BC's ferry tendering sailing in wrong direction

August 1, 2002

Buying Canadian is no longer government policy--at least not in British Columbia. The BC provincial cabinet has directed the BC Ferry Corporation to initiate, for the first time in its 43-year history, a completely open international tendering process for all ferry refits and new vessel procurement. This policy shift appears more driven by ideology than common sense, as BC's main competitors remain protected and supported by their respective governments.

In mid July, BC Ferries asked for international bids to refit five large "C" class ferries, a job valued at approximately $150 million. Yet even before this tendering, BC Ferries officials were visiting Seattle shipyards to stir up interest from US bidders. No such personal contacts were made with BC shipyards.

Considerable controversy surrounds this radical change in public procurement policy, and the future of the BC shipyard industry hangs in the balance. If BC shipyards do not receive a significant portion of BC Ferries vessel refit and replacement work over the next five years it is doubtful that a single major shipyard will survive--a substantial de-industrialization of the BC economy.

Why would the provincial government choose to forfeit a significant tool of industrial development and throw out its ability to use a major crown corporation to support local well-paying jobs? Washington state has legislation mandating that its public ferries be built within the state.

This story is replete with ironies.

First off, Victoria and Ottawa are moving in opposite policy directions. The decision of the BC government to internationally tender major ferry procurement is based on simplistic bottom line economics--search the world for ferry bargains. This approach fails to recognize the spin-off benefits to the BC economy of local procurement. Assuming $175 million is spent in BC on ferry refits and a small new vessel over the next five years, these benefits include 1,500 person years of employment, a $78 million increase in household income, a $101 million increase in provincial GDP, and a $32 million return to government revenues.

Meanwhile, in the spring of 2001, the federal Government announced a completely new and different national policy framework to help revive and grow the Canadian shipbuilding industry, in recognition of the unfair international competition it faces. Under its new policy, the Federal Government stated, "the Canadian shipbuilding and marine industry is recognized by the government as an important contributor to national and regional economies. In addition, a viable and competitive domestic ship maintenance and repair capability is important to Canadian government operational needs". In short, the federal government has rightly re-committed to a Buy Canadian procurement policy.

One would think that in a province such as BC, with 25 per cent of the national shipbuilding workforce, the provincial government would adopt a policy complimentary to that of the federal government. Think again.

But this story is more bizarre still.

The most obvious foreign challenge to BC shipyards comes from US shipyards on the Pacific and Gulf Coasts.

The US shipyards have a number of significant advantages. First, US shipyards have a transportation cost advantage over other international competitors, as they are within close coastal sailing distance from BC waters. Second, under the North American Free Trade Agreement (NAFTA), US shipyards are exempt from the 25 per cent tariff collected by Canada on imported vessels.

Third, for some time now, US shipyards have been busy with a cranked-up US naval and coastguard defense procurement program. These military contracts are effectively a subsidy that has helped modernize US shipyards. US shipyards also benefit from a host of other government subsidies and low-interest loan programs.

The icing on the cake is that the US government also protects US shipyards from competition with Canadian and other foreign yards. The Jones Act imposes a variety of limits on foreign participation in the US domestic marine industry. Under these laws the carriage of cargo or passengers between points in the US is restricted to US-built vessels operated by US citizens. The US successfully negotiated an exemption for the Jones Act under NAFTA.

Thus, at the very time BC has lost thousands of jobs due to US softwood lumber duties, the BC government is preparing to grant US shipyards access to BC Ferry contracts, without receiving any reciprocal access for BC shipyards to the US market. Talk about being a sucker for punishment.

Under these circumstances, there will be no fair chance for BC shipyards to bid competitively. A reasonable tendering process would make allowances for the subsidies other governments extend to BC's international competitors. It would recognize the added costs BC shipyards face to comply with domestic laws and regulations regarding employment standards, safety, environmental and health regulations, and compulsory contributions to Workers' Compensation, Canada Pension Plan and Employment Insurance programs. And finally, it would take into account the net benefits to the BC economy of having ferry work done in-province.

David Fairey is a labour economist with the Trade Union Research Bureau and a research associate with the BC Office of the Canadian Centre for Policy Alternatives.