Understanding the Trade Agreements Act (TAA) and its Importance to the Defense Electronics Industry

The TAA is a critical piece of US legislation that governs the procurement of goods and services by federal agencies. It aims to foster fair and open international trade by ensuring that the US government only acquires products from countries that have trade agreements with the US or are designated as eligible countries.

Eligible countries include Canada, Mexico, Taiwan, Japan and most European Union nations, but exclude China, Russia or India.

TAA compliance is mandatory for companies that wish to participate in federal procurement, either directly or indirectly. The TAA stipulates that products must be “manufactured or substantially transformed in the United States or in a designated country”.

Here are two real world examples:

• A US-based computer manufacturer sources bare printed circuit boards (PCB) and various electronic components from a non-TAA designated country, such as China. However, it performs significant transformation to the parts in its US facility, changing PCB to PCBA (PCB Assembly) with all soldered components, integrating them into a full computer system, installing software, and running full functional test of the final product. By doing so, the manufacturer can certify that its products are TAA compliant
• Another US-based computer manufacturer will import laptop computers from China and rebadges them under its name, in an attempt to sell them to the government under GSA contracts. As the products were not substantially transformed in the USA or in an eligible country, they are not TAA compliant

Ensuring TAA compliance requires companies to make strategic decisions on where they build and “transform” their products. It requires to maintain a transparent and traceable supply chain to ensure that all products meet TAA standards. This includes verifying the origin of materials and the location of manufacturing processes.

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