By H. Vincent McKnight
The Trade Agreements Act poses many issues under the False Claims Act that do not become readily apparent before examining the requirements of the regulatory structure developed to enforce the law. In short, the Government will not by goods and services that did not originate in a designated country (a country that has a trade agreement with the U.S.). Failure to adhere to the Trade Agreements Act gives rise to violations of the False Claims Act. That is, the Government takes the position that it would not have purchased the product if had known that the product came from a non-designated country. Therefore, the vendor who misrepresents the country of origin of a product and/or sells a product to the government that did not originate in a designated country makes a false claim.
Like anything else, the devil is in the details. There are several regulations that lay the ground work for the sale of foreign products to the government. Here is a summary of the pertinent regulations.
Congress passed the Trade Agreements Act of 1979, 19 U.S.C. § 2501, et. seq., for the reasons articulated at §2502, which include the approval and implementation of “trade agreements negotiated under the Trade Act of 1974.” Id. at § 2502 (1). Congress and the President, by virtue of this legislation, endorsed and accepted certain trade agreements and mechanisms to implement these agreements.[1] The covered agreements are listed at 19 U.S.C § 2503 (c). Subsection ( c ) (3) applies the Trade Agreements Act to the Agreement on Government Procurement. 19 U.S.C. § 2503 (c) (3) (1979).
The Agreement on Government Procurement is an instrument of the World Trade Organization. The 28 signatory countries including the United States Government, decided to permit companies from the signatory countries to participate in government procurement on the same footing as domestic companies. See, WTO: Government Procurement – The Plurality Agreement on Government Procurement. The signatory countries did not intend for this agreement to extend to all of government procurement, and were allowed to indicate the government agencies that would be bound by this arrangement. Id. Each country, including the United States, prepared a document called Annex 1 that identified the covered agencies. The United States listed the General Services Administration and the National Aeronautics and Space Administration as a covered entities. See,USA Annex 1 to the GPA. In addition, the United States promised, and the President ordered, that the federal government would not purchase goods and services from countries that did not have a an approved trade agreement with the United States.[2] An elaborate set of Federal Acquisition Regulations guidelines implements these policy objectives. FAR Subpart 25.4 - Trade Agreements.
FAR Subpart 25.400 provides that this regulation applies to several trade agreements including, “The World Trade Organization Government Procurement Agreement.” It further describes the Trade Agreements Act as granting “…the authority for the President to waive the Buy American Act and other discriminatory provisions for eligible products from countries that have signed an international trade agreement with the United States…” See, FAR Subpart 25.402 (a)(1). Moreover, it states that the President delegated this authority to the U.S. Trade Representative. Id. Pursuant to this delegation, the U.S. Trade Representative determined that eligible products will “receive equal consideration with domestic offers.” Id.
The WTO GPA does not apply to all end products from foreign countries. Dollar thresholds, based upon the total dollar value of the procurement, were established to mark the point at which the WTO GPA restrictions would begin to apply. See, FAR Subpart 25.402 (“The value of the acquisition is a determining factor in the applicability of trade agreements.”) To decide whether eligible products from WTO GPA countries are entitled to non-discriminatory treatment, contracting officers must apply FAR Subparts 25.402 and 25.403 to establish the threshold. The threshold is adjusted every two years. In 2007, the TAA threshold for WTO GPA products was $193,000.00. It was raised to $194,000.00 on January 15, 2009. 74 F.R. 2745 (January 15, 2009).
Both contracts under the GSA Federal Supply Service and NASA SEWP IV contracts expressly incorporate FAR 52.225-5. The text of the clause appears in the Federal Acquisition Regulations Part II. See, FAR 52.225-5. The first sentence makes reference to FAR 25.1101(c) (1). This provision requires contracting officers to insert FAR Clause 52.225-5 in “solicitations and contracts valued at $175,000 or more, if the acquisition is covered by the WTO GPA and the agency has determined that the restrictions of the Buy American Act are not applicable to U.S.-made end products.”[3] See, FAR 25.11, Solicitation Provisions and Contract Clauses. Moreover, FAR 25.1101 (c) (2) requires the contracting officer to insert FAR 52.225-6, the Trade Agreements Certificate, whenever FAR 52.225-5 is used. Id.
FAR 52.225-5 defines critical terms such as “Designated Country” and it specifically identifies the countries that are recognized as such. FAR 52.225-5 (a). By exclusion, the clause also identifies the countries that are not considered to be “designated,” by not including them on the list. As the People’s Republic of China falls into the latter category, it is not a designated country. Far 52.225-5 also states that the “designated country end product” means a product produced in one of the listed countries. Id. Moreover, it explains the meaning of the term “WTO GPA country end product.” Most importantly, FAR 52.225-5, states that in most instances, the contractor is prohibited from delivering products under the contract that are not US made or from designated countries. FAR 52.225-5 (b) [Emphasis Added] At subsection (b), the clause asserts:
The Contracting Officer has determined that the WTO GPA and FTAs apply to this acquisition. Unless otherwise specified, these trade agreements apply to all items in the Schedule. The Contractor shall deliver under this contract only U.S.-made or designated country end products except to the extent that in its offer, it specified the delivery of other end products in the provision entitled “Trade Agreements Certificate.” Id. at subsection (b). [Emphasis Added.]
The Trade Agreements Certificate is FAR 52.225-6, which by the terms of FAR 25.11 (c) (2) is required to be completed each time that FAR 52.225-5 is used. FAR 25.1101 (c)(2). This certificate has two parts, Subsection (a) and Subsection (b). Contractors or vendors executing FAR 52.225-6 (a), “certif[y] that each end product, except those listed in paragraph (b) of this provision, is a U.S.-made or designated country end product as defined in the clause of this solicitation entitled ‘Trade Agreements.’” FAR 52.225-6 (a). Under subsection (b), the contractor must list with particularity all of those end products that are not U.S. –made and/or were not produced in a designated country. See, FAR 52.225-6 (b). [emphasis added] Accordingly, information about the country of origin of the end product is important to the contracting official because he does not have the authority to purchase a WTO-GPA end product that is not U.S.-made or from a designated country except under extremely limited circumstances. Moreover, this information is critical to each vendor because vendors are only permitted under this contract to deliver end products from the U.S. or designated countries. [4]
FAR Subpart 25.5 describes the process for contracting officers to use to evaluate foreign goods. FAR 25.502(b) specifically addresses the procedures for a contracting officer to follow when dealing with acquisitions covered by the WTO GPA. FAR 25.502 (b). Contracting officers must “consider only offers of U.S.-made or designated country end products, unless no offers of such end products were received.” FAR 25.502 (b)(1). Once the contracting authority identifies the eligible offers, he must give equal consideration to end-products from the U.S. and designated countries and make the award based upon the lowest price. FAR 25.502 (b)(2). Only when there are no offers of U.S-made or designated country made end products, can the contracting officer then buy the foreign products. FAR 25.502 (b)(3). Before doing this he must make a “non-availability“determination pursuant to FAR 25.103 (b)(2). See, FAR 25.103 (b)(2).
Read together, FAR 52.225-5(b) and FAR 25.502 (b) severely reduce the likelihood of any foreign product from a non-designated country reaching a federal facility. If the vendor does not list the foreign item as originating in a non-designated country pursuant to FAR 52.225-5 (b) and FAR 52-225-6 (b), the vendor cannot “deliver” the product to the Government. The use of the word “deliver” suggests that even if a contracting officer mistakenly purchases such an item, the vendor has an independent obligation not to deliver it, if the vendor failed to properly identify the product and its country of origin under FAR 52.225-5 (b) and FAR 52-225-6 (b). Assuming that the vendor did properly list the product as originating from a non-designated country, the contracting officer must first give preference to the comparable items from designated countries, and purchase one of these. FAR 25.502 (b)(1) and (2). The contracting officer can only buy the end product from the non-designated country if there are no available products from the U.S or a designated country. FAR 25.502 (b)(2). [emphasis added] The failures to list the products pursuant to FAR 52.225-5(b) and FAR 25.502 (b), false statements by omission, essentially strip the vendor of the right to deliver the products, and by implication, the right to sell or present a claim for the unidentified foreign products.
Removing trade barriers with other countries, one of the purposes of the Trade Agreements Act, is a critical component of U.S. policy with significant ramifications. In a recent speech, Secretary of Commerce Gary Locke stated, “Promoting access for American companies to the Chinese and the entire Asian marketplace is critically important to this Administration. Consider that if we just boosted our exports to Asia – where China is the biggest market – by one percent, that would support another hundred thousand new jobs in the United States.” See, Secretary of Commerce Gary Locke Remarks at the U.S.-China Business Council Annual Forecast Conference (January 28, 2010). Accordingly, enforcing these regulations is an important component of U.S. Trade Policy. Through the False Claims Act, whistle blowers can help.
[1] “In accordance with the provisions of section 2112 and 2191 of this title, the Congress approves the trade agreements described in subsection (c) of this section submitted to the Congress on June 19, 1979, and the statements of administrative action proposed to implement such trade agreements submitted to Congress on that date. “ 19. U.S.C. Section 2503 (a) (1979).
[2] The Trade Agreements Act expressly states that the President in most instances cannot accept a trade agreement with another country unless the country “…has accepted the obligations of the agreement with respect to the United States.” 19 U.S.C. §2503 (b) (2) (A) (1979).
[3] The Buy American Act by its express terms does not apply to most IT Products. FAR Sub-part 25.103 (e)
[4] Note that the incorporated clause uses the word “shall” respecting the duty of the vendor.