Trade Agreements Act & Taiwan Drones

What the Act does

The Trade Agreements Act of 1979 lets the President waive Buy American restrictions for products from countries that have opened their own government procurement to US suppliers. The authority is delegated to the US Trade Representative, and the waiver is implemented in FAR subpart 25.4.

Where the waiver applies, a designated country end product competes on price and merit against a domestic one. FAR 25.402(a)(1) puts it in one sentence: offers of eligible products receive equal consideration with domestic offers. There is no preference to overcome and no content percentage to hit.

Two things follow that suppliers routinely get backward. The waiver is a market-access rule, not a security rule — it exists to honor a trade commitment, not to keep any particular component out of a US government system. And it is an all-or-nothing origin test on the finished article, not a graduated content test like the domestic-content percentage the Buy American statute uses.

When this rule is in play

Narrower than most suppliers assume. Three things have to be true at once.

A federal agency is the buyer. The clause lives in a federal contract. It has no application to a commercial sale, and none to a state or local purchase — some states run domestic preference rules of their own, but the Trade Agreements Act is not one of them.

Your product is the end product. FAR 25.003 defines an end product as the articles "to be acquired for public use" — the thing the government is actually buying. Not the parts inside it.

The acquisition is at or above the threshold, or it is a GSA Schedule sale, where the rule applies at every dollar value regardless.

Miss any one of those and this guide is background reading rather than a compliance obligation. The most common case of missing one, by a wide margin, is the second — a component supplier whose part goes into somebody else's aircraft. That case has its own section below.

Taiwan is designated, and that is a treaty fact

Taiwan acceded to the WTO Government Procurement Agreement in 2009. The FAR reflects that: the WTO GPA country list at 25.003 names Taiwan alongside Japan, Korea, the EU member states, the UK and Switzerland.

The competitive weight of that sits in the countries that are absent. China is not a GPA party and is not designated. Neither is Vietnam, Thailand, Malaysia, Indonesia or India — the jurisdictions manufacturing has moved to over the last several years for tariff and labor reasons. A supplier who relocated assembly out of China to Vietnam solved a tariff problem and created a procurement one. A supplier in Taiwan has neither.

This is the rare US instrument where Taiwan's position is settled rather than argued. It is also the one that proves the least.

One limit worth knowing before you quote a defense buyer. Designated-country status under the TAA is not the same as qualifying-country status under DFARS 225.872-1, a separate list built on reciprocal defense procurement agreements. Japan, the UK and twenty-odd others are on it. Taiwan is not. The TAA waiver still reaches DoD acquisitions above the threshold; the additional DoD exemptions that flow from qualifying-country status do not extend to Taiwanese product.

The threshold, and the trap underneath it

The waiver only applies to acquisitions at or above a dollar threshold that USTR resets every two years against the SDR exchange rate. The current figures are in the table at FAR 25.402(b):

Taiwan qualifies through the WTO GPA line, so $174,000 is the number that matters. These took effect March 13, 2026.

Below the threshold, the waiver simply does not operate and the Buy American statute governs instead. That regime asks a different question — was the end product manufactured in the United States, and does the cost of its domestic components clear a percentage that is scheduled to keep rising through the end of the decade. Taiwanese product cannot satisfy it. It is not banned outright; foreign offers are evaluated with a price penalty applied. But the equal-consideration footing is gone.

The practical shape of that, for a Taiwanese component maker, is counterintuitive: being TAA-eligible does not make you eligible for small federal orders. A $40,000 buy of ground control stations is below the threshold and is a Buy American acquisition. Designated-country status is worth nothing there.

What "substantially transformed" means

A designated country end product is one that is either wholly the growth, product or manufacture of that country, or — where it contains materials from elsewhere — has been substantially transformed there "into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed."

Country-of-origin determinations for government procurement are made by CBP under 19 CFR part 177, subpart B. CBP decides case by case on the totality of the circumstances: where the components came from, how much processing happened in the country claimed, and whether what emerged has genuinely become something else.

The consistent line in those determinations is that minimal or simple assembly does not transform anything. Repackaging does not. Relabeling does not. Nor does bolting together parts that were already shaped and committed to their final use before they arrived — a screwdriver operation on a Chinese kit produces a Chinese product with a Taiwanese address on the carton.

Where the work is real, so is the transformation. A Taiwanese ESC built on a Chinese MCU and Chinese power stages, where the board is fabricated, populated, flashed and calibrated in Taiwan, has a strong argument: what arrived was a reel of parts, what left is a motor controller. A "Taiwanese" airframe that arrives from Shenzhen as a boxed kit and leaves with four screws in it does not. Same country, same paperwork, opposite answers. Board-level assembly with firmware and calibration is the kind of operation that changes character rather than location.

The question a supplier should be able to answer is not "where did we ship it from" but "what did we make it into."

That distinction is not theoretical here. Taiwan's National Audit Office reported in August 2026 that Hi Sharp Intelligence had imported Chinese camera components, assembled them in Taiwan, sold them as made in Taiwan and won government contracts on that basis from 2020 to 2024 — roughly 3,400 products. That was tested under Taiwan's own procurement rules rather than the FAR, but it is the same gap. A separate case, this one involving a drone, showed what a "Made in Taiwan" claim certifies and what it does not.

There is no "manufactured in Taiwan" shortcut

This one is missed constantly, because the two definitions in FAR 25.003 look parallel and are not.

A U.S.-made end product is one that is "mined, produced, or manufactured in the United States" or substantially transformed there. Two independent routes. In Acetris Health v. United States (Fed. Cir. 2020), the Federal Circuit read the first route literally: a product manufactured in the US from a foreign active ingredient qualified, even though CBP's substantial transformation analysis would have called it foreign. The court also held that the procuring agency has to make its own assessment and cannot simply defer to a CBP determination.

A WTO GPA country end product has no equivalent first route. It is wholly the growth, product or manufacture of the country, or it is substantially transformed there. "Manufactured in Taiwan" is not a standalone qualifying phrase the way "manufactured in the United States" is.

So the Acetris opening runs one way only. A US integrator assembling Taiwanese parts in Ohio has an argument available that a Taiwanese factory assembling the same parts in Taoyuan does not. For Taiwanese product, substantial transformation is the whole test — and the flip side of the agency-independence holding is that a favorable CBP determination is helpful evidence rather than a settled answer.

If you sell components into a US-built aircraft

This is the most common position for a Taiwanese supplier, and the rule mostly does not reach it. Three steps, all from the clause and the definitions.

The clause binds the prime, not the supply chain. FAR 52.225-5 is a term of the government's contract with its contractor, and what that contractor agrees is to deliver under the contract only US-made or designated country end products. The clause carries no subcontractor flow-down requirement, unlike the Section 889 clause, which does.

The test runs on the end product and stops there. Counting components is a Buy American exercise — that regime adds up their cost to reach a domestic-content percentage. The Trade Agreements Act does no counting at all. It asks one question about one article: where was the thing the government is buying substantially transformed.

So your part is invisible to it. A drone assembled in the United States from Taiwanese motors and battery packs is a US-made end product, and what went into it does not enter the analysis. Even if the US work were thin enough not to amount to substantial transformation, origin would fall back to where it did happen — Taiwan, which is designated. It passes either way. A Taiwanese component maker has to work fairly hard to create a TAA problem for a US customer.

Two things follow for how you handle the question when it arrives.

Expect to be asked anyway. A prime needs evidence to support its own representation, and asking every supplier for origin is cheaper than working out which ones matter. "The TAA does not apply to me" is correct and commercially useless. Hand over the origin file.

Then work out what they are actually worried about. On a defense program the binding constraints on a motor or battery maker sit elsewhere. Section 848 tests components by origin, and does not name motors, ESCs, propellers or batteries in its enumerated list. The FCC Covered List does name both as UAS critical components, though ones that generally require no authorization of their own. A TAA question is often a Section 848 question wearing the wrong label.

What TAA compliance does not prove

Four US rules, four different tests, and a product can pass any one of them while failing the rest. The two errors that follow are mirror images:

Treating TAA compliance as a Chinese-content answer. It is not one. The Act does not care what is inside the article as long as the article itself was substantially transformed in a designated country. A supplier who answers a Section 848 question with a TAA certificate has changed the subject, and a buyer who accepts it has stopped asking.

Treating Section 848 work as TAA coverage. Also wrong, in the other direction. Component-level origin tracing says nothing about where the finished article was transformed — and for a component sold as its own end product, the TAA question is asked about that component.

The overlap is real but partial. The origin file assembled for Section 848 and for the tariff cap on allied content contains most of what a substantial transformation argument needs. Building it once and using it three times is the correct instinct. Presenting one rule's conclusion as another's is not.

GSA Schedules: the threshold does not apply

If your route to US federal buyers runs through a Multiple Award Schedule — as it does for most commercial drone and component vendors — the threshold analysis above is largely academic.

GSA's own guidance is that FAR 52.225-5 applies to all GSA Schedule contracts unless the solicitation says otherwise. Every item in the catalog has to be TAA compliant, at any dollar value. There is no small-order carve-out and no option to list a non-compliant item with a disclaimer — GSA rejects the modification.

Three consequences:

Chinese-origin product is categorically off the Schedule. Not disadvantaged. Ineligible.

Taiwan-origin product is on it by treaty, provided the substantial transformation holds up.

The obligation is continuing, not a one-time filing. GSA's guidance tells contractors to re-check periodically because manufacturers move production. A supplier who shifts board assembly to a second site has changed their customer's compliance position whether or not anyone told them. Selling a non-compliant item under a Schedule contract is a breach and a False Claims Act exposure, and the contractor carries it.

Enforcement sharpened in 2026

Executive Order 14392, signed March 13, 2026, directs the FTC to prioritize enforcement against sellers and manufacturers making false US-origin claims, and asks agencies with country-of-origin oversight to consider new rules — including whether an online marketplace that fails to verify origin claims commits an unfair or deceptive practice.

Read what it is before reading what it means. The order does not change the legal standard for an origin claim. It changes how likely anyone is to look. Origin representations made to the government have always carried False Claims Act exposure; what shifted is the attention, and it now extends past manufacturers to resellers and marketplaces.

Our reading: the risk for a Taiwanese supplier here is not deliberate misrepresentation. It is a US reseller who wrote "TAA compliant" into a catalog listing on the strength of a shipping address, and a factory that never told them when the sub-assembly work moved. The party who signs the representation is not the party who knows the answer. That is the failure worth designing against.

What to do

1. Establish, in writing, where each product you sell is substantially transformed, and what the operations are. This is the file, and everything else is derived from it.
2. Check whether your US route runs through a GSA Schedule. If it does, the threshold is irrelevant and every catalog item is in scope.
3. Map which parts of your existing origin work for Section 848 and the tariff cap carry over. Most of the evidence does; the conclusion does not.
4. Tell your US resellers when contract manufacturing or sub-assembly moves. They are the ones signing the representation.
5. Stop writing "TAA compliant" as a standalone compliance claim. Name the test you passed.

Open questions

• Whether the pending reset of the Buy American waiver list, still in pre-publication as of mid-2026, touches designated-country treatment.
• How the agencies respond to EO 14392's invitation to write new country-of-origin verification rules, and whether Schedule catalog listings are among the first targets.
• Where CBP would draw the substantial transformation line on a drone specifically. The published determinations cover electronics and vehicles; we have found none on a complete UAS.
• Whether the next threshold adjustment, due to take effect at the start of 2028, moves the supply figure up or down again.

Primary sources

• FAR 25.003 — definitions, including the WTO GPA country list naming Taiwan
• FAR subpart 25.4 — the trade agreements policy and thresholds
• FAR 52.225-5 — the Trade Agreements contract clause
• 19 CFR part 177, subpart B — CBP country-of-origin final determinations for government procurement
• DFARS 225.872-1 — the DoD qualifying country list, which is a separate thing
• GSA Vendor Support Center, TAA compliance — GSA's own statement that the clause applies at every dollar value