Webinar — Kolin and the New Protectionism: EU/US

Friday, 21 February 2025 – 9 am Eastern US – 14:00 UK – 15:00 CET

Program Slides

Please join GW Law’s Government Procurement Law Program for a free one-hour webinar on Friday, 21 February 2025, 9:00 Eastern, 14:00 UK, 15:00 CET, when a panel of internationally recognized experts will discuss rising protectionism in public procurement, both in the United States and the European Union. The panel will address potential new protectionism in the Trump administration, and the Court of Justice for the European Union’s landmark Kolin decision on access to the EU public procurement market.

Panel Members

• Jean Heilman Grier — Djaghe Consulting; Office of the U.S. Trade Representative (ret.)
• Albert Sanchez-Graells — University of Bristol (United Kingdom)
• Roberto Caranta — University of Turin (Italy)
• Robert Anderson — World Trade Organization (ret.)
• Marko Turudić — University of Zagreb (Croatia)
• Annamaria La Chimia — University of Nottingham (UK) (co-moderator)
• Christopher Yukins — George Washington University (co-moderator)

Europe: Understanding the Kolin Decision

The Court of Justice for the European Union issued what observers have called a “monumental” decision in Kolin Inşaat Turizm Sanayi ve Ticaret (Case C-652/22 (Oct. 22, 2024)). Taking up an international trade question that had not been raised by the referring court, the Court of Justice ruled that vendors from third nations – from nations, such as Türkiye, that have not entered into free trade agreements with the EU addressing procurement — cannot demand equal treatment in public procurements under member states’ laws that are founded on the EU Procurement Directives.

As panelist Jean Heilman Grier pointed out in her thoughtful commentary in November 2024, the Kolin decision may pose a more serious threat to free markets than the EU’s recent measures to boost EU vendors’ access to foreign procurement markets, the International Procurement Instrument and the Foreign Subsidies Regulation. See Jean Heilman Grier, Court Restricts Access of Third Countries to EU Procurement (Nov. 2024); Pascal Friton, The EU’s Consistent Pursuit of a Resilient Economy – Still a Necessity or a Wrong Priority?, 2021 Gov’t Contracts Year in Review Briefs 7; Pascal Friton, Max Klasse & Christopher R. Yukins, The EU Foreign Subsidies Regulation: Implications for Public Procurement and Some Collateral Damage, 65 Gov. Contractor ¶ 63 (Mar. 22, 2023); see also European Commission, Guidance on the participation of third-country bidders and goods in the EU procurement market (2019).

Although U.S. vendors are guaranteed access to EU markets under the World Trade Organization’s Agreement on Government Procurement (GPA), Ms. Grier noted that “the EU has incorporated various reciprocal conditions in its GPA commitments, denying the US rights to participate in procurement where the US does not offer reciprocal access, such as in the transportation sector and services purchased by subcentral [e.g., state] entities.” While U.S. firms “generally had de facto access to that procurement,” now, she warned, the Kolin decision may provide a legal basis for procuring entities (agencies) in EU member states “to deny equal treatment to US firms in procurement to which they do not have rights under the GPA.”

Panelist Robert Anderson, previously a senior official at the World Trade Organization, has written on the importance of the GPA in holding international procurement markets open. Although the GPA was sharply criticized in the prior Trump administration, the agreement continues to play a vital role as an instrument of global economic integration and good governance, in no small part because the membership of the GPA looks likely to grow among developing, transition and other economies in the coming years.

Editor’s note: Jean Grier has published a highly detailed analysis of Kolin, written against the backdrop of EU trade restraints on procurement. See Jean Heilman Grier, Feature Comment, European Court Restricts Foreign Firms’ Access to EU Procurement, 66 The Government Contractor ¶ 330 (Thomson Reuters, Dec. 11, 2024); see also Jean Heilman Grier, Will EU Adopt Preferences in Review of Procurement Directives?, Perspectives on Trade (Jan. 10, 2025).

Nor is it clear how, exactly, access to EU public procurement markets might be impaired under Kolin. University of Bristol (UK) Professor Albert Sanchez-Graells, one of our panelists, noted in his in-depth analysis of Kolin that the Court of Justice opinion leaves unanswered what rights, exactly, vendors from third nations such as Türkiye or China will have in member states’ procurements. While (as he pointed out) the decision nominally leaves it to contracting agencies to decide how to handle bids from third-country vendors, the court’s decision suggests that third-country vendors should suffer less favorable treatment – but does not define what that means. See Albert Sanchez-Graells, The Court of Justice decidedly jumps on the procurement protectionism bandwagon, creating legal uncertainty along the way (C‑652/22) (Nov. 6, 2024).

In a response to Albert Sanchez-Graells, panelist Roberto Caranta of the University of Turin argued that the Court of Justice appropriately addressed the international trade questions that have proven so controversial. Professor Caranta further argued that the Court of Justice in Kolin properly concluded that vendors from third countries that have not joined free trade agreements with the EU cannot claim rights to equal treatment under the EU directives; this, he urged, is an essential incentive to encourage third countries to join those free trade agreements (such as the WTO Government Procurement Agreement). Professor Caranta agreed with Albert Sanchez-Graells that the Kolin decision left too heavy a burden on EU procuring entities — to decide whether vendors from third countries can participate in a competition, and if so under what legal conditions.

Panelist Marko Turudić of the University of Zagreb gave a very interesting presentation on Kolin at the ICAPP 2024 conference in Dublin on November 12, 2024. He argued that the Kolin decision assumes — perhaps incorrectly — that contracting authorities across the European Union have deep expertise in international trade law. He noted that third country economic operators may try to circumvent exclusions through subsidiaries established in the European Union. He argued that the system of protections established by the EU’s International Procurement Instrument (IPI) and the Foreign Subsidies Regulation (FSR) was far clearer and understandable — and now is in danger after Kolin. He was concerned, finally, that Kolin will bring legal uncertainty, even if it encourages more free trade agreements.

The Draghi Report: Urging European Preferences

EU Member States’ response to Kolin may be colored by a recent European Commission report led by former Italian Prime Minister Mario Draghi, The Future of EU Competitiveness (Oct. 2024). The Draghi report argued that EU member states should harness public procurement to drive European competitiveness. To do so, among other things the report urged member states to “favour competitive European defence companies” over U.S. suppliers, which dominate the European defense market. (This pronouncement, noted a CSIS report, “will make U.S. defense companies nervous.”) The Kolin decision will make it easier for EU procuring agencies to impose preferences for European companies against U.S. and third-country firms, especially where there are gaps in existing free trade agreements.

The Letta Report: Procurement and the Single Market

The EU response may also be colored by the “Letta report,” which called not for protectionism but rather for EU-centered policies in procurement, to drive forward the European single market. In June 2023 the European Council called “for an independent High-Level Report on the future of the Single Market,” which was commissioned from the former Italian head of government, Enrico Letta. The Letta report, Much More Than a Market — Speed, Security, Solidarity: Empowering the Single Market to deliver a sustainable future and prosperity for all EU Citizens (April 2024), addressed EU public procurement policy in detail, beginning at page 42.

The Letta report called for a “Circular Single Market” to support environmental and economic sustainability “by fostering innovative business models and consumer behaviors.” The report called for procurement strategies that would align public spending with broader goals, especially in innovation and sustainability. Finally, the Letta report called for the strengthening of administrative capacities in procurement, to advance effectiveness and accountability in the implementation of the EU’s strategies.

Kolin from a U.S. Perspective

Observers from the United States can understand the Kolin decision through both U.S. law and shifting U.S. trade policies.

From a legal perspective, the Kolin decision puts the European Union closer to the United States’ more absolute bar under the Trade Agreements Act of 1979, 19 U.S.C. § 2501 et seq. Under the Trade Agreements Act, vendors from foreign countries are generally barred from larger federal procurements if their nations have not entered into trade agreements with the United States. 19 U.S.C. § 2512; FAR 52.225-5; Christopher R. Yukins & Steven L. Schooner, Incrementalism: Eroding the Impediments to a Global Public Procurement Market, 38 Geo. J. Int’l L. 529, 559 (2007) (citing the “walled garden” set up by the Trade Agreements Act); Christopher R. Yukins & Allen Green, International Trade Agreements and U.S. Procurement Law, in The Contractor’s Guide to International Procurement (ABA 2018) (Erin Loraine Felix & Marques Peterson, eds.). Because the United States has joined the GPA and an array of bilateral reciprocal defense procurement agreements with EU member states (and NATO allies), under current agreements U.S. vendors should continue to have broad access to EU public procurement markets.

Policy changes on the horizon, however, may imperil U.S. access. The Kolin decision was issued just a few weeks before President Trump won a second term in the U.S. elections. The coming Trump administration may raise new protectionist barriers, and (as Ms. Grier noted) the Kolin decision suggests that where there are gaps in U.S. international trade agreements with the European Union – where, for example, U.S. vendors’ access to a European defense market is not clearly defined by a reciprocal defense procurement agreement – the EU member states, responding to fresh U.S. protectionism, may try to raise new barriers to U.S. vendors in the EU’s public procurement markets.

United States: Trump Protectionism and Procurement

The first Trump administration was marked by a very strong “Buy American” protectionism, focused closely on procurement. After President Trump took office on January 20, 2025, it appeared that the same “Buy American” policies will not dominate, and the second Trump administration instead will emphasize general tariffs as a policy and revenue-generating tool.

First Trump Executive Actions on Procurement Trade

In his first hours in office, President Trump signed the “America First Trade Policy” directing his administration to “review the impact of all trade agreements,” including the WTO Government Procurement Agreement, on the volume of federal procurement covered by Trump’s 2017 executive order (“Buy American and Hire American“) and to make “recommendations to ensure that such agreements are being implemented in a manner that favors domestic workers and manufacturers, not foreign nations.” The policy statement also called for a report, due by April 30, 2025 from the U.S. Office of Management & Budget, on “any distorting impact of foreign government financial contributions or subsidies on United States Federal procurement programs,” and to “propose guidance, regulations, or legislation to combat such distortion” — an echo of the EU’s Foreign Subsidies Regulation, which bars government subsidies which may give foreign vendors an advantage in EU procurements.

Trump Protectionism in Procurement: compliance concerns

Targeted protectionism — for example, tariffs heavily focused on one trading partner, rather than all — may trigger concerns under the WTO Government Procurement Agreement (GPA) and other trade agreements which guarantee non-discrimination among trading partners. While Article IV.7 of the GPA, for example, generally exempts tariffs from the non-discrimination obligations (“Paragraphs 1 and 2 [regarding non-discrimination] shall not apply to: customs duties and charges of any kind imposed on, or in connection with, importation . . . .”), an open question is whether tariffs among trading partners would otherwise form the basis for a complaint under the GPA.

Trump administration tariffs may also set off a scramble among contractors and agencies to apply the Federal Acquisition Regulation (FAR)’s limited exceptions from tariffs for goods purchased under government contracts, per FAR 25.9, discussed below.

Threatened Tariffs on Canada and Mexico, and new tariffs against China

On Saturday, February 1, 2025, the Trump administration announced it would on February 4 impose 25% tariffs on goods from Canada (Executive Order) and Mexico, and 10% tariffs on goods from China (White House fact sheet; draft rule on Canadian tariffs (superseded — see below)).

On Monday, February 3, 2025, however, in the wake of late negotiations between the United States, Mexico and Canada, the Trump administration deferred both the Mexican and Canadian tariffs for one month. The Chinese tariffs went forward, and China announced a suite of retaliatory measures.

The impact of the new U.S. tariffs on public procurement in the United States will be mixed. Under a very complex regulatory regime, Chinese goods on federal contracts over $174,000 are generally barred from the U.S. federal marketplace by the Trade Agreements Act, because China has not entered into a free trade agreement covering procurement with the United States (see background paper). Federal buyers can still make smaller purchases of Chinese goods (including through Amazon and other commercial platforms), subject to the Buy American Act (a price preference) and special bars (such as the ban against Huawei products). State, local and tribal governments are not subject to the federal Trade Agreements Act and so can generally purchase Chinese goods — though now subject to additional 10% tariffs.

As statutory authority for the tariffs, President Trump invoked the International Emergency Economic Powers Act (for background on the Act, see Congressional Research Service report). As is discussed below, however, when goods are imported for sale to the U.S. government, if proper procedures are followed, the goods generally should be free from tariffs, per longstanding U.S. regulations.

Potential “Reciprocal” Tariffs on All Goods

Although, as noted, the Trump administration had days earlier deferred tariffs on Canadian and Mexican goods, on February 7, 2025 President Trump announced that his administration planned to impose “reciprocal” tariffs on other countries that levy tariffs higher than the United States. See Michael Birnbaum, Michelle Ye Hee Lee & Jacqueline Alemany, As Trump threatens tariffs, Japanese leader lavishes president with praise, Wash. Post, Feb. 8, 2025. As POLITICO pointed out, under “Trump’s ‘reciprocal tariff’ approach, each individual product — and there are thousands of products in the U.S. tariff code — could have as many different tariff levels as there are countries in the world. That would vastly increase the complexity of collecting tariffs on goods.” Victoria Guida & Doug Palmer, ‘Reciprocal’ tariffs on every country to be announced next week, Trump says, POLITICO, Feb. 7, 2025. This constellation of new tariffs could make it more difficult for contractors and agencies to apply the customs duties exemptions outlined below.

On February 13, 2025, President Trump issued a memorandum directing various U.S. agencies to examine non-reciprocal trade relationships and propose remedies “in pursuit of reciprocal trade relations with each trading partner.” The memorandum argued that non-reciprocal trade relationships boost U.S. trade deficits, threaten U.S. economic and national security, and harm U.S. workers and competitiveness. The accompanying factsheet highlighted specific examples of non-reciprocal trade, including EU tariffs on passenger cars. The memorandum states that the President will establish a “Fair and Reciprocal Plan,” under which agencies will determined an “equivalent reciprocal tariff with respect to each foreign trading partner.”

To assess non-reciprocal trade relationships, the memorandum directed agencies to consider the following five factors:

(a)  tariffs imposed on United States products; 

(b)  unfair, discriminatory, or extraterritorial taxes imposed by U.S. trading partners on United States businesses, workers, and consumers, including a value-added tax; 

(c)  costs to United States businesses, workers, and consumers arising from nontariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies, and burdensome regulatory requirements on United States businesses operating in other countries; 

(d)  policies and practices that cause exchange rates to deviate from their market value, to the detriment of Americans; wage suppression; and other mercantilist policies that make United States businesses and workers less competitive; and  

(e)  any other practice that, in the judgment of the United States Trade Representative, in consultation with the Secretary of the Treasury, the Secretary of Commerce, and [Peter Navarro] the Senior Counselor to the President for Trade and Manufacturing, imposes any unfair limitation on market access or any structural impediment to fair competition with the market economy of the United States. 

The assessments are due after the reports due on April 1, 2025 under the “America First Trade Policy Memo” discussed above. While no timeline is set for reciprocal tariffs, within 180 days (by August 11, 2025) at the latest, the Office of Management and Budget must submit a written report detailing the fiscal impact of the Plan. The Trump administration has invited trading partners to negotiate on these reciprocal tariffs, perhaps by lowering their own tariffs or removing barriers.

For a more detailed discussion of the impact of proposed tariffs on U.S. procurement, see Christopher Yukins, Kristen Ittig & Lynn Fischer Fox, President Trump and Trade — The Procurement Exception, 67 Gov. Contractor para. 35 (Thomson Reuters, Feb. 19, 2025)

Global Trade Alert Report: A Roadmap to Trump’s Reciprocal Tariffs?

Perhaps only by coincidence, the five factors identified in President Trump’s memorandum corresponded loosely to five “red flags” for trade identified in a November 2024 report from Simon J. Evenett at the Global Trade Alert (a leading international trade study center), Attracting the Ire of the Next US Administration: A Red Flag Analysis based on recent policy & market outcomes:

• Excessive bilateral trade surpluses with the United States.
• Unwarranted competitiveness gains at the expense of the United States created by, for example, currency devaluations, subsidies, lax regulations, forced labour, and low wages.
• Impaired market access for US exports.
• Applied import tariffs rates far in excess of comparable US levels.
• Other trade practices of concern to U.S. trade officials.

Based on these factors, the Global Trade Alert report concluded in November 2024 that South Korea, Canada, China, India and Japan were most likely to attract the ire of trade officials in the Trump administration, as the accompanying chart illustrates. “Based on statements by current and former US officials,” wrote Simon Evenett for the Global Trade Alert, “this briefing presents evidence from 173 countries of the prevalence of factors that could trigger disputes with the next US Administration.” He noted that South Korea was “awarded the maximum of 5 red flags for its ‘sins,'” and four nations “including China are awarded 4 red flags.” These “red flags” for non-reciprocal trading postures, Professor Evenett explained, were awarded in the report to “those trading partners performing ‘badly’ on pre-set criteria” likely to draw concerns from U.S. trade officials. “Foreign officials and analysts,” suggested Professor Evenett, “can use this information to gauge the prospect of US action and to devise possible mitigation moves.”

Because of the complexity of the reciprocal tariffs — which could vary both by category of goods and by exporting nation — their implementation could take many months, if not years. The reciprocal tariffs might be delayed by bilateral negotiations between the United States and its trading partners regarding specific U.S. complaints. How these complex tariffs might be handled to ensure U.S. agencies’ exemption from customs duties (discussed below) remains an open question.

U.S. Agencies’ Exemptions from Paying Customs Duties

Federal Acquisition Regulation (FAR) Subpart 25.9 provides governmentwide policies and procedures for exempting from import duties certain supplies purchased under federal government contracts. Under the policy set forth in FAR 25.901, while U.S. laws “impose duties on foreign supplies imported into the customs territory of the United States,” certain exemptions are available to federal agencies. “Agencies must use these exemptions when the anticipated savings . . . will outweigh the administrative costs associated with processing required documentation.” The Defense Department’s subsidiary regulations, also discussed below, provide DoD purchasers with comprehensive guidance for using these customs exemptions.

In 2020, tax expert Jedidiah Bodger argued in the Public Contract Law Journal that the FAR exemptions from customs duty described here may be impractical, and sharply increased tariffs may undercut contractors’ profitability. He urged that through “careful planning and review . . . there is an opportunity for contractors to preserve their profit margins through a price adjustment from the U.S. Government.” He argued that “the imposition of a tariff is considered the imposition of an excise tax, and contractors may be able to use the FAR in order to preserve their profit margins though a price adjustment for after-imposed federal excise taxes. . . . The linchpin in such an analysis will be whether the imposition is considered an after-imposed federal tax as that term is defined at FAR 52.229-3. . . . The interplay between the FAR and the [Internal Revenue Code] is the crux of such a determination.” Jedidiah Bodger, Maintaining Profitability of Government Contracts in the Age of Increasing Tariffs, 49 Pub. Cont. L.J. 275 (2020) (available (firewalls) on ABA website and Westlaw).

FAR – Governmentwide Regulations on Exemptions

The general federal procedures for the customs exemption are set forth in FAR 25.902. The regulation cross-references the U.S. Customs Service regulations and notes that “[e]xcept as provided elsewhere in the Customs Regulations . . . all shipments of imported supplies purchased under Government contracts are subject to the customs entry and examination requirements.” As a result, “[u]nless the agency obtains an exemption (citing FAR 25.903), those shipments are also subject to duty.” (Standard clauses in the government procurement regulations, such as FAR 52.212-4(k), state that the price paid by the government (the “contract price”) includes customs duties.)

In November 2024, shortly after the election, PilieroMazza’s Lauren Brier and Abigail (“Abby”) Finan (GW Law 2021) anticipated the current wave of tariffs and prepared a very helpful summary of how vendors in the federal procurement market might respond to price increases caused by new tariffs. They pointed out that, besides recovery for higher tariffs under FAR 52.229-3, Duty-Free Entry (discussed below), vendors may be able to recover under an economic price adjustment (EPA) clause, or for excusable delays caused by higher tariffs in the supply chain.

The Customs Regulations echo the FAR and state that, except as exempted, “importations made by or for the account of any agency or office of the United States Government are subject to the usual Customs entry and examination requirements.”

The governmentwide regulation, FAR 25.903, provides detail on exemptions from duties for supplies that the federal government purchases from abroad. FAR 25.903 again notes that the Harmonized Tariff Schedule lists supplies for which exemptions from duty may be obtained when imported under a government contract.

The procedures that the contractor and the purchasing agency are to follow are described in a standard FAR clause, FAR 52.225-8, Duty-Free Entry, which is to be inserted in any solicitations and contracts for supplies that may be imported into the United States and for which duty-free entry may be obtained in accordance with FAR 25.903. Under the FAR clause, contractors generally are not to include customs duties on supplies in the prices paid by the government. Either the solicitation is to identify goods that are to be duty-free, or (if it does not) the contractor is to notify the contracting officer of purchased items (generally those worth over $15,000) to be imported under the contract, at least 20 days before the importation. The contracting officer then is to determine if the identified supplies are to be accorded duty-free status and notify the contractor, and the contract price is to be reduced. No notice from the contractor is needed if the supplies are the same as those the contractor purchases commercially and segregating the “government” items is not economical or feasible. The government is to provide any required duty-free certificates and is to help the contractor in obtaining duty-free entry for supplies, using shipping documents which note that the supplies are for the contracting agency; the contractor must identify the supplies that will come from abroad.

DFARS – Defense Department Regulations

The Department of Defense has its own regulations (DFARS Subpart 225.9) regarding agencies’ exemptions from customs duties, set forth in the Defense Federal Acquisition Regulation Supplement (DFARS). Rather than use the FAR implementing clause discussed above, Defense Department purchasers are to use the implementing clause at DFARS 252.225-7013 (reviewed below). Defense procurement constitutes more than half of federal procurement (see figure).

DFARS 225.901 says that unless supplies are entitled to duty-free treatment under a special category in the Harmonized Tariff Schedule (discussed above), or the supplies already have entered into the customs territory of the United States and the contractor already has paid the duty, the Defense Department will issue duty-free entry certificates for:

(1) Qualifying country supplies: This exemption covers both “end products” (the line items called out in a government contract) and “components” (the constituent parts of an end product or another component) from 28 “qualifying countries” (Austria, Belgium, Canada, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, Turkey and the United Kingdom), i.e., those 28 allied countries that have entered into reciprocal defense procurement agreements with the United States (see DFARS 225.003). The reciprocal defense procurement agreements typically explicitly exempt covered defense items from customs duties. See generally Christopher Yukins & Allen Green, “International Trade Agreements and U.S. Procurement Law,” in The Contractor’s Guide to International Procurement (American Bar Association 2018) (Erin Loraine Felix & Marques Peterson, eds.). The United States’ reciprocal defense procurement with the United Kingdom, for example, states under Section 4 that the parties “commit that, on a reciprocal basis, they will not include customs, taxes, and duties in the evaluation of offers, and will use their best endeavours to waive their charges for customs and duties for procurements to which this MOU applies.” There is generally no disputes mechanism under the reciprocal defense procurement agreements; they contemplate bilateral consultations between the United States and its ally.

(2) Eligible products under contracts covered by the World Trade Organization Government Procurement Agreement or a Free Trade Agreement: While the DFARS provision exempting “eligible products” does not list the GPA or Free Trade Agreement countries, FAR 25.003 identifies the countries that are part of the WTO Government Procurement Agreement (Armenia, Aruba, Australia, Austria,, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea (Republic of), Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Montenegro, Netherlands, New Zealand, North Macedonia, Norway, Poland, Portugal, Romania, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan, Ukraine, and the United Kingdom). FAR 25.003 also identifies the countries that have joined other relevant free trade agreements with the United States (Australia, Bahrain, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore)). Left unaddressed by the DFARS: the “least developed countries” and the “Caribbean Basin countries” which are also generally entitled to free trade benefits under FAR Part 25.

(3) Other foreign supplies for which the contractor estimates that duty will exceed $300 per shipment into the customs territory of the United States. That threshold is tied to administrative efficiency: if the expected duties will exceed the estimated administrative costs of $300 per shipment, the agency is to exercise its exemption from duties. See 81 Fed. Reg. 28732 (2016).

To implement these provisions, DFARS 225.1101 calls for the use of a different clause, DFARS 252.225-7013, Duty-Free Entry, in lieu of the governmentwide clause (FAR 52.225-8) reviewed above. DFARS 252.225-7013 says that the contractor is to claim duty-free entry for the supplies the contractor intends to deliver, and the agency is to execute duty-free certificates and the assistance appropriate to obtain duty-free entry of supplies that are properly designated through the shipping and customs process. These procedures for duty-free entry do not apply for otherwise eligible supplies if they are identical to supplies purchased by the contractor (or its subcontractors) in connection with commercial business, and it is not economical or feasible to account for such supplies separately.

The Defense Department procedures for exercising the customs duties exemptions are set forth in DoD Procedures, Guidance and Information (PGI) 225.902. Those procedures say that the DoD administrative contracting officer shall “[e]nsure that contractors are aware of and understand any Duty-Free Entry clause requirements,” and that contractors “should understand that failure by them or their subcontractors to provide the data required by the clause will result in treatment of the shipment as without benefit of free entry.” Under the PGI provision, upon receipt of the required notice of foreign supplies from the contractor (or subcontractor), the contracting officer is to verify the need for the supplies and their duty-free treatment. The contracting officer is also to notify the appropriate Defense Contract Management Agency (DCMA) office in New York City. That DCMA office is responsible for issuing duty-free entry certificates for foreign supplies purchased under DoD contracts and subcontracts, and (with proper documentation) will verify that the supplies are entitled to duty-free treatment and immediate release.

Open Issues: U.S. Tariffs and procurement

The FAR and Defense Department requirements open several questions, should the new Trump administration launch sharply increased tariffs:

• The Defense Department’s regulations and procedures for handling foreign supplies are much more comprehensive than the governmentwide FAR. If increased tariffs put new strains on the roughly $800 billion federal procurement system, will the FAR procedures be improved?

• The U.S. rules — even if not perfect — are designed to ensure that items imported for purchase by the U.S. government are free of customs duties, including items imported from the European Union. Will the U.S. regulatory regime dissuade the EU Member States from imposing retaliatory tariffs against U.S. goods being procured by governments in the European Union (including U.S. defense materiel), if the Trump administration imposes heavy tariffs on EU nations?

• Do the trade agreements and the U.S. rules barring customs duties on items bought by the federal government leave an opening for the EU (or others) to take asymmetrical retaliation in procurement markets against Trump administration tariffs?

• The procedures for duty-free treatment are complex and potentially costly. How will those costs and burdens be addressed?

• As noted, contractors need not trigger the process for duty-free entry if the supplies sold to the government are the same as those the contractor (or its subcontractor) purchases commercially and segregating the “government” items is not economical or feasible. Does this mean the government will simply pay the higher duties on those supplies? And what will happen when government users purchase in purely “commercial” markets, such as Amazon, under programs such as GSA’s commercial platforms initiative?

• How will the new duties be handled under indefinite-delivery/indefinite-quantity (“catalogue” or “framework”) contracts? And where (as in the GSA Multiple Award Schedule (MAS) contracts) commercial prices are used as benchmarks for government pricing, will higher commercial prices caused by new tariffs disrupt those “most favored customer” benchmarks?

Conclusion — A New Path Forward

As the United States enters a new administration that could well raise new protectionist barriers, the Kolin decision in Europe marks a point of reflection. Unlike the Trade Agreements Act in the United States, the European Court of Justice decision leaves open the door for third-country vendors’ participation in EU public procurement markets, though under uncertain terms. As with other measures recently undertaken by the European Union, the Kolin decision suggests barriers to EU procurement markets are rising, and the United States will need to pay careful attention to ensure that U.S. firms continue to have access to those markets. The Kolin decision also reinforces the importance of existing free trade agreements between the United States and the EU and its member states — agreements which may move to center stage again as the EU and other trading partners respond to new Trump administration tariffs.

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