The complex set of rules controlling the federal government’s procurement of foreign products or services reflects America’s mixed sentiments about economic globalization. The Trade Agreements Act (TAA) and the Buy American Act (BAA) are the two laws with the greatest relevance to information technology companies. The BAA favors the purchase of domestic end products, defined as goods that result from a manufacturing process in the United States and of which more than 50 percent of the component value also originates in the United States. However, there are exceptions to the BAA, including a blanket exception for commercial-item information technology.

The TAA allows the government to buy goods and services worth at least a certain threshold from designated countries that have agreed to a procurement trade relationship granting U.S. companies access to their government procurement systems. The TAA also prohibits the government from buying products and services from non-designated countries. The TAA is a guarantor of and obstacle to free trade, as it both guarantees access to markets and prohibits access to certain markets.

In order to gain inclusion under the TAA, a country must sign a bilateral or regional free trade agreement with the United States or join the World Trade Organization Agreement on Government Procurement (WTO GPA). The most common government procurement trade relationship the United States has with other countries is negotiated via the WTO GPA. Member countries of the WTO GPA are treated the same as U.S. companies for any federal procurement meeting the threshold.

The Defense Department (DoD) has its own set of rules regarding domestic product preferences. While the Buy American exception for information technology applies equally to DoD contracts, the DoD has carved out exceptions for itself from the TAA, but these do not include information technology.

Determining the country of origin of a product or service is not a settled matter. For services, the country of origin is based on where the company is “established.” For products, the country of origin hinges on the concept of substantial transformation. If a product is substantially transformed in the United States, it is considered a U.S. country-of-origin product, regardless of the origin of its components.

The federal government has concerns about foreign companies conducting work that involves national security systems. Foreign ownership, control, or influence (FOCI) can render a company ineligible for contracts that require security clearances or use of classified information. Companies classified as FOCI can mitigate foreign influence through measures such as board resolutions, security control agreements, special security agreements, and voting trust or proxy agreements.

The government is increasingly concerned about the supply chain practices of its vendors, particularly when it comes to electronic parts. Contractors and subcontractors must buy electronic parts from trusted suppliers and must report any counterfeit electronics to the Defense Department. The government also has the power to exclude companies from national security system procurements if their supply chain introduces a potential risk to the systems.

Overall, international trade law in the context of government procurement is messy and complex. There are many exceptions and considerations that must be taken into account when determining the eligibility of foreign products or services for federal procurement. It is important for companies to understand these rules and regulations in order to navigate the government procurement process successfully.

Words: 545