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"Made in Taiwan" Now OK for Sales to U.S. Government

Many companies with a supply chain or manufacturing facilities in Taiwan have long been precluded from selling their products to the U.S. Government because of domestic preferences. Effective August 11, 2009, the main barrier has been removed.

While most business persons have heard of the Buy American Act restrictions in selling to the U.S. Government, it is instead the Trade Agreements Act which now applies to more sales - all contracts for supplies or services that exceed $194,000. For example, all sales of commercial products on the popular General Services Administration ("GSA") "schedules" are subject to the Trade Agreements Act. The Federal Acquisition Regulation ("FAR") describes the situation concisely:

The Trade Agreements Act (19 U.S.C. 2501, et seq.) provides the authority for the President to waive the Buy American Act and other discriminatory provisions for eligible products from countries that have signed an international trade agreement with the United States, or that meet certain other criteria, such as being a least developed country. The President has delegated this waiver authority to the U.S. Trade Representative ["USTR"]. In acquisitions covered by the [World Trade Organization] WTO [Government Procurement Agreement] GPA, Free Trade Agreements, or the Israeli Trade Act, the USTR has waived the Buy American Act and other discriminatory provisions for eligible products. Offers of eligible products receive equal consideration with domestic offers.

FAR 25.402(a)(1).

A country that has become a party to the WTO GPA and provides appropriate reciprocal competitive government procurement opportunities to U.S. products and services and supplies of such products and services is a "designated" country under the Trade Agreements Act.

Taiwan's Road To Designated Country Status
In 2002, Taiwan formally joined the WTO. Shortly thereafter, Taiwan submitted a proposal to accede to the GPA, allowing other foreign countries the opportunity to compete in Taiwan's public procurement market, while simultaneously permitting Taiwan to compete in those same countries' foreign procurement markets, including the much coveted U.S. market, which is valued at more than $200 billion. In May 2009, Taiwan's legislature approved Taiwan's GPA proposal and on June 8, 2009, Taiwan's President Ma Ying-jeou formally finalized the accession proposal, forwarding it to the WTO in Geneva for final approval. Taiwan's accession papers were received by the WTO on June 16, 2009, triggering a mandatory 30-day waiting period, after which time the accession was completed.

On July 14, 2009, the USTR issued a determination that Taiwan is designated a party to the WTO GPA for purposes of the Trade Agreements Act. 74 Fed. Reg. 34072 (July 14, 2009) at 34072.

What Does It All Mean?
When one of the Trade Agreements Act clauses is included in the solicitation for supplies or services by the US Government, the end product being purchased must either be a U.S. end product or a WTO GPA country end product (the Department of Defense version of the clause includes variations, but is similar). The test for a WTO GPA, or designated country, end product is: "WTO GPA country end product" means an article that—

(1) Is wholly the growth, product, or manufacture of a WTO GPA country; or (2) In the case of an article that consists in whole or in part of materials from another country, has been substantially transformed in a WTO GPA country into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed. The term refers to a product offered for purchase under a supply contract, but for purposes of calculating the value of the end product includes services, (except transportation services) incidental to the article, provided that the value of those incidental services does not exceed that of the article itself.

FAR 52.225-4 (emphasis added).

If the end products are not substantially transformed in the U.S. or a WTO GPA country, the offeror is required to disclose the country in which the end products were transformed in a proposal. To accept those end products, the U.S. Government procurement office must obtain a waiver, which involves other factors and tests and is not favored.

On August 11, 2009, the FAR was amended to include Taiwan as a designated country under the Trade Agreements Act. 74 Fed. Reg. 40458 (Aug. 11. 2009) at 40461 2.

The Good News
Many U.S. and global companies have manufacturing operations in Taiwan. To comply with the Trade Agreements Act before this rule change, these companies were moving some of their operations to the U.S. or designated countries for U.S. Government sales. This change should open the U.S. Government market to many companies and products that could not qualify before. There are nuances not covered in this short article, so please obtain advice before commencing sales of Made in Taiwan products to the U.S. Government.

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About this Author

Efficient and effective supply chain management is fast becoming the most important factor in gaining a competitive advantage, achieving overall business success, and increasing shareholder value.  Successful supply chain management, whether domestic or global, is grounded in strong contractual relationships, from raw materials purchases to end user sales. Efficient technology application, use, licensing and protection are key. So are strong purchasing, transportation, financing and risk management.