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!
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.