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Fara Fasat

"manufactured" vs. "substantially transformed"

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The discussion in the most recent FAR implementation of the Buy American requirements of the Recovery Act (75 FR 53153, Aug 30, 2010) notes that there are differences between "manufactured" under the Buy American Act, and "substantially transformed" under the Trade Agreements Act. Some articles on these topics also point out that there are differences. Unfortunately, most articles note that there are differences, but do not go into what those differences are.

Does anyone know of a case, article, etc. that discusses those differences?

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There's a Department of Energy memo dated May 24, 2010, subject: GUIDANCE ON MANUFACTURED GOODS AND SUBSTANTIAL

TRANSFORMATION FOR FINANCIAL ASSISTANCE AWARDS, that does a fairly good job of explaing that within the context of ARRA. I couldn't find a direct link because its a PDF file but do a Google search.

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While helpful, that memo only provides guidance on "substantial transformation." The use of the word "manufactured" in the title only refers to "manufactured goods", which is the term ARRA uses to describe what the Buy American requirement applies to. It is the same as the term "construction material" in the FAR.

For ARRA grants and other financial assistance going to non-federal government projects, OMB has adopted "substantial transformation" as the standard for determining whether a manufactured good was produced or made in the US. The DOE memo reflects that.

The FAR implementation of ARRA's requirements is not so straightforward. The FAR has long used both "manufactured" and "substantially transformed," which probably have different definitions as noted at the start of this thread. "Manufactured" is used when the Buy American Act applies, for determining whether a product is "domestic." "Substantial transformation" is used when the Trade Agreements Act applies, for determining the country of origin of a product.

Here's where it gets more complicated. For a supply contract over the trade agreement threshold, you can deliver a product that is either manufctured in the US, or substantially transformed in the US. Not so for construction contracts. For construction contracts over the trade agreement threshold, a product from the US must meet the full "domestic" definition ("manufactured" in the US and 50% US content). Only construction material from a designated country can use the substantial transformation test.

When ARRA came along, it only applied to construction projects, so the FAR had to decide what test to use. I'll skip the interim rule and go straight to the final version. The FAR has decided to use the "manufactured" standard, since that is consistent with the Buy American Act and has a long-standing record of interpretation (so they claim). Also, construction material always had to be domestic, so "substantial transformation" has never been applied to US construction material.

So there's the problem under ARRA. For a US-government project subject to the FAR, the construction material must be "manufactured" in the US. For a US-funded project (not US-government owned), the manufactured goods must be "substantially transformed" in the US.

I am very much interested in any reference materials on the differences between those two tests. Most reference materials I have only address this in generalities.

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Where are the forum stalwarts? Is this the one topic (BAA/TAA) that nobody wants to touch? Just looking for some practical differences between "manufactured" and "substantially transformed." Or are they essentially the same?

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Where are the forum stalwarts? Is this the one topic (BAA/TAA) that nobody wants to touch? Just looking for some practical differences between "manufactured" and "substantially transformed." Or are they essentially the same?

I personally believe the two are essentially the same to determine domestic manufactured goods. It really depends on the context of your analysis. What is the domestic compoent of the good you wish to evaluate?

The best advice I can give you is to monitor the Federal Register and the proposed rulemaking process. See http://edocket.access.gpo.gov/2009/pdf/E9-7031.pdf and http://edocket.access.gpo.gov/2009/pdf/E9-9073.pdf. Final rules and public comments with responses may provide the best guidance.

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