Reed Smith Client Alerts

In a striking recent decision, the U.S. Court of Appeals for the Federal Circuit ruled in Acetris Health, LLC v. United States, ___ F.3d ___, 2020 WL 610487 (Fed. Cir. Feb. 10, 2020), that active pharmaceutical ingredients (APIs) are no longer the deciding factor for country of origin determinations under the Trade Agreements Act (TAA). The Court also held that the procuring agency, not the U.S. Customs and Border Protection (CBP), must independently determine whether a good (or drug or device) is eligible for procurement as a "U.S.-made end product" as required under Federal Acquisition Regulations (FAR), the implementing regulations of the TAA.

Case background and regulatory framework:

At issue in Acetris was the Department of Veteran Affairs' (VA) interpretation of restrictions on the procurement of foreign origin pharmaceutical products under the TAA and the FAR. The FAR requires that, with some exceptions, government agencies must buy goods that are "U.S.-made or designated country end products." FAR 25.403(c). A "U.S.-made end product" may be either: (i) "manufactured in the United States" or a TAA designated country; or (ii) "substantially transformed in the United States" or a TAA designated country. FAR 25.003. Pursuant to 19 CFR 177.21 et seq., CBP issues country of origin advisory rulings and final determinations. In making these determinations, CBP has long held that the country from which a pharmaceutical product's API is sourced generally dictates its country of origin. Acetris, 2020 WL 610487 at *6.

In Acetris, the plaintiff was a pharmaceutical distributor that specialized in providing pharmaceuticals to the federal government. After seeking an advisory opinion, CBP determined that Acetris's pharmaceutical products originated in India because their APIs were made in India, a non-TAA designated country, and the manufacturing process in the United States did not constitute a "substantial transformation" of the APIs. See 83 Fed. Reg. 5132-33 (Feb. 5, 2018). Relying on CBP's determination, the VA determined it could no longer purchase certain pharmaceutical products from Acetris because the products were non-TAA compliant. The U.S. Court of Federal Claims (COFC) granted Acetris declaratory and injunctive relief, holding that the VA misinterpreted the TAA and the FAR. The VA appealed.