In a final rule effective December 20, 2002, the Department of Defense has finally adopted the "substantial transformation" test for U.S. manufacturers. This puts U.S. manufacturers on a par with those in other countries qualified to participate in procurements subject to the Trade Agreements Act (TAA).

Under the test, the source of an end item is the country where it is "substantially transformed" into its final state. (There is a large, and sometimes confusing, body of jurisprudence on this test and how to apply it). Under the new rule, if an item is "substantially transformed" in the United States, even if it has some foreign content, that is its source for TAA purposes. This is the same test which applies to end items substantially transformed in foreign countries which have entered into trade agreements with the United States.

This treatment of goods substantially transformed in the United States is also available for procurements conducted by the General Services Administration. Petrillo & Powell can help you determine whether your company's products qualify under the new standard. Please contact us if you have any questions about this new rule and its implications for your activities. Joseph J. Petrillo & Karen D. Powell