Buy American Negotiations

It remains unclear whether or when Canada-US negotiations on “Buy American” policies might produce a deal. While such a bilateral agreement could serve both countries well, Canadians should resist pressure to have our provincial and municipal governments sign onto the World Trade Organization’s Agreement on Government Procurement.

A Canadian exemption from Buy American requirements makes sense given the integration of manufacturing across the Canada-US border. Polling indicates that most Americans support these requirements, but would be willing to exempt Canada. It is good that our government has (belatedly) changed its tune from denouncing the very existence of Buy American policies to seeking a specific Canadian exemption.

An important question is what Canada will give up to obtain an exemption. Our federal government could require that provincial and municipal governments give preference to Canadian-made goods in spending federal transfers. Such a policy would mirror the conditions attached to American federal transfers to states and municipalities. Canada could then offer to exempt US suppliers from these “Buy Canadian” requirements in exchange for an exemption from Buy American requirements.

As reported by several newspapers this summer, Canada’s actual proposal is far less symmetrical. In the absence of a parallel Buy Canadian policy, the offer is instead to guarantee that American suppliers have access to our provincial and municipal procurement, whether or not it is federally funded. In exchange, the US Administration would waive the federal stimulus bill’s Buy American requirements for Canadian suppliers.

Both sides would want to exclude some procurement from such a deal. It is unclear which, if any, existing procurement preferences Canada would surrender. The Harper government would likely view limiting provincial and municipal procurement policy as a desirable loss of sovereignty. Indeed, it was already preparing to give away sub-federal procurement preferences in trade negotiations with the European Union.

Therefore, Canadian negotiators may not drive a sufficiently hard bargain with the US. Nevertheless, bilateral negotiations at least have the potential to generate an acceptable deal that would give Canadian producers access to American stimulus contracts.

WTO Agreement on Government Procurement

Far more troubling is the proposal for Canadian provincial and municipal governments to sign the WTO’s Agreement on Government Procurement (oddly abbreviated as “GPA”) instead of, or in addition to, a bilateral deal. American representatives, including the President and his Ambassador to Canada, have said that Canada can access US procurement simply by having provinces and municipalities join the GPA.

It is hard to tell whether these public statements are the American bottom line or just a bargaining position. However, several Canadian commentators have also bought into this supposed solution.

The Government of Canada has already signed the GPA, affirming our access to procurement conducted directly by the US federal government. The hope is that, if Canadian provinces and municipalities sign as well, Canadian industry could also access procurement conducted through American sub-federal governments. This proposal has at least three flaws.

First, while bilateral negotiations are taking months, it would take even longer to arrange for provincial and municipal governments to sign the GPA. US stimulus funding, and the Buy American conditions attached to it, will expire in the next couple of years. After that, the 1982 Buy America Act will still apply to state and local transport projects, which the US excluded from the GPA.

However, the GPA would permanently restrict provincial and municipal procurement policy. Conversely, a bilateral deal could be timed to expire when US stimulus spending ends.

Second, the GPA would not give Canada access to procurement conducted through the 13 American states that have not signed it or through American municipalities, none of which have signed it. But through bilateral negotiations, the US Administration could agree to waive Buy American requirements for Canadian products on federal transfers to all states and municipalities.

Third, severe trade imbalances already exist between Canada and GPA signatories other than the US. From January through August 2009, Canada imported $44 billion of manufactured goods from these countries and exported only $20 billion to them. Exposing provincial and municipal procurement to competition from Europe and Asia would allow more Canadian stimulus to leak offshore through this trade deficit.

By contrast, a bilateral agreement could strengthen a balanced trade relationship. From January through August 2009, Canada imported $105 billion of manufactured goods from the US and exported $110 billion. (All figures exclude refined petroleum products.) Reciprocal access to procurement would not cause either country to lose much stimulus to the other.

Having provincial and municipal governments sign the GPA would permanently restrict their procurement and expose it to offshore competition, without giving Canada meaningful access to American procurement. Bilateral negotiations with the US are the more promising route.