29 May 2009

Bid to kill 'buy U.S.' hinges on provinces

The following is excerpted from the 28 May 2009 edition of "National Post".

The federal government is looking to cut a deal with Washington that would persuade U.S. legislators to repeal controversial Buy American measures that Canadian firms say are costing them sales and forcing them to shed jobs.

The key element of such a pact, however, is getting the provinces and territories to open up their procurement markets to U.S. suppliers. At present, provinces and municipalities are not bound by global trade law and are free to discriminate against U.S. companies in favour of local suppliers.

International Trade Minister Stockwell Day has been in talks with the provinces to determine their willingness. If most are, Ottawa's goal is to persuade Washington to drop the Buy American clauses on the understanding that provinces would commit to talks aimed at opening their markets.

"Those discussions are underway, but it will require a critical mass of provinces to sign on to make an offer that opens up provincial markets -- and then it is going to depend on tough bargaining with the Americans to agree," said Lawrence Herman, a trade lawyer with Cassels Brock & Blackwell who is familiar with the talks between Ottawa and the provinces. "If we are going to do anything to try to resolve the Buy American issue, it is going to take the provinces to sign on to a deal to open up their markets."...

The Buy American provisions, contained in the American Recovery and Reinvestment Act, prohibit foreign-produced iron, steel and other manufactured goods from being used in projects paid for through stimulus funding. According to the law, all those goods must be sourced through the United States.

Canadian companies have complained about how the controversial measures have cost them business and jobs.

Business leaders say the provision is forcing companies to move manufacturing operations from Canada to the United States to ensure they can capitalize on the nearly US$1-trillion on stimulus spending.

Canada's federal procurement market, excluding defence, is valued at up to $5-billion a year, and is covered under international free trade rules that prohibit discrimination against foreign firms. In contrast, the provincial sector -- which includes municipalities, universities and hospitals -- is far more lucrative at roughly $22-billion annually, and is not covered under World Trade Organization measures.

Jeffrey Thomas, a trade lawyer with Borden Ladner Gervais in Vancouver, said when NAFTA was negotiated, the Canadian provinces refused to allow their procurement markets to be open to U.S. bidders.

As a result, "provinces and municipalities are free to undertake the same behaviour that Canada is complaining about in the United States," Mr. Thomas said. "It is in part because the provinces were not willing to accept the procurement obligations of the WTO and NAFTA. And the federal government can't force them to."

But the Buy American provisions may force the provinces' hands. Moreover, Mr. Thomas said, a free trade deal with the European Union will hinge on, among other things, European firms being able to compete for procurement contracts sourced at the provincial level.

Business groups have lobbied both Ottawa and the provinces to find a solution as quickly as possible, warning retaliatory trade measures are not the answer....