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Determining products are made in United States, when ingredients come from other countries

Determining products are made in United States

The U.S. Court of Appeals for the Federal Circuit concluded that a U.S. governmental department erred in its interpretation of U.S. laws that bar federal agencies from purchasing products of certain foreign countries and that also require agencies to purchase “U.S.-made end products” before end products from foreign countries.

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The case is: Acetris Health, LLC v. United States, 2018-2399 (Fed. Cir. February 10, 2020). Read the Federal Circuit’s decision [PDF 197 KB]


Summary

At issue were pharmaceutical products purchased by the Department of Veterans Affairs.

The Trade Agreements Act of 1979 (TAA) bars federal agencies (including the VA) from purchasing “products of” certain foreign countries, such as India. The Federal Acquisition Regulation (FAR) directs federal agencies to purchase “U.S.-made end products” before end products from certain foreign countries.

In this case, the plaintiff company—a generic pharmaceutical distributor that specializes in providing pharmaceuticals to the federal government—obtained many of its pharmaceutical products from another company that made the products in a facility located in Dayton, New Jersey, using active pharmaceutical ingredients that were made in India. In 2017, the plaintiff had contracts to supply the VA with at least 13 pharmaceutical products.

The VA requested that the plaintiff company verify its compliance with the TAA rules. Eventually, the VA requested that the company obtain a country-of-origin determination from U.S. Customs and Border Protection (CBP) for each of its products, under the assumption that the products were made using active pharmaceutical ingredients from India, and thus were not TAA-compliant. CBP ultimately issued its country-of-origin determinations, finding that the pharmaceuticals were products of India because their active pharmaceutical ingredients were made in India and no substantial transformation had occurred in the United States. The company challenged the CBP’s determinations in the U.S. Court of International Trade, contending that its products’ country-of-origin was the United States. The trade court cases were stayed, pending resolution of this appeal.

The VA interpreted the statutes to define the country-of-origin of a pharmaceutical product to be the country where the product’s active ingredient was manufactured (India). The company disagreed, and the U.S. Court of Federal Claims granted the plaintiff company declaratory and injunctive relief, holding that the VA had misinterpreted the TAA and the FAR and enjoined the VA, in future procurements, from using this erroneous interpretation. The government appealed.

The Federal Circuit held that the suit was justiciable and agreed with the federal claims court on the result, but found that the remedy was “imprecise” in certain respects. Thus, the Federal Circuit affirmed in-part, vacated in-part, and remanded for the entry of a declaratory judgment and injunction. The Federal Circuit concluded that the VA had misinterpreted the TAA and FAR provisions to exclude pharmaceutical products that were manufactured in the United States using active pharmaceutical ingredients made in a foreign country. The appeals court found such products were not, under the TAA, the “product of” the country in which their ingredients were made, and were “U.S.-made end products” under the FAR.


For more information on this topic or to learn more about KPMG’s Trade & Customs Services, contact:

Doug Zuvich
Partner and Global Practice Leader
T: 312-665-1022
E: dzuvich@kpmg.com

John L. McLoughlin
Principal and East Coast Leader
T: 267-256-2614
E: jlmcloughlin@kpmg.com

Andy Siciliano
Partner and National Practice Leader
T: 631-425-6057
E: asiciliano@kpmg.com

Steve Brotherton
Principal and Global Export and Sanctions Leader
T: 415-963-7861
E: sbrotherton@kpmg.com

Luis (Lou) Abad
Principal, Washington National Tax
T: 212-954-3094
E: labad@kpmg.com

Irina Vaysfeld
Principal
T: 212-872-2973
E: ivaysfeld@kpmg.com

Amie Ahanchian
Principal
T: 202-533-3247
E: aahanchian@kpmg.com

Christopher Young
Principal
T: 312-665-3229
E: christopheryoung@kpmg.com

Gisele Belotto
Managing Director
T: 305-913-2779
E: gbelotto@kpmg.com

George Zaharatos
Principal
T: 404-222-3292
E: gzaharatos@kpmg.com

Andy Doornaert
Managing Director
T: 313-230-3080
E: adoornaert@kpmg.com

Jessica Libby
Managing Director
T: 612-305-5533
E: jlibby@kpmg.com

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