Until changes are made, exercise caution with Trade Act

Guest column

Editor's Note: The Washington Management Group is holding a seminar Nov. 5 on the Trade Agreements Act. Click here for details.

General Services Administration schedule contractors, suppliers and resellers take note: Based on actions of GSA's inspector general and the Justice Department, it behooves you to implement a program for taking strict control over the way you solicit and manage Trade Agreements Act certifications from your suppliers.

If you manufacture or resell products that are made in the United States or a designated country using components entirely manufactured in the United States or a designated country, you don't have to worry about your compliance with the TAA.

However, increasingly we operate in a far more complex environment where one or more components or some part of the manufacturing process may include materials from or performance in a non-designated country. If your product includes material or processes from China, India or any other unapproved country, you've got to worry about compliance.

See FAR 25.003 for a current list of designated countries.

If you are a manufacturer, it can be very difficult to accurately determine the country of origin. To make that determination, you must be able to decide where a product is 'substantially transformed.' The Customs Service has acknowledged that the current standards for determining substantial transformation are "inherently subjective" and that they "lack predictability and certainty." Customs has proposed new standards, but the jury is still out as to whether the new standards are better than the current ones.

If you resell products, you are probably already aware of the requirement for a Letter of Supply and a certification from the manufacturer as to the country of origin of those products. But, do you have a process for re-certification? If one of your supplier changes its manufacturing chain of supply or offers new products to you, do you require a new Letter of Supply? Do you have a periodic and regular method of re-certification?

In short, are you protecting your company in the event that someone asks you to demonstrate your due diligence? Not protecting yourself and your company is a slippery slope ? and one you do not want to be on. The GSA and Justice take TAA compliance seriously; the consequences for non-compliance can be millions of dollars in fines.

Why all the fuss? Why so much confusion?

Because TAA is broken. TAA can be a game of double jeopardy for the contractor community. Standards for compliance are uncertain, yet the penalties for non-compliance are great.

Applying TAA in the federal community does not make sense. If you are a GSA schedule contractor, TAA applies to all items regardless of dollar value. Today, you can't buy a ceiling fan or a mouse on the schedule that's made in China. However, if a federal agency buys using another type of government contract or open market, the agency can acquire the same items that are on the GSA schedule, without regard to the TAA, up to $194,000. That just doesn't make sense.

Congress should take on the TAA. It should consider:
  • Exempting the GSA Schedules, which is a commercial buying program, from application of TAA.
  • Directing agencies to appoint an official that can give contractors concrete guidance regarding whether their processes comply with TAA or whether an item has been "substantially transformed" in a designated country.
  • Recognizing that a violation that results even after a contractor makes a good faith effort to comply should not be punished with stiff monetary penalties.

Until that time, I recommend your company:
  • Make all corporate offices aware of requirements to comply with TAA, that include:
  • Establishikng compliant processes that identify all factors that determine the country of origin.
  • Documenting that it complies with TAA, and periodically monitors its processes.
  • Assuring that suppliers certify, and periodically recertify, the country of origin.
  • Attempt to engage your contracting officer in discussion whenever there is a question about compliance.

Bill Gormley (bgormley@washmg.com) is president and chief executive officer at the Washington Management Group, a GSA schedule contract and VA schedule contract consulting services firm in Washington.

About the Author

Bill Gormley is president and chief executive officer at the Washington Management Group, a GSA schedule contract and VA schedule contract consulting services firm in Washington.

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