After Acetris Decision, Trade Agreements Act Compliance Questions Abound: Contractors Need Guidance

Merle M. DeLancey Jr., Jay P. Lessler, and James R. Staiger

The Federal Circuit’s recent decision in Acetris has left many contractors scratching their heads and asking questions. To recap, on February 10, 2020, the Federal Circuit held that, under the Federal Acquisition Regulation (“FAR”), to qualify as a “U.S.-made end product” under the Trade Agreements Act (“TAA”), a drug must be either “manufactured” in the United States or “substantially transformed” in the United States. (See Federal Circuit Holds Generic Drugs Manufactured in the U.S. from API Produced in India Qualify for Sale to U.S. under Trade Agreements Act (Acetris Decision).) This is a stark change from the Government’s long-held position that manufacturing and substantial transformation were one in the same.

As a result of the Acetris decision, federal contractors seeking to comply with or maintain compliance with the TAA are facing many questions. Some of the more prominent questions are below.

Should we review our current TAA certifications?

Yes. Companies should review their previous TAA certifications to ensure they are accurate after Acetris. Remember that your TAA certifications may be in multiple places, e.g., beta.SAM.gov and in responses to individual solicitations and/or the resulting contracts.

What impact does Acetris have on federal contractors outside of the pharmaceutical industry?

Nothing in the Acetris decision suggests that its application is limited to the Department of Veterans Affairs or the pharmaceutical industry. Some of the Federal Circuit’s holdings, e.g., prohibiting the Department of Veterans Affairs from relying on Customs and Border Protection (“CBP”), clearly apply equally to any federal agency and any industry.

Based upon Acetris, some of my drugs are now TAA-compliant. Should I seek to add these drugs to my existing Federal Supply Schedule (or update their TAA-compliant status on the VA eLibrary and GSAdvantage?

Yes. Absent contrary guidance from the Department of Veterans Affairs (“VA”), nothing prevents a contractor from correcting the TAA status of its drugs on a federal supply schedule contract; indeed, some argue that such corrections are mandatory. Further supporting the need to correct the status of a company’s drugs offered for sale to the Government is the Department of Veterans Affairs policy change in 2016. The VA reversed its policy regarding non-TAA compliant drugs and stated that “covered drugs” that are not U.S.-made or designated country end products must be offered for sale to the Government under a federal supply schedule 65 I B contract and must be listed as other end products on those contracts.

Does the Acetris decision impact a contractor’s Buy American Act (“BAA”) compliance analysis?

It should, but the real question is whether courts, the Government Accountability Office, and agencies will correctly apply Acetris to interpret BAA issues. The interplay between the BAA and TAA and the application of both through the FAR’s trade agreements clause is complex. To date, many reported decisions mistakenly conflate BAA and TAA compliance tests. Hopefully, Acetris will bring some clarity to compliance under these statues and regulation.

After Acetris, of what value are prior Customs and Border Protection (“CBP”) TAA country of origin decisions?

Arguably, none. While we expect some agencies may rely on the “substantial transformation” tests laid out in prior CBP decisions, based upon Acetris, the final CBP country of origin rulings appear to have no precedential value. However, there could be confusion if companies continue to look to CBP rulings for country of origin determinations. For example, CBP is still the authority on country of origin marking requirements. Thus, it is possible for a product to have one country of origin for marking requirements but have a different country of origin for purposes of selling the product the U.S. Government.

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Surely, existing government contractors, as well as companies that suddenly find themselves with products that they can now sell to the Federal Government, will have many more questions. It is going to take some time for the dust to settle. One can only hope that the Department of Veterans Affairs, at a minimum, will promptly issue guidance addressing these issues. In addition, given the current Administration’s active support for domestic goods and services, no one should be surprised if the Administration steps in here.