TAA (Trade Agreements Act) Compliance Explained

• What is TAA
• What is TAA compliance
• What does it mean "substantially transformed"
• What are designated countries
• What does "TAA compliant product" mean
• Why TAA compliance is important
• How to keep your products TAA compliant

This article explains what is Trade Agreements Act, what it means for a product to be TAA compliant, and why TAA compliance is important for any company seeking cooperation with the government via GSA Schedules.

What is TAA

The Trade Agreements Act was enacted to govern trade agreements between the United States and foreign countries. One of principal features of the Act is that it limits the U.S. Government procurement to US-made products or products made in designated countries. Such products are called then “TAA compliant”.

GSA Schedule Contracts are also a subject to the Trade Agreements Act, so if you sell or plan to sell goods to the government, you must make sure your products are TAA compliant.

What is TAA compliance

A product is TAA compliant if:

• At least 50% of its overall manufacture cost originates from the US or designated countries.
• The product has undergone substantial transformation in the US or designated countries.

What does it mean “substantially transformed”?

The idea behind this term is that the product must undergo through certain significant changes (manufacturing, assembly, processing etc.) that result in distinctive character, name or use of the emerged new product. So, a “substantially transformed” product is considered originating from the country where those transformations were made.

For instance, if you take aluminum from one country, PET (Polyethylene terephthalate) from another country, and then produce aluminum foil and cover it with PET coating, the resulting aluminum lid is “substantially transformed” product. On the other hand, if you take concentrated fruit juice, then dilute it with water, the resulting product is not “substantially transformed”, because no principally new character, name or use emerged in the process.

What are designated countries?

The designated countries are ones that are:

• World Trade Organization Government Procurement Agreement Countries (like Australia, Germany, South Korea, Japan)
• Free Trade Agreement Countries (like Mexico, Canada, or Singapore)
• Least Developed Countries (Afghanistan, Cambodia, Samoa, Yemen, etc.)
• Caribbean Basin Countries (Antigua and Barbuda, Aruba, Bahamas, Curacao and such).

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 countries outside of this list, for instance, China, Russia, North Korea.

What does “TAA compliant product” mean?

If a product originates from a designated country, it is considered “TAA compliant”. Which in turn means you can legitimately sell this product under your GSA Schedule contract. It is your responsibility to control and make sure that all products you include in your GSA contract are U.S. made or designated country end products. This why it is important to periodically check the origin of components and parts of your product. If the product you deliver to the government becomes 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. More on importance below.

For instance, suppose you have an assembly facility in the U.S. that manufactures a product consisting of three parts. Part A makes up 25% of the cost and comes from Canada, Part B makes up 40% of the cost and is imported from Taiwan, Part C makes up 15% of the cost and comes from China, and the labour makes up 20% of manufacturing costs. Since only 15% of the cost originates from non TAA compliant country (China), the product is substantially transformed in the U.S. and designated countries, so it is TAA compliant.

Now, let’s consider Part B supplier changed to China components as well. And now 55% of the product cost emerges from non designated countries which essentially renders your product non TAA compliant.

Can I sell non TAA products in the U.S.?

TAA compliance is only required for federal procurements. Governmental agencies cannot purchase non TAA products for contracts above the threshold of $180,000 (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 does not limit foreign trade outside the scope of federal procurements. Which means you can sell non TAA compliant products on the commercial market freely.

Why TAA compliance is important

Put this simply, you cannot sell non Trade Agreements Act compliant products to the government. Hence, if you plan to compete for a GSA Schedule contract, you should assess the true origin of your products very carefully. And if you are already awarded, it is important for you to keep your TAA compliance.

How to keep your products TAA compliant

Since TAA compliance is vital for retaining any GSA Schedule contracts you may have, you should always make sure that your products remain compliant to the requirements of the Trade Agreements Act along the entire performance period of the contract. Here is a short checklist you may want to follow to ensure TAA-eligibility of your goods:

• Carefully select suppliers of components, parts and materials of your manufactured goods. The value of your product should be at least 50% coming from the U.S. or designated countries.
• If your GSA contract relies on shipping goods manufactured by a third-party, make sure these products are manufactured in TAA compliant countries.
• Always clarify the origin of all source parts and materials coming from your partners. Ensure each and every component has proper supply documentation and agreements.
• Insist on detailed inventory of you order multiple parts or goods your product relies upon. You want to be sure the country of origin complies with the TAA.
• Periodically (once per quarter or once per pricelist update) check the TAA status of ordered components so you don’t miss changes in the origin of some vital part.
• Keep an eye on any changes and amendments to the TAA and FAR at Acquisition.org. The thresholds and margins and even the list of GSA compliant countries may change!

Are there any exceptions to the TAA regulations?

Yes, there are certain exceptions to the rule. 

The main one to pay attention to currently, has to do with the COVID -19 pandemic.

In order to deal with the crisis more effectively, the GSA is bypassing TAA requirements by allowing vendors to offer items that would otherwise be prohibited. The below Federal Supply Classes are exempt as of March 31, 2021, until further notice: 

FSC 4240 for N95 masks

FSC 6810 for Sodium Hypochlorite (bleach)

FSC 6840 for disinfectants including cleaners, sprays and wipes

FSC 7930 for cleaners including sanitizing surface and floor cleaners

FSC 8520 for hand sanitizers, soaps and dispensers

Should you decide to offer some of the items that fall within these categories, they would have to be added to your schedule though either a new SIN Addition, or a Product Addition Modification within an existing SIN.

How to keep in compliance with TAA?

Basically, to be TAA compliant, the items one offers on their schedule have to either be manufactured in the USA or another approved country, or to have been substantially transformed in such a country. The substantially transformed requirement can be satisfied by having shown that either at least 50 percent of production took place there, or that the changes that took place in a TAA approved country were essential to the end product, i.e. to its purpose and function.

DoesTAA apply to IT software ?

Yes, software is judged by the same standards as tangible products.

The 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.

There was a situation, for instance, where an open-source program was deemed complaint due to having been substantially transformed in an accepted country, even though the source codes were originally developed in China.

TAA compliant countries 2021

Conclusion

Now you know what the TAA (Trade Agreement Act) is, and why being TAA compliant is important. As a professional, you may want to focus solely on doing your business, without the need to dig deeply into the TAA-related matters at all. In this case hiring a professional procurement consulting firm can help a lot in passing TAA certification and keeping your inventory TAA compliant for every GSA Schedule contract you have.

Questions About TAA Compliance

Q: We are a company importing various Taiwanese electronics to the U.S. Recently, we decided to look for government procurement opportunities. Now, a U.S. federal buyer wants us to provide proof of TAA compliance of the electronics. We are pretty sure, every product we import is 100% made in Taiwan. What kind of certificate should we provide as proof of Taiwanese origin of the products?

A: There are various ways to show that a product comes from a TAA compliant country. Letter from the manufacturer, Certificate of Origin, and quality assurances from internationally recognized organizations are some of the examples.

Q: Are TAA regulations still important in 2022?

A: Yes. Every governmental contract is subject to TAA compliance, but even more importantly, the Act is strictly abided by when it comes to military, defense and aerospace contracts. The requirement for every supplied product to remain 100% TAA compliant is a big aspect that can not be overlooked. Also, a number of cybersecurity issues in the recent years have made TAA compliance of imported technology even more important, to eliminate possible threats to information security and avoid leaks of classified data through the potentially non-compliant IT and electronics products.

Q:  What does the law say about Agreements Act & GSA?

A: According to FAR Part 25 “Foreign Acquisition”, federal agencies can only procure products that are 100% made in the U.S. or the designated countries, or that have undergone a process of substantial transformation in the U.S. or one of those countries. Every GSA MAS contract is a subject to the Trade Agreements Act.

What are designated countries? Specifically, the list includes:

• World Trade Organization Government Procurement Agreement Countries;
• Free Trade Agreement Countries;
• Least Developed Countries; and
• Caribbean Basin Countries

Q:  Is the TAA Applicable to GSA Contracts?

A: Yes, of course. Each and every GSA contract is subject to TAA compliance. This means that a government contractor selling products to federal agencies must make sure (and provide proof, if necessary) that such products are TAA compliant, that is either manufactured in the U.S. or substantially transformed in one of the designated countries or in the U.S.

What is substantial transformation? Put this simply, a product is transformed substantially, if its functionality changed significantly during and because of this transformation. If the product remained essentially the same after transformation (for instance, painted or had its cover replaced, or a label was attached onto it), such transformation is not substantial.

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