Canada to be given exemptions to Buy American provisions

OTTAWA – A deal that limits the damage of Buy American provisions on Canadian companies is expected to be announced soon, and experts say it marks an "important breakthrough" in terms of stopping the spread of protectionism and acknowledging Canada’s importance to the U.S. economy.

Because U.S. President Barack Obama cannot rely on Congress to pass legislation exempting Canada from Buy American provisions, sources say the agreement as structured would allow the White House to use executive power to treat sectors of the Canadian economy as American by claiming supply chains are so integrated they cannot be separated.

"There was a critical mass of support in the United States that something needed be done to get Canada back into the procurement business, and get Canada qualified to supply into U.S. projects with stimulus funding," said Lawrence Herman, a trade lawyer with Cassels Brock and Blackwell in Toronto, on why Washington finally gave in.

A definitive agreement would mark an end to nearly a year of talks. Even though Washington has already spent much of the nearly $800 billion U.S. Congress has set aside for stimulus spending, the deal would protect Canadian industry from further protectionist measures U.S. legislators might choose to enact in future legislation.

While Canadian government officials declined to comment, the Office of the U.S. Trade Representative distributed copies Thursday of the Canada-U.S. agreement for review by members of an industry advisory committee.

"The importance of this deal is that we need to send a message as quickly as possible that our borders are open between our two countries," said Dawn Champney, president of the Waste and Wastewater Equipment Manufacturers Association, one of Canada’s most powerful U.S. allies in the fight to reverse the Buy American rules. "I would just submit that because of this Buy American provision, it has had a crippling impact on our ability to move these stimulus projects forward."

Perrin Beatty, president of the Canadian Chamber of Commerce, said: "Anything that limits the damage from Buy American is a good first step. How big a step depends on the details, so we will have to wait."

The Buy American provisions, contained in the American Recovery and Reinvestment Act, prohibit foreign-produced iron, steel and other manufactured goods from being used in projects paid for through nearly $800 billion U.S. of stimulus funding. Under the law, all those goods must be sourced through the United States.

According to informed sources, the deal would grant Canadian exporters access to procurement markets in the 37 U.S. states covered under the World Trade Organization agreement on government tenders. Further, Canadian companies are freed from Buy American restrictions as they relate to funds remaining in seven programs under the stimulus legislation.

In turn, Canada’s provinces would agree to open up their procurement markets, roughly valued at $22 billion. However, sources say what U.S. companies can bid on will be limited, as certain sectors such as health care, education and correctional facilities are off limits.

The two sides are said to have agreed to continue negotiations on a broader deal governing procurement.

"This will solve a lot of the problems with Buy American – not all of them," said Herman, who said he was aware of some the deal’s provisions. "And it will again allow Canadian suppliers in complex supply chains to be participating in municipal and state procurement programs."

Herman, though, cautioned that it doesn’t necessarily mean Canadian companies will automatically get contracts. "They won’t be excluded up front from competing. So as long as we are competitive we will have opportunities, the market will determine whether those opportunities will be realized."

Representatives for International Trade Minister Peter Van Loan did not return phone calls or e-mails from the Post seeking comment. At a media availability Thursday afternoon, Industry Minister Tony Clement told reporters he had no comment about a pending deal, and said all questions should be directed to Van Loan.

Beatty said Ottawa and provinces should be commended for moving quickly to issue a generous offer to Washington to win Buy American exemptions. A joint federal-provincial offer was first issued last June.

"It is disappointing that Washington was so slow in responding," he said, adding protectionism remains a popular policy among U.S. legislators.

With files from Sheldon Alberts