Court of Federal Claims Weighs In On Trade Agreements Clause Determinations

lawyer

Acetris Health, LLC v. The United States was a pre-award bid protest where Acetris challenged the Department of Veterans Affairs’ (“VA”) construction and application of the Trade Agreements clause in a solicitation to provide medication for the treatment of hepatitis B.

The Court held, in relevant part, that “U.S-made end product” as used in the Trade Agreements clause includes “domestic end product” as that term is defined in the FAR and that the VA should have independently assessed whether the product at issue was compliant with the Trade Agreements clause instead of relying on a CBP ruling.

The Court pointed out that the Trade Agreement Act’s rule of origin (19 U.S.C. 2518(4)(B)), which states a product must be wholly manufactured or substantially transformed in the United States in order to be considered U.S.-made, was not the same language as the Trade Agreements clause in the FAR (52.225-5), which defines U.S.-made as a product manufactured or substantially transformed in the United States.

It reasoned that because the FAR language distinctly omits “wholly,” the Trade Agreements clause does not specify that a product must be “wholly manufactured” in the U.S., like the Trade Agreement Act’s rule of origin, but simply “manufactured” in the U.S. It then further clarified that whether a product is “manufactured” in the United States for purposes of complying with the the Trade Agreements clause turns on meeting the definition of “domestic end product” in FAR 25.003.

The Court also explained that agencies should do their own analysis and determination of compliance with the Trade Agreements clause and are not bound to CBP rulings.

In short, the Court has expanded compliance eligibility under the Trade Agreements clause, which means more products will likely be eligible for offering to the government given the “domestic end products” term is less restrictive than “wholly manufactured.” As such, fewer contractors will have to make a substantial transformation determination, which no one likes because it is dangerously arbitrary and vague. And, while CBP decisions on substantial transformation may still be helpful, the Court clearly points out that procuring agencies are not only not bound by CBP rulings, but should be making their own compliance determinations as it relates to the Trade Agreements clause.

Thus, the Court has provided contractors much needed clarification on Trade Agreements clause analysis and effectively rendered meaningless reliance on CBP decisions regarding such.

Kristi Morgan AronicaKristi Morgan Aronica, Attorney
kristi@weitzmorgan.com
512-657-3196