I get more inquiries from clients about the Buy American Act and Trade Agreements Act then I do about any other single government contract issue. Vendors constantly call to find out how to respond to the Buy American Act or Trade Agreements Act certification requirements contained in every solicitation. In addition, vendors call to see if they can beat out competitors who are offering foreign products.
The Buy American Act was passed in 1933 to encourage the procurement of American-made products over foreign goods. Congress modified the coverage of the Buy American Act in 1979 when it passed the Trade Agreements Act, which basically limits the scope of the Buy American Act to procurements under approximately $175,000. To understand the federal acquisition of foreign products, it's necessary to consider both the Trade Agreements Act and the Buy American Act together.
Under the Buy American Act, federal agencies are encouraged to buy domestically manufactured end-products over those made abroad. For the purposes of the Buy American Act, a "domestic end-product" is a product 1) manufactured in the United States and 2) comprised of at least 50 percent American-made components. Therefore, if a product is manufactured abroad or is made up of predominantly foreign components, it's classified as foreign-made.
By law, a bidder must certify in response to a federal solicitation whether the vendor's products are domestic or foreign end-items. If a competitor believes that the vendor who was awarded the contract incorrectly classified its products as American-made, then the losing vendor can protest the certification.
The Buy American Act doesn't prohibit federal agencies from buying foreign products. It simply discourages their acquisition by adding an evaluation penalty to their cost. According to regulation, a Contracting Officer evaluating offers for a civilian agency must add a 6 percent penalty to an offer of foreign-made products, or add a 12 percent evaluation penalty if the competing domestic vendor is a small business or operates in a labor surplus area. Defense agencies add a 50 percent penalty to the foreign offer. After adding the Buy American penalties to the cost of the foreign goods, an agency could evaluate a foreign offer as being less expensive than the domestic offer and award to the foreign concern.
The Trade Agreements Act applies to procurements over approximately $175,000. For such procurements, the Trade Agreements Act supersedes the Buy American Act and governs the procurement.
Congress passed the Trade Agreements Act to comply with its responsibilities under the Government Procurement Code (GPC), a multilateral agreement negotiated under the auspices of the General Agreement on Tariffs and Trade. The Trade Agreements Act requires federal agencies to treat the products of countries that have signed the GPC as favorably as American-made products. As importantly, the Trade Agreements Act prohibits the purchase of products made in countries that have not signed the GPC.
The Trade Agreements Act classifies products into three categories. First, a product is American-made if it has been produced in the United States. Second, a product is a "designated country end-item" if it was manufactured in one of the many countries that have signed the GPC. Third, a product is a "non-designated country end-item" if it was made in a country that hasn't signed the GPC.
In procurements subject to the Trade Agreements Act, vendors must certify whether their products are domestic, "designated country end-items" or "non-designated country end-items." If a vendor certifies that its products are manufactured in a non-designated country such as Taiwan or India, then the Contracting Officer is prohibited from buying those products. In the meantime, domestic and "designated country end-items" are treated equally, with no penalty added to the foreign products.
Considering the globalization of production, it is important for government contractors to understand the Buy American Act and Trade Agreements Act. These laws can adversely affect unwary contractors and give a competitive edge to those that understand how they work.
