA because it is a supply contract that exceeds $202,000. And I am finding that these items are from a country that has not signed a trade agreement.

#4 ron vogt

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Posted 28 November 2012 - 01:10 PM

It's not clear what your role is, and what stage this is in. You say you are from DoD, but you ask if you can label something as US-made. You say you are "working on a purchase." Are you the CO? Are you preparing a solicitation, evaluating offers, or deciding whether a delivered product is compliant?
This area is too complicated to cover all possible scenarios. If you are preparing a solicitation, your focus should be on getting the right clauses in the solicitation, something that a GAO study found was done incorrectly in 75% of contracts it reviewed. If you are evaluating offers, you need to thoroughly study the procedures in DFARS Subpart 225.5. And if you are ...doing what?
All that can be said at this point is that the earlier advice is incorrect. The applicability of the BAA or TAA is not determined by the origin of the product. It is determined by the nature of the contract (supply or construction) and the dollar value (over any of the numerous thresholds).

#5 MegB

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Posted 28 November 2012 - 02:03 PM

I am a contract specialist. The solicitation has already closed and I have proposals I am reviewing. The WTO GPA is applicable because this is a supply contract over $202,000. DFARS clause 252.225-7020 was in the solicitation for the offerors to fill out. I am finding that what is being offered has an origin of country that has not signed a trade agreement, but is modified in the US. That is why I am trying to find out if the DoD has anything that can help determine "substantially transformed". That would help me to figure out if the product is noneligible or US made.

The offerors are confusing the BAA and the TAA because they are stating that their product is US made because they would be doing over 51% of work in additional labor and materials in the US. This is a threshold for the BAA, not the TAA.

#6 ron vogt

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Posted 28 November 2012 - 03:47 PM

It looks like you used the correct solicitation provision. Now for the evaluation process. I believe that, in accordance with FAR 25.501(b ), you can rely on an offeror's certification of the origin, so is there a reason why you are conducting your own analysis? Has another offeror raised a challenge; do you have doubts about the certification; do your agency procedures require confirmation of the origin? I vaguely recall some bid protests where the issue was whether the CO should have questionned the origin of some offered products, but I'm pushing the limits of my recollection. Other than that, I'm not aware of an obligation for the government to conduct an analysis of the origin.

#7 Reciffo Laredef

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Posted 28 November 2012 - 03:57 PM

To be a substantial transformation there must be a new and different end product. For instance, attaching handles to a pot would not be sufficient. Ralph C. Nash, INTERPRETING THE TRADE AGREEMENTS ACT: Conflicting Decisions 22 No. 8 Nash & Cibinic Rep. 45, 2008.

It seems as if your offerors are attempting to show that their products are, in fact, US made end products because they are "manufactured in the United States" (the first part of the definition at 25.003 that you left off in your first post) so that under the procedures at 225.403©(i) and 225.502( B )(i), you can give them equal priority.

#8 Don Mansfield

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Posted 28 November 2012 - 03:59 PM

MegB,

I don't know of any such guidance by DoD. However, there was an excellent article in the October 2012 issue of Contract Management magazine that contained a discussion of what constitutes "substantial transformation." The article is "Purchased in the USA: An Examination of Emerging Issues Surrounding Foreign Acquisition" by Eric Cho. See the section titled "Determination of Country of Origin for Supplies--'Made in U.S.A.' vs. 'Domestic End Product' vs. 'U.S. Made End Product'."

The issue is far from clear.

#9 MegB

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Posted 28 November 2012 - 04:12 PM

Ron,
As you say in accordance with FAR 25.501(b ), you can rely on an offeror's certification of the origin. The problem is that the offerors are mistakenly using the definition of "Domestic end product" and that 50% of all the costs of the components are made in the US. If I am not mistaken domestic end product is for the BAA and US-made end product is for the TAA. The definition of "US-made end product" states that product is US-made if it is substantially transformed in the US.

Don,
Thank you for the article.

#10 Vern Edwards

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Posted 28 November 2012 - 05:51 PM

I am working on a purchase for items that are under the TAA but not a part of the Recovery Act. The issue I am having is that these items are from a country that is not a part of the TAA, however, they are modified in the United States. So what I am trying to do is to see if I can label them a US made end product. According to the definition in FAR Part 25.003 "US made end product is a product that is substantially transformed in the US into a new and different article of commerce with different name, character, or use distinct from that of the article or articles from which it was transformed."

I have found questions in determining substantially tranformed from the Department of Energy (DoE), however, I am with the DoD and cannot find anything specific for the DoD. Does anyone know of any specific determination for the DoD and who would make this determination? I don't think this determination should lie within the Contracting Office, but here I am having to deal with it.


If I understand your question, you are looking for guidance as to what constitutes being "substantially transformed." A good place to look for information about this murky issue is GAO decisions. Get on Google and find Klinge Corp., GAO Decision B-309930.2, 2008 CPD para.102. It describes the issues and shows how one agency resolved them. Also read the Court of Claims decision that followed upon the GAO decision: Klinge Corp. v. U.S., 82 Fed. Cl. 127 (2008), which is also available on line.

Those cases will not give you definitive answers, but they will point you in the right direction and give you some ideas.

In the future, cut to the chase and ask the question you have in mind. That's the best way to get a useful answer at Wifcon. Leave out stuff like the crap about whether the contracting office should be dealing with the problem and your expression of self-pity for having to be the one to deal with it. You could have just said, "Can anyone direct me to guidance about the substantial transformation standard pertaining to U.S. made end products under the Trade Agreements Act?"

Look at the answers that you initially received. Instead of giving you what you wanted they responded to stuff you said in your opening post that was only tangentially related to what you want to know. Of course, it's possible that it is I who doesn't know what you want to know. If so, that would be your fault.

#11 Reciffo Laredef

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Posted 28 November 2012 - 06:25 PM

Thanks for the tips, Vern. I saw MegB's last sentence as an extension of the question - an inquiry into where and at what level the determination should be made that perhaps other experienced government employees could chime in on - rather than self-pity. But I suppose that's my fault.

#12 ron vogt

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Posted 28 November 2012 - 07:04 PM

True, they may be incorrectly using that definition, but it doesn't necessarily mean that the products are not "US-made" for purposes of the TAA. To be US-made, the product simply needs to be substantially transformed in the US. There is no requirement with respect to the content. If they are saying that their product meets the "domestic" test for the BAA, then they are saying it is manufactured in the US as well as having 50% US content. While the "manufactured" test for the BAA is technically a different standard than the "substantially transformed" test under the TAA, few could explain what the difference is.

For more on the "substantial transformation" test, I believe the GAO and other courts look to the rules and decisions of US Customs and Border Protection, and the decisions of the International Trade Court. The CBP rules of origin are at 19 CFR, and you can research CBP decisions on its website.

#13 Vern Edwards

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Posted 28 November 2012 - 09:19 PM

Thanks for the tips, Vern. I saw MegB's last sentence as an extension of the question - an inquiry into where and at what level the determination should be made that perhaps other experienced government employees could chime in on - rather than self-pity. But I suppose that's my fault.


See FAR 1.108(f): "Imperative Sentences. When an imperative sentence directs action, the contracting officer is responsible for the action, unless another party is expressly cited."

#14 Vern Edwards

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Posted 28 November 2012 - 09:40 PM

For more on the "substantial transformation" test, I believe the GAO and other courts look to the rules and decisions of US Customs and Border Protection, and the decisions of the International Trade Court. The CBP rules of origin are at 19 CFR, and you can research CBP decisions on its website.


In support of that statement, see Becton Dickinson AcuteCare, GAO Decision B-238942, 90-2 CPD para. 55, in which the GAO discusses the legislative origin of "substantially transformed." However, I cannot find references to CBP or 19 CFR in other decisions, except to describe how the offerors or the CO relied on them in making a decision.

#15 ron vogt

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Posted 29 November 2012 - 01:39 PM

This might help. In a 1994 Briefing Papers, the authors note the following:


Famillarity with the rulings of the U.S. Customs Service is essential to anyone dealing extensively with the application of the TAA. The TAA requires the Secretary of the Treasury to provide for the prompt issuance of advisory and final determinations of product origins. [FN201] The Department of the Treasury has delegated the responsibility for making those determinations to the Customs Service. [FN202]. Bid protest forums have recognized the expertise of the Customs Service in the area. As noted above, the GSBCA accords great weight to Customs Service rulings in determining whether a particular manufacturing process constitutes "substantial transformation" for purposes of the TAA. [FN203] Likewise, the GAO has followed Customs Service precedent and. in at least one case, has requested an informal ruling from the Service on whether operations constituted substantial transformation. [FN204] The determinations of the Customs Service thus have assumed a new importance in federal procurement law.


I know I have read GAO decisions with references to both Customs rulings and ITC cases. I just don't have them at my fingertips. When the need arises again in my job, I will do the research.

For a useful guide, try the template that the EPA published when everyone was struggling with the ARRA Buy American requirement. About halfway down the page at this link http://water.epa.gov...ng/eparecovery/ are several guidance documents on the Buy American requirement. In them are a series of three questions that the EPA considers important in determining the country of origin. It's not perfect, but there's not much else out there.

#16 Don Mansfield

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Posted 29 November 2012 - 06:09 PM

Ron,

What does it say in endnotes 203 & 204 of the article?

#17 ron vogt

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Posted 29 November 2012 - 06:49 PM

203: CompuAdd Corp. v. Dept. of Air Force, GSBCA 12301-P, 1993 BPD 144, 93-3 BCA 26123, 35 GC 338.
204: Becton Dickinson AcuteCare, Comp. Gen. Dec. B-238942, 90-2 CPD 55, 32 GC 319.

#18 Vern Edwards

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Posted 30 November 2012 - 05:25 PM

A couple of things:

First, a 1994 Briefing Paper is a little old to rely on. You will have to verify that the information in that publication is still good before you can safely rely on it.

Second, CompuAdd Corp. v. Department of the Air Force is an old GSBCA protest decision. GSBCA decisions were often controversial and GSBCA lost its protest authority in the mid-1990s in part because of that. It's precedential value is virtually nil.

Third, Becton Dickinson, which I cited in Post # 14, is also old. It is reliable law according to Westlaw, but its age and the fact that it is a stand alone decision makes it a weak link.

Bottom line is that there is some guidance about the issue, but not much. If you are looking for a definitive treatment, none of us has found it yet. There are very few protest decisions -- maybe 9 or 10, that address the problem at all, and only 1 or 2 that address it head on. You may just have to do your best thinking and make a decision, see if it's protested, and see if you win.

#19 ron vogt

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Posted 30 November 2012 - 06:08 PM

True, but the point was not that those particular cases themselves are good guidance. They were just in the footnotes. The point was that the boards and courts will look to Customs and ITC cases for guidance on issues regarding substantial transformation and the country of origin. Personally, I go straight the Customs database of decisions, because of, as you pointed out, the dearth of guidance at the GAO. There are thousands of decisions and opionion letters by Customs. I downloaded the whole works so that I could search them all at once, which I don't believe you can do from their web site.




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