Category: International Trade

Tariff Exemption: Defense Items

In largely unnoticed developments, both the U.S. Department of Defense and the Senate Armed Services Committee have signaled that, consistent with current law, items purchased by the Department of Defense (called the “Department of War” by the Trump administration) should be exempt from tariffs. Although the Senate legislative provision was ultimately eliminated from the National Defense Authorization Act (see House Rules Committee final text of the NDAA), the tariff exemption remains in the Defense Federal Acquisition Regulation Supplement (DFARS). If rigorously exercised, the exemption could vastly simplify tariff issues for both the Defense Department and its contractors.

Editor’s note: This post has been updated to reflect approval of the National Defense Authorization Act by both the House and the Senate.

The Trump Tariffs

President Trump’s Reciprocal Tariffs — and the Procurement Exception

The Trump administration’s tariffs have been controversial worldwide. One open issue for the U.S. procurement community has been whether those tariffs would be applied to items purchased from abroad by the U.S. government — in essence, whether the government would have to pay higher prices due to its own tariffs.

An earlier posting explained the various federal procurement exceptions from tariffs built into U.S. law. Those exceptions have sometimes been difficult and uncertain to administer, however, which left open the risk that the Trump administration tariffs would drain resources from federal government procurement. The initiatives outlined below make it less likely that — at least with regard to Defense Department purchases — the Trump tariffs will apply to federal purchases.

Procedures for Defense Department Tariff Exemption

The procedures for duty-free entry of Defense Department supplies are explained in a July 2025 Defense Contract Management Agency (DCMA) presentation to the Defense Acquisition University (DAU), which included the following process chart:

The process is spelled out in the Defense Federal Acquisition Regulation Supplement (DFARS) clause DFARS 252.225-7013, in DFARS Subpart 225.9, and in DFARS Procedures, Guidance and Implementation (PGI) Subpart 225.9. The process, as the diagram above reflects, results in a certification from the Department of War that the supplies are entitled to duty-free entry under Section XXII, Chapter 98, Subchapter VIII, Item 9808.00.30 of the Harmonized Tariff Schedule of the United States, which covers “Materials certified to the Commissioner of Customs by the authorized procuring agencies to be emergency war material purchased abroad.” Customs rulings under Item 9808.00.30 are here.

Defense Department Memo Confirming Exemption

In an August 25, 2025 Defense Department-wide memorandum, John Tenaglia, the Principal Director, Defense Pricing, Contracting, and Acquisition Policy, emphasized that existing Defense Federal Acquisition Regulation Supplement 225.901 (DFARS 225.901) exempts many Defense Department purchases of foreign supplies. “In accordance with DFARS 225.901,” noted the memorandum, “unless the supplies are entitled to duty-free treatment under a special category in the Harmonized Tariff Schedule,” or the contractor has already paid the duty, per DFARS 225.901 the Defense Department will issue duty-free entry certificates for:

  • End products and components from “qualifying” countries (which have reciprocal defense procurement agreements with the U.S. Department of Defense), and
  • End products (but not components) that are “eligible products,” i.e., come from nations that have free trade agreements with the United States (such as the WTO Government Procurement Agreement), and
  • “Other foreign supplies for which the contractor estimates that duty will exceed $300 per shipment into the customs territory of the United States.”
Trump Administration Tariffs. Source: Atlantic Council

As was discussed above, normally the procedures for applying duty-free treatment to Defense Department procurements are set forth in DoD guidance, PGI Subpart 225.9. The August 2025 memorandum went further, and said that “contracting officers shall include or modify contracts” to include DFARS 252.225-7013 – Duty Free Entry (as prescribed in DFARS 225.1101(4)) for any “contracts or orders that anticipate delivery of end products, components, or materials imported into the customs territory of the United States.” The referenced clause, DFARS 252.225-7013, says that the exception is to extend to subcontracts, as well.

To “maximize the Department’s budget to meet warfighter needs,” the Defense Department memorandum said, contracting officers are to note in soliciting and contract materials “that any subsequent contract action will include the duty-free entry clause,” and that the “contractor should use the clause to assure that appropriate shipping documentation is used to prevent incurring duties.”

The Defense Department memorandum thus leveraged existing exceptions to make it clear that Defense Department supplies from abroad should be exempt from tariffs.

Editor’s note: As is discussed below, the policy memorandum on the Defense Department tariff exemption appears to have been removed from the DoD website; a copy, however, is archived here, and the memorandum is still indexed among acquisition policies.

In practical terms, these exceptions should cover a very large percentage of foreign end products and components purchased by the Defense Department. Reciprocal defense procurement agreements and the WTO Government Procurement Agreement will cover a broad range of supplies from abroad. For those products not covered by agreements, with baseline tariffs internationally of 10 percent (see map), it is likely that many remaining Defense Department procurements will meet the trigger of $300 in duties for exempting “other” foreign supplies. And because Defense Department procurements make up by far the largest share of U.S. federal procurement (see below), this Defense Department exception is likely to play a prominent role in U.S. government procurement.

Chart: U.S. Government Accountability Office

Senate’s Proposed NDAA Section 874: A Re-Exemption

Section 874 of the Senate version of the National Defense Authorization Act (NDAA) for FY 2026, S. 2296, would have reinforced the tariff exemptions for defense supplies. While it did not become law in the final version of the NDAA, Section 874 made clear the Senate’s ‘ support for the exemptions. Echoing the existing exemption under DFARS 225.901, the proposed NDAA Section 874 would have required the Defense Department to “issue a duty-free entry certificate” for covered supplies “imported pursuant to a procurement contract entered into by the Department of Defense.” The supplies would have to be (1) an end product or component imported from a country with which the United States has a memorandum of understanding for reciprocal procurement of defense items (commonly referred to as “reciprocal defense procurement agreements“), or (2) an “eligible product” under section 308 of the Trade Agreements Act of 1979 (19 U.S.C. 2518), i.e., an item covered by the WTO Government Procurement Agreement or other free trade agreements with the United States (list). Unlike the existing regulation, DFARS 225.901, Section 874 of the Senate NDAA would not have exempted other “foreign supplies for which the contractor estimates that duty will exceed $300 per shipment.”

Section 874’s exception would not have applied if the item was already duty-free under the Harmonized Tariff Schedule, or if the contractor had already paid U.S. duties on the product or component.

The Defense Department would be required to submit a report to Congress by January 30, 2026 on the impact of the Trump administration tariffs on the Defense Department, its contractors and its broader supply chain.

In the committee report which accompanied the Senate bill, the Senate Armed Services Committee (SASC) explained the concerns that underlay Section 874. The Committee “emphasize[d] that defense-related acquisitions from qualified sources under Reciprocal Defense Procurement  Agreements should remain exempt from any tariffs or trade restrictions,” and “urge[d] the Department of Defense and relevant interagency stakeholdersto preserve existing exemptions and ensure that future trade actions do not hinder defense procurement or compromise national security priorities.”

The Senate NDAA bill differed from the House of Representatives’ version of the bill, HR 3838, which passed the House on September 10, 2025, and which did not contain a similar provision. (The Senate bill was again offered as an amendment in the nature of a substitute by SASC Chairman Roger Wicker and Ranking Member Jack Reed on September 4, 2025; that version also included Section 874.)

Finalized National Defense Authorization Act and the Tariff Exception

In an important development, the conference report to the National Defense Authorization Act for Fiscal Year 2026 (the final version of the bill which reflected compromises between the House and Senate) removed Section 874 of the Senate version of the legislation, a provision which the Trump administration had opposed because the Senate provision had endorsed the U.S. Defense Department’s exception from the Trump administration tariffs. (The Joint Explanatory Statement which accompanied the conference report noted Section 874’s removal, at page 193.) The conference report has been approved by both houses of Congress.

The Joint Explanatory Statement which accompanied the compromise legislation also called for a report on the impact of tariffs and trade agreements. The Statement said:

The Senate bill contained a provision (sec. 874) that would require the Secretary of Defense to issue duty-free entry certificates in certain circumstances and require supply chain tracking.

The House bill contained no similar provision. The agreement does not include the Senate provision.

We note that it will be increasingly important for the Department of Defense to track the impact of economic fluctuations, including tariffs, supply chain disruptions, and inflation, on all major prime contracts entered into by the Department. Therefore, we direct the Secretary of Defense to provide a briefing to the congressional defense committees, not later than March 1, 2026, on the impact of significant economic fluctuations on Defense programs. Such briefing shall include:

(1) An assessment of cost increases to both the Department and contractors as a result of tariffs imposed since February 1, 2025, under the International Emergency Economic Powers Act (50 U.S.C. 1701) and section 232 of the Trade Expansion Act of 1962 (19 U.S.C 1862);

(2) An assessment of the effects of such tariffs on supply chains and lead times for major defense platforms; and

(3) A summary of agreements entered into under section 4851 of title 10, United States Code, and an assessment of the application of those [reciprocal defense procurement] agreements to the defense supply chain.

Importantly, the underlying regulations and guidance discussed above, used to exempt many Defense Department purchases from tariffs, remain in place. But the implementing Defense Department memorandum, though it is still indexed among Defense Department procurement policies, appears to have disappeared from the Defense Department’s website.

Revolutionary FAR Overhaul and Tariffs

Revolutionary FAR Overhaul: Third Round – FAR Parts 18 (Emergency Acquisitions), 39 (ICT Acquisitions) and 43 (Contract Modifications)

A longer-term question is whether the DFARS provisions which exempt Defense Department supplies from tariffs will be affected by the Trump administration’s “revolutionary” overhaul of the Federal Acquisition Regulation (FAR). The first step in the overhaul, now concluded, has been to issue proposed deviations from the FAR, part by part. The next step is to be a formal rulemaking to overhaul the FAR.

In that first step of the Revolutionary FAR Overhaul (RFO), the administration issued a revised version of FAR Part 25, which governs foreign acquisitions across all federal agencies. The overhauled FAR Subpart 25.9 would continue to recognize existing tariff exceptions, including the limited tariff exceptions afforded under the  Harmonized Tariff Schedule of the United States (HTSUS). The RFO does not address the Defense Department’s exemption (see above), which falls under the Defense Department’s supplement to the FAR. Thus the RFO (so far) would leave the Defense Department, but not civilian agencies, with a clear exemption from tariffs.

Extending the Tariff Exception to Civilian Agencies

Another open question is whether a tariff exception should be extended to civilian agencies as well. A tariff exception for civilian agencies is especially important because President Trump’s Executive Order 14240, Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement, centralizes the acquisition of common goods and services at the U.S. General Services Administration (GSA) — a civilian agency. If GSA is to serve as a lead purchaser for the Defense Department, a blanket governmentwide tariff exemption would be more efficient; otherwise, GSA (and other civilian agencies sponsoring governmentwide acquisition contracts) may need to distinguish between defense and civilian orders in managing tariffs, and civilian agencies may face much higher costs because of tariffs.

Extending the blanket tariffs exemption to GSA would also open the door to possible tariffs exemptions for state and local governments, through cooperative purchasing. For decades, GSA has taken the lead in opening its Multiple Award Schedule (MAS) contracts to state and local governments (and others) through cooperative purchasing. Because state and local governments procure using billions of dollars annually in federal grant funds, if those state and local governments enjoyed the same tariff exemption for cooperative purchases through the GSA contracts — at least for federally funded procurements — both the federal government and its state and local grantees could save substantially.

Conclusion

Existing regulations afford important tariff exceptions to Defense Department purchases from abroad. Those exceptions are intended to ensure that the Defense Department’s mission is not hampered by tariffs. A logical next question would be whether items purchased by civilian agencies — which are covered by free trade agreements, but not by reciprocal defense procurement agreements — would also be given a blanket exemption from the Trump administration tariffs. Another open question is whether state and local governments, if they purchased “cooperatively” through a federal contract, would also be able to take advantage of these tariff exceptions.

Related Resources

Webinar — Kolin and the New Protectionism: EU/US

Public Procurement Law Review Special Edition: International Trade

Luke Butler

The Public Procurement Law Review (Sweet & Maxwell / UK), edited by Professor Luke Butler and his colleagues at the University of Nottingham, has published a special issue focused on international trade and procurement.

Four of the pieces from the special issue, discussed below, are available on the Social Sciences Research Network (ssrn.com) and below.

Download

Robert Anderson

In their introductory editorial, “Procurement Trade Agreements and Their Discontents,” Robert Anderson (Honorary Professor at the University of Nottingham School of Law, and Senior Fellow, Competition and Innovation Lab, The George Washington University, and former team lead at the WTO on the Government Procurement Agreement) and Christopher Yukins (GW Law) put the accompanying articles into context. They noted that the GPA, as the premier trade agreement, “is currently under an unprecedented degree of scrutiny on the part of one of its founding Parties, . . . the United States,” which calls for a “spirited defence . . . of the GPA and other trade agreements embodying government procurement commitments and their contribution to international governance and prosperity.”

Jean Heilman Grier

In her piece, “Expansion of International Procurement Commitments: WTO Procurement Agreement Versus Free Trade Agreements,” Jean Heilman Grier (Djaghe, LLC) (the author of The International Procurement System, a leading volume on the United States and international public procurement trade), argued that the large numbers of nations that have committed to open their government government markets to foreign suppliers “reflects the important role that government procurement plays in international trade.” She noted that while “the GPA will continue to add new members—albeit slowly, [free trade agreements (FTAs)] will provide the principal expansion of international procurement commitments, as they encompass both GPA parties and those outside the plurilateral agreement.” Although the GPA’s membership “may be outpaced by FTAs” which she described in detail, Jean Grier wrote that the GPA “will continue to serve as the international gold standard for government procurement provisions and the foundation for procurement rules across the globe.” She cautioned, though, that the “potential spoiler is the United States with President Trump’s America First trade policy undermining existing agreements and threatening withdrawal from the GPA and even the WTO.”

Derek McKee

In their piece on bid protests and the trade agreements, “The GPA’s Domestic Review Procedures Through the Lens of North American Sub-Central Implementation: Flexibility or Incoherence?,” Derek McKee (Faculté de droit, Université de Montréal) and Daniel Schoeni (University of Dayton) noted that although the GPA “requires parties to give foreign suppliers access to independent and impartial fora where they can challenge public procurement decisions,” many U.S. states and Canadian provinces — though both countries are members of the GPA “have domestic review procedures that comply with some, but not all,” of the GPA’s requirements. They place part of the blame on ambiguities in Article XVIII of the GPA, and provide examples of North American sub-central review systems that embody these ambiguities.

Daniel Schoeni

The final piece, “An Empirical Study of Bid Protests by Disappointed Tenderers in US States,” by Daniel Schoeni (University of Dayton), was an extension of Professor Schoeni’s doctoral research at the University of Nottingham. In it, he reported on data he gathered on bid protests (challenges) in the states, and noted that bid protests are “at least as common at the state level as at the federal level.” Knowing that — that protests are a commonly available remedy for uncompetitive discrimination at the state level — could, Professor Schoeni noted, “foster confidence among foreign suppliers and thus encourage greater participation from abroad.”

Christopher Yukins

Editor’s note: The pieces shared here were first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in 34 Pub. Proc. Law Rev., No. 4 (2025), and are reproduced by agreement with the publishers. For further details, please see the publishers’ website.

Christopher Yukins to Address Brussels Conference on EU Foreign Subsidies Regulation

On June 7, 2023, GW Law School’s Prof. Christopher Yukins will address a Brussels conference, organized through Utrecht University, “Challenges for Public Procurement in Europe and Beyond: Concept Programme.” He will address the EU Foreign Subsidies Regulation (FSR), which will impose heavy disclosure requirements on vendors from abroad — including vendors from the United States — competing for EU Member State public procurements. The U.S. Chamber of Commerce has recommended that members of the WTO Government Procurement Agreement (GPA) be exempted from the FSR; Professor Yukins discusses that proposed exemption in his brief presentation (click here for slides).

For background materials and a prior webinar on the FSR, click here

UNCITRAL Days in Africa Workshop on Public Procurement Law Harmonisation

On November 3, 2022 panelists joined with Professor Geo Quinot and Professor Sope Williams from Stellenbosch University, South Africa, for a very interesting discussion of public procurement and international trade across the African continent.

Professor Dominic Dagbanja Slides

Professor Christopher Yukins Slides

Trade Policy in Procurement in the Biden Administration

“Assessing the Trade Agenda for Government Procurement in the Biden Administration,” paper presented by Chris Yukins at the Thomson Reuters Government Contracts Year in Review Conference (Feb. 2021)

The attached paper, prepared shortly before President Biden was inaugurated, discussed key trade issues for the incoming administration in public procurement. The piece reviewed major trade measures in procurement taken during the Trump administration – most of which were predictable from the time Trump was elected.  The paper turned to the major trade challenges that face the Biden administration, in areas as diverse as climate change, cybersecurity and the protectionism in post-Brexit Europe, and then assessed how the Biden administration might address these challenges, especially given Joe Biden’s support for “Buy American” policies during the 2020 campaign. The paper also assessed how the new administration might cooperate on these difficult issues with the United States’ allies abroad.  The paper concluded that the Biden administration’s main challenge was restoring confidence abroad in the United States as a responsible trading partner in procurement; once that goal was met, the paper argued, the more technical issues of trade in procurement would be much easier to address.

The paper’s concerns that the new administration might take a protectionist turn, per Joe Biden’s campaign promises, soon proved well-founded. On January 25, 2021, only a few days after entering office, President Biden signed an executive order calling for strengthened “Buy American” policies in U.S. procurement. Commenting on the order, The Economist wrote that while the order was “protectionist in spirit,” the United States’ existing trade commitments “mean that Mr Biden’s measures may not have much effect.” For background on the executive order– including the history of the Trump administration trade policies in procurement, and questions raised by the new order — please see the slides attached here.

The denouement to the Biden executive order suggests that, in the short term at least, the Biden administration will not go beyond the tighter Buy American Act requirements imposed by the Trump administration

The denouement to the Biden executive order suggested that, while it called for closer scrutiny of waivers and exceptions to the Buy American Act, in the short term at least the Biden administration would not go beyond the tighter Buy American requirements launched by President Trump in July 2019 under Executive Order 13881. President Trump’s order calling for stricter “Buy American” requirements was published as a proposed implementing Federal Acquisition Regulation (FAR) rule on September 14, 2020 (85 FR 56558), and the final FAR rule was published on January 19, 2021 (86 FR 6180).  The final Trump rule, in keeping with his executive order, aggressively tightened domestic content requirements under the Buy American Act. President Biden took office the next day, on January 20, 2021.  President Biden issued his “Buy American” executive order (EO 14005) several days later, on January 25, 2025.  On or about that same date, the Biden administration undertook a FAR review to assess whether the Trump regulations needed to be reconsidered. By February 25, 2021 (roughly one month later) the Biden administration concluded that no further changes were needed to the “Buy American” regulations. FAR Case 2021-004, closed 2/25/21.  The Biden administration thus appeared to close the book on further changes to the FAR “Buy American” rules, at least temporarily — perhaps at least until the broader policy reviews called for by the Biden order (such as a review of the “Buy American” exception for commercial information technology) are concluded.

Webinar – European Commission White Paper on Foreign Government Subsidies – December 1, 2020

King’s College London and GW Law will be presenting a free webinar on the European Commission’s “White Paper” on foreign government subsidies, which would impose new EU measures to address foreign subsidies, including in public procurement.

Program information