For the uninitiated, being able to qualify goods for waivers from the “Buy American” clauses of federal procurement regulations requires the goods be eligible under the Trade Agreements Act (TAA) of 1979. Basically, if you can convince Customs and Border Protection (CBP, the agency tasked with ruling on a product’s “origin”) that a final “substantial transformation” of the good occurred in the US or a TAA designated country (see list, http://gsa.federalschedules.com/resource-center/resources/taa-designated-countries.aspx ) then your product will be in compliance with Buy American origin restrictions.
It is fair to say that over the last few years, in keeping with the realities of current supply chain models where production of hi tech goods is outsourced to low labor cost countries, companies have been trying to get their goods qualified under TAA by doing most of the manufacturing in non TAA countries and then finishing the software installation in a TAA country hoping that the software installation constitutes a substantial transformation.
The basic argument that gets made is the idea that the product is unusable for its intended purpose in its current state, and that the software installation in the US or TAA country creates a new and different product. My impression has been that in more cases than not, this argument usually wins the day, especially if the software development (with its relative high cost) occurred in the US.
However, back in December of last year, we noticed a ruling (HQ H241177) on Ethernet switches where the qualification attempt was based on downloading done in a TAA country, with software developed in the US. The switches were basically assembled in Malaysia, and the software downloading/installation was done in Singapore with software developed in the US. It was determined that Singapore was not the country of last substantial transformation, Malaysia was.
Just recently on February 3rd, we have a new ruling (HQ H248027) where CBP found that a wireless headset and dongle that were fully assembled in non-TAA countries, and later TAA country origin firmware and software were downloaded into the headset in a TAA country, did not qualify for TAA. The last substantial transformation was where the products were fully assembled.
The ruling goes into quite a bit more, http://www.gpo.gov/fdsys/pkg/FR-2014-02-12/html/2014-03029.htm, but the gist of it is that “downloading and installing” software and firmware is not the same thing as the more complex activity of “programming”. Even if the software was developed in a TAA country and installed in a TAA country, the final software installation in a TAA country does not by itself constitute a significant enough transformation.
It seems a company’s best bet is to have the final software loading done in the same TAA country in which the software was originally developed, or preferably both activities occurring in the United States. That may go against the grain of cost containment plans, but more likely to result in a positive TAA ruling outcome and increased chances of being able to win government contracts.
It is fair to say that over the last few years, in keeping with the realities of current supply chain models where production of hi tech goods is outsourced to low labor cost countries, companies have been trying to get their goods qualified under TAA by doing most of the manufacturing in non TAA countries and then finishing the software installation in a TAA country hoping that the software installation constitutes a substantial transformation.
The basic argument that gets made is the idea that the product is unusable for its intended purpose in its current state, and that the software installation in the US or TAA country creates a new and different product. My impression has been that in more cases than not, this argument usually wins the day, especially if the software development (with its relative high cost) occurred in the US.
However, back in December of last year, we noticed a ruling (HQ H241177) on Ethernet switches where the qualification attempt was based on downloading done in a TAA country, with software developed in the US. The switches were basically assembled in Malaysia, and the software downloading/installation was done in Singapore with software developed in the US. It was determined that Singapore was not the country of last substantial transformation, Malaysia was.
Just recently on February 3rd, we have a new ruling (HQ H248027) where CBP found that a wireless headset and dongle that were fully assembled in non-TAA countries, and later TAA country origin firmware and software were downloaded into the headset in a TAA country, did not qualify for TAA. The last substantial transformation was where the products were fully assembled.
The ruling goes into quite a bit more, http://www.gpo.gov/fdsys/pkg/FR-2014-02-12/html/2014-03029.htm, but the gist of it is that “downloading and installing” software and firmware is not the same thing as the more complex activity of “programming”. Even if the software was developed in a TAA country and installed in a TAA country, the final software installation in a TAA country does not by itself constitute a significant enough transformation.
It seems a company’s best bet is to have the final software loading done in the same TAA country in which the software was originally developed, or preferably both activities occurring in the United States. That may go against the grain of cost containment plans, but more likely to result in a positive TAA ruling outcome and increased chances of being able to win government contracts.