U.S. President Donald Trump is due to sign a new executive order Tuesday that aims to encourage the hiring of American workers and boost the purchase of American products in government contracts.
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The move could help weaken the North American Free Trade Agreement (NAFTA) even before the U.S. administration sets out to tweak it.
“I don’t necessarily think that their overarching goal is to weaken NAFTA,” said Daniel D. Ujczo an international trade and customs lawyer who specializes in Canada-U.S. issues. But that might nonetheless be the impact of the order, he added.
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Executive order deals with two hot-button issues for NAFTA
“The two big issues in NAFTA are government procurement and the movement of people across borders,” said Ujczo. Now, he noted, both are “being dealt with outside the NAFTA context.”
Under NAFTA, Canadian companies competing for large U.S. government contracts are exempted from so-called “Buy American” provisions. The agreement forbids discrimination against Canadian companies for supply contracts of US$25,000 ($33,486) or more, some service contracts starting at US$77,533 ($103,851) and construction contracts of US$10.1 million ($13.5 million) and above.
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Even without infringing on those NAFTA provisions, the new executive order might have the effect of discouraging U.S. federal agencies from considering Canadian bids, according to Ujczo.
The order could also have a “chilling effect” on Canadian exports outside the public sector, he noted.
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Tighter rules on temporary work permits will make it harder for Canadian companies to move employees across the border, something that is sometimes necessary to complete U.S. sales.
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In the manufacturing sector, for example, Canadian parts suppliers often need to send experienced staff to show U.S. buyers how a certain component works and to train American workers to use it, said Ujczo.
“It’s not the piece anymore, it’s the people that we’re selling,” he noted.
Anything that will limit the movement of personnel across the border could also hurt Canadian exports, he said.
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Immigration crackdown could also hamper Canadian investment in the U.S.
Canadian companies wishing to invest in the U.S. in order to ensure that they remain competitive on U.S. government contracts may also run into obstacles, due to the immigration provisions of the new executive order, Ujczo told Global News.
Among the visas under review, in fact, is the E-2 Investor Visa, which many Canadian businesses rely on to transfer executives and management to the U.S. Any restrictions on that permit might make it difficult for Canadian companies to set up shop in the U.S., something that would allow them to qualify for “Buy American” measures.
Preventing Canadian companies from bringing their business south of the border would run counter to the Trump administration’s own stated goal of boosting investment in the U.S., noted Ujczo.
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New executive order is likely in part a negotiating tactic
Rather than introducing new policies, the new executive order instructs federal agencies to find ways to tighten foreign visas and limit exemptions to “Buy American” measures.
In part, the order is a “fact-finding mission by the U.S. to get evidence to support arguments that will be made during trade negotiations such as NAFTA’s,” Ujczo told Global News.
In part, the Trump team likely sees the order also as a diplomatic stick it can wave behind foreign governments to get them to agree to treat U.S. companies more favourably when they are bidding for public contracts abroad. Washington might agree to keep existing “Buy American” waivers in place in exchange for other governments offering a better deal to U.S. business, said Ujczo.
Regardless of what actual changes the order sets in motion, however, Canada will likely feel its harmful impact well before NAFTA re-negotiations kick off this summer.
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