The Department of Defense (DoD) recently adopted a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS), clarifying rules of origin for photovoltaic devices to be utilized under covered DoD contracts. The final rule adopts an interim rule DoD published late in 2013 without change — making clear that the country of origin is where final substantial transformation occurs. 79 Fed. Reg. 22,041. The new rule is the latest in a series of photovoltaic devices origin rules that began with the National Defense Authorization Act (NDAA) of 2011. The NDAA sought to apply the requirements of the Buy American Act and Trade Agreements Act to photovoltaic devices that DoD “owns” but does not purchase as end products — such as photovoltaic devices that may be acquired under energy savings performance contracts, utility service contracts, and private housing contracts. Photovoltaic devices will be considered “DoD owned” under these contracts if they are 1) installed on DoD property or in a facility owned by DoD and 2) reserved for the exclusive use of DoD for the full economic life of the device. DFARS 225.7017.
The newest rule affects purchases above the Buy American Act-cost thresholds, for which the Trade Agreements Act requires the government to purchase goods that are either wholly made or “substantially transformed” in the United States or a “designated country.” 19 U.S.C. §§2501-2581; FAR 52.225-5. The test for determining whether a substantial transformation has occurred is whether an article emerges from a process as 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.” FAR 25.003. This is a fact-specific and often disputed determination.
The new rule responds to questions that arose as to which country should be considered the “country of origin” when different phases of the solar panel production process — arguably each a substantial transformation — occur in different countries. The new rule provides that the country of origin is the country where final substantial transformation occurs.
The new rule also adds a requirement that offerors certify the origin of a designated country photovoltaic device consistent with country of origin determinations by U.S. Customs and Border Protection for the same or similar items. DFARS 252.225-7018. Offerors who are uncertain as to the appropriate country of origin are directed to seek a determination from Customs.
DoD may also utilize photovoltaic devices that meet the definition of “qualifying country end products,” without satisfying the “substantial transformation” test. DFARS 225.103(a)(i)(A); 252.225-7001; 252.225-7036; 252.225-7021. This covers several countries whose defense ministries have a defense procurement agreement with DoD. These do not include China, one of the world’s largest manufacturers of components of photovoltaic devices.