Buy American deal should be rejected

February 9, 2010

Government ministers and Canadian trade officials have avoided saying just how much the tentative deal on Buy American preferences is worth to Canadian suppliers. As the details of the agreement begin to emerge, the reasons for this reticence are becoming clear.

The agreement gives Canada fleeting access to a sliver of the U.S. stimulus package.  Canadian businesses will get to compete for $US 4-5 billion worth of projects.  This amounts to less than 2% of the $275 billion of procurement funded under the Recovery Act.  The rest falls outside the scope of this agreement.

Over three-quarters of the stimulus funds have already been spent and the remainder must be allocated by February 17, though there may be subcontracts beyond that date.  Given the late hour, and the fact that these projects have already been designed to comply with the Buy American provisions, Canadian suppliers can expect to see very little practical benefit from the deal announced last week.

In return for these meagre scraps, the provinces and municipalities have offered up temporary access to U.S. suppliers worth an estimated $CAD 25 billion.  More ominously, Canada has bowed to U.S. pressure to permanently bind purchasing by Canadian provincial governments under the WTO Agreement on Government Procurement (the GPA).

Contrary to some reports, the deal does not even provide Canadian suppliers with the ability to compete for what’s left of the stimulus funds.  The U.S. has only agreed to exempt Canada from Buy American preferences for the remaining projects under seven specific federally funded programs.

The negative effects on Canadians will far outweigh any small export boost that this agreement might provide.  This is the first time that Canadian provincial procurement has been covered under an international trade deal.  As trade officials have been exclaiming south of the border, this opens up tens of billions of dollars annually to U.S. businesses.

Meanwhile, the U.S. has excluded its Buy American preference policies from its own WTO commitments.  Most big-ticket items remain off-limits to Canadian suppliers.

The 37 states bound by the WTO agreement have numerous exemptions, such as purchases of motor vehicles, coal, printing and construction-grade steel.  Federally funded mass transit and highway construction are fully excluded, as are public utilities. In addition, federal and state government laws commit upwards of 20 per cent of total procurement to small and minority-owned American businesses. U.S. municipalities are not covered by its GPA commitments.

Despite the glaring defects, it is easy to understand why some would favour such a deal. For ideological reasons, the Harper government opposes the use of procurement as an economic development policy tool.  They are happy to tie the hands of provincial and local governments even if Canada gets little in return.

It is harder to understand why provincial governments have gone along.  Preferential government purchasing is becoming an important policy tool in Canada. In order to qualify for generous public subsidies, wind- and solar-energy producers in Quebec and Ontario must use local goods and services, creating green jobs while encouraging the local development of renewable energy technologies. Buy-local food policies are increasingly popular across the country, supporting local farmers while reducing greenhouse gases.  Toronto's new subway cars are being manufactured in Northern Ontario, providing hundreds of high-skilled, well-paid jobs.

While these popular programs are not immediately threatened, provinces and municipalities are now on a slippery slope.  Further negotiations with the U.S. and the European Union will mean more concessions and further restrictions on the use of public purchasing as a policy tool.

When they signed up to Ottawa’s negotiations last summer, the provinces were promised an exemption from U.S. Buy American laws.  Predictably, this has failed to materialize. Through sleight of hand, and with Ottawa’s consent, Washington managed to pocket the provincial governments’ offers, while leaving the Buy American preferences almost fully intact.

It is not too late to reverse this course, as the tentative deal is contingent on approval in both countries.  A strong case can be made for parliamentary scrutiny and approval. The federal opposition parties are already signalling that this is a bad deal.  Provincial governments must also ensure that their citizens get a voice.  With the details now emerging, it is clear that the deal is unfair and detrimental to Canadians and they should reject it.   

Scott Sinclair is the director of the Trade and Investment Research Project at the Canadian Centre for Policy Alternatives. His “Buy-American Basics” report is available at