Differences Between The Trade Agreements Act And The Buy American Act

The United States government is one of the largest single buyers in the world. On average, the federal government spends about $600 billion each year on goods and services. As a result, many corporations compete for the chance to win their business and a large government contract.

Countries usually have policies and laws to favor products made within their own countries. The United States is no different. The rules and regulations currently in place in the US are called the Trade Agreement Act and Buy American Act. Government agencies require that those under their contract comply with the requirements laid out in these laws.

Here is what you need to know about each of these acts and tips for compliance.

What Is TAA? TAA Compliance Checklist

The Trade Agreement Act, often referred to as the TAA, allows government agencies to avoid many of the Buy American Act restrictions, which we will discuss below. In the name of encouraging open international trade, the TAA permits government contracts with certain countries other than the US. As a result, agencies can waive many of the limitations of the Buy American Act under international agreements.

Under TAA, products must either be manufactured or “substantially transformed” in selected countries or the US. Some of these selected countries are exempt because they are a part of:

• Free Trade Agreement countries
• Caribbean Basin countries
• Least developed countries
• World Trade Organization Government Procurement Agreement countries

The requirements of the TAA apply to many of the contracts with the Department of Defense (DoD), General Services Administration (GSA) schedules, and indefinite-delivery/indefinite-quantity (IDIQ) contract work.

A helpful TAA compliance checklist includes:

• Contract size over $194,000. Whether a contract meets this threshold varies from agency to agency. For some, it is determined based on the entire contract. For others, the government agency determines contract size based on each line item. Businesses should clarify first with their contract agency to see how they interpret it.
• Substantial transformation test. The TAA’s test determines whether a product meets the TAA’s requirements for coming from the US or a designated country. In addition, this test establishes whether a product has a different character or use due to how it is processed in either the United States or an approved designated country.
• Track and archive. The country-of-origin (COO) information is required for each end product.
• Attain certification. Businesses need to obtain TAA certification and indemnification. Resellers must ensure that anything they purchase is TAA-certified, even if they buy from the product distributor.
• Provide documentation. Companies need to document all COO determinations to ensure they are from approved countries.
• Eliminate non-designated. Businesses need to ensure that all commercial items are not produced in non-designated countries, such as China or India. For example, IT software is often produced in these countries, which makes them ineligible for contracts. Companies also need to receive approved hardware, such as Fortinet TAA-compliant products, to help organizations remain compliant.

By taking steps to remain compliant, businesses can ensure they can continue to keep their contracts with the US government.

What Is the Buy American Act? What Are Its Requirements?

The Buy American Act recently made headlines as the Biden administration issued an executive order with the goal of maximizing purchases from American suppliers. Government policies make it increasingly important that businesses understand and comply with its regulations.

The Buy American Act, also known as BAA, is legislation from the Great Depression era that gives preference to domestic products over foreign goods. The BAA has two conditions, according to the US Government Accountability Office:

• The procurement of the products is meant to be for public use within the U.S.
• Items are both adequately and sensibly available in commercial quantities and are of acceptable quality.

Businesses must meet several requirements to receive money under the BAA. Contractors must verify to the contracted agency that they are offering domestic end products and use domestic materials. The BAA applies to contracts that are above the $2,500 micro-purchase but below the current TAA threshold, which is now at $194,000. In addition, products are only considered domestic if the end product is more than 55% of US origin.

If a product is noncompliant with BAA, it can still be contracted by the US government. However, non-BAA-compliant products are penalized anywhere from 6-12% of the total price, depending on how large the business involved is.

Complying with the Buy American and Trade Agreements Acts

For both the BAA and TAA, businesses need to establish a country of origin. Much of the time, companies need to be considered on an individual basis. The Bureau of Customs and Border Protection determines the interpretation and application of BAA and TAA. One of the easiest ways for businesses to get ahold of TAA or BAA-manufactured goods is by purchasing products that have already received compliance. For example, Intel TAA-compliant technology can make staying compliant simple.

For a long time, many businesses did not take these regulations and Customs discretion seriously. However, government officials have grown increasingly concerned and diligent about maintaining compliance. In addition, the growth of rivalry for contracts has encouraged accountability by competing businesses.

Not only do companies risk termination of the contract awarded to them, but they also face potentially heavy fines. The False Claims Act (FCA) allows the US government to charge companies that are not compliant. Businesses need to be thorough about any manufactured goods they get, no matter how insignificant they may consider it. For instance, even add-on for computers needs to be compliant. Companies like McAfee offer TAA-compliant computer add-ons so that businesses don’t face potential trouble for non-compliant goods.

BAA and TAA Compliance: Differences and Regulations

While both BAA and TAA encourage government agencies to increase US and ally business, there are significant differences between the two acts:

• Price of contract. Right now, TAA applies to contracts over $194,000. BAA contracts are for agreements between $2,500 microloans up to $194,000.
• Requirements. BAA requires that 55% of the product originates from the US. TAA requires a substantial transformational test to verify the product is compliant.
• Penalties. Products must comply with TAA standards. Agencies are required to pick TAA-compliant businesses first and can only choose a non-compliant business if there is no compliant company. Agencies can hire organizations that are not BAA-compliant if the product is less expensive after a 12% penalty.

The differences between the two acts can help companies understand which regulations they should comply with, but it is possible that businesses need to comply with both. This depends on the type of contract and agency.

TAA and BAA Compliance for a Better Business

Noncompliance has cost businesses millions in fines and many lost contracts. This is especially true as the government continues to close loopholes and enforce regulations. By doing research ahead of time and ensuring compliance, companies can maintain their contracts in the years to come.

Matt Peterson

Next Up: Check out our “Made in the USA tax credit act” post.