A word of caution on global contracting

In a world that is flat, trade laws can make all the difference.This is as true in public procurement as in the software, steel orwheat markets. For non-U.S. companies, there is increasinginterest in tapping into the U.S. public-contracting market.The U.S. government is the world's singlelargest buyer of goods and services, andsome states have procurement budgets largerthan those of some foreign countries.For U.S. companies, global contractingoffers not only additional markets for theirtechnology and services but also a significantsource of subcontracting and outsourcedlabor. And in public procurement,where price is always a factor, reduction oflabor costs can provide a decisive competitiveedge.But there are numerous traderestrictions that affect publiccontracting, and it is a complicatedarea of law. Thus, any companyinterested in selling toUncle Sam and taking advantageof global markets must understandthe trade laws applicable toU.S. procurement.A critical law, which affects many largeU.S. procurements, is the Trade AgreementsAct. TAA implements the World TradeOrganization's Government ProcurementAgreement (GPA), which is a treaty requiringthat signatory nations not discriminateagainst the supplies and services of othersignatory nations. TAA applies to certaingovernment procurements above a preestablishedmonetary threshold, which isset at $194,000.Accordingly, for acquisitions with an estimatedvalue equal to or exceeding thatamount, the United States must treat endproducts from all WTO GPA signatorynations the same as U.S. products unless anexception to the law has been negotiated. Inaddition, if no exception applies, the U.S.government must purchase either a U.S.end product or a designated country endproduct to comply with TAA.A designated country end product refersto a product from any WTO GPA country orcertain other countries that have negotiatedfree-trade agreements with the UnitedStates. This means that end products fromdesignated countries such as Singapore aretreated the same as U.S. products, and endproducts from countries that have notsigned the WTO GPA, such as the People'sRepublic of China, may not be purchased.The monetary threshold is applied on aline-item basis, and the estimated value ofan acquisition includes the value of alloption periods. Accordingly, an acquisitionmight have some line items governedby TAA, while others are governed byother trade laws such as the BuyAmerican Act.Under TAA, an item is the end productof a country if it is entirely thegrowth, product or manufacture of thecountry or has been substantially transformedin the country. The substantialtransformation test asks whether theitem was transformed into a new anddifferent article of commerce with aname, character or use distinct fromthe origin article within the country inquestion.For end products with componentsmade in more thanone country, determiningthe country oforigin can require adetailed analysis of thesource of componentsand the manufacturingprocesses involved.For example, if an item has multiple componentsthat are mechanically and electricallyintegrated in China before beingshipped to the United States for finishingwork, the item likely violates TAA andwould not be eligible for award.Therefore, it is critical that non-U.S. andU.S. contractors determine whether TAAapplies to a given procurement and whethertheir proposed product satisfies the law. Toensure the ability to compete and avoidpotential prosecution for a false certification,this analysis must be done before certifyingcompliance with the law.