Court raises bar on buy America act.

• Author: McClafferty, Eric
• Position: Viewpoint

If a company claims U.S. origin for products assembled from foreign parts, a recent U.S. Court of International Trade decision may affect its ability to sell those products to the U.S. government.

In a decision issued in December--Energizer Battery, Inc. v. United States--the court stated that Customs and Border Protection was right when it found that Energizer's Generation II military flashlight, while assembled in the United States, is of Chinese origin for government procurement purposes. It reached that decision in part because virtually all of the flashlight's components are of Chinese origin, even though it was assembled into a finished item in the United States.

Customs argued that the Chinese component parts were not "substantially transformed" by the relatively simple assembly process occurring in the United States such that Energizer could claim the flashlight is of U.S. origin. Even though a great deal of the product assembly occurred in the United States, the U.S. Court agreed the flashlight was not U.S. origin. The decision was not appealed, making it the law of the land.

This higher U.S. origin standard raises very important new considerations for importers, government contractors and manufacturers that wish to claim that finished products assembled from foreign parts are U.S. origin and thus eligible for sale to the U.S. government, including the Department of Defense.

Government procurement of items for military use is subject to a variety of often confusing laws and regulations, including the Buy America Act provisions of the Trade Agreements Act of 1979 that were at issue in Energizer. The act imposes restrictions on the U.S. government's ability to procure products that are of foreign origin, although the law permits the president to waive Buy America requirements for eligible products from certain countries. China is not a country that qualifies for waiver, however, although many input materials, parts and components are made there.

Under the rules, a product that does not qualify for a waiver is subject to a "substantial transformation" analysis to determine whether it is a "U.S. origin" product--despite being produced from parts that are imported from foreign countries. Customs also enforces the law that every article of foreign origin imported into the United States shall be marked to indicate the country of origin--with some minor exceptions.

In Energizer, the court said assembly operations in the U.S. for foreign...