Buy American sell-out

Proposed procurement deal bad for provincial, local governments
November 12, 2009

Despite the Conservative government’s hopes for a quick deal, prospects for an exemption from the Buy American procurement preferences in the recent U.S. stimulus legislation have faded. Unfortunately, the bad news doesn’t stop there. The deal now in the works may actually prevent Canadian provincial and municipal governments from preferring local goods or suppliers and from using government purchasing as a policy tool, while leaving Buy American policies in place.

Preferential government purchasing is 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. Many Canadian municipalities have contracting policies allowing them to reject the lowest bidder in favour of a Canadian supplier if the local employment and spin-off benefits outweigh the price difference.

These and other beneficial procurement policies are endangered by ongoing negotiations between Ottawa and Washington over Buy American laws. The potential loss of Canadian procurement sovereignty should not be taken lightly.

Buy American preferences, including those in the American Recovery and Reinvestment Act, have broad popular support within the U.S. Predictably, the Obama administration has turned a cold shoulder to Canada’s desire for a bilateral exemption from these rules in return for guaranteed access to Canadian provincial and local procurement markets. Instead, U.S. negotiators have diverted the talks into a discussion about Canada covering provincial and local government procurement under the WTO Agreement on Government Procurement (WTO-AGP).

While clearly advantageous to U.S. corporate interests, this arrangement would not provide the market access Canadian suppliers have been seeking. It would leave the Buy American preferences that triggered this dispute almost fully intact, since the U.S. has vigilantly excluded these programs from its commitments under the WTO-AGP.

While giving Canadians the same rights as other WTO-AGP signatories could improve access to a small portion of routine state purchasing (for example, administrative purchasing of office equipment and other supplies by state departments), most big-ticket items, and particularly the types of projects funded through the Recovery Act, would remain off- limits to Canadian suppliers.

Even in the 37 states bound by the WTO-AGP, there are numerous state-level exemptions, such as purchases of motor vehicles, coal, printing and construction-grade steel. Moreover, procurements that benefit from specific types of federal funding, such as mass transit and highway construction, are fully excluded, as are public utilities, including telecommunications. In addition, federal and state government laws commit upwards of 20% of total procurement to small and minority-owned businesses, without foreign suppliers having any recourse under WTO rules.

Significantly, U.S. local governments - including all the major cities, where much of the stimulus infrastructure spending will be disbursed—are not bound by U.S. commitments under the WTO. Despite this, Ottawa has offered to cover purchasing in all Canadian municipalities with populations over 50,000.

Remove highway, mass transit, municipal infrastructure, utility spending - and in many states steel, motor vehicles, coal and printing—from the procurement pie, then cut out set-asides, the 13 states that have no commitments, and all municipal procurement, and it is easy to see that the U.S. offer is largely empty.

Plainly, even if Canada fully signed on to the WTO-AGP, Canadian suppliers would remain excluded from the bulk of U.S. sub-federal, stimulus funded projects. Such a deal would, however, permanently bind Canadian provincial and local governments under WTO rules, severely curtailing their use of government procurement as a policy tool. The real question is why would Canada agree to such an unbalanced deal?

Despite strenuous diplomatic efforts, there is virtually no chance that Washington will agree either to scrap the Buy American rules or to exempt Canadian suppliers from them. Instead of tilting at the windmill of an unattainable exemption, our governments should emulate what is best in the U.S. buy-local procurement policies and employ them to benefit Canadians. While this stance would undoubtedly irk certain American interests, they could hardly cry foul. Canadian governments would simply be creating a more level playing field which would both benefit and protect their citizens.

Scott Sinclair is the director of the Trade and Investment Research Project at the Canadian Centre for Policy Alternatives. His full report Buy-American Sell-out : Giving Away Canadian Procurement Sovereignty is available at