The letter from Canada's Ambassador to the U.S. says that imposing local content requirements on private companies is "unprecedented" and "it drives up prices, results in fewer projects and ultimately costs jobs"
WASHINGTON—The Canadian government has fired off a letter to a group of U.S. lawmakers who support tougher Buy American rules, foreshadowing a possible tussle ahead as American procurement policies get debated this year.
David MacNaughton, Canada’s ambassador to Washington, sent a letter last week to four Democratic lawmakers who have urged President Donald Trump to restrict foreign suppliers, including on the Keystone XL oil pipeline.
The issue is especially relevant this year for three reasons. A big U.S. infrastructure bill is coming, potentially worth US$1 trillion in contracts; procurement could be an issue in NAFTA negotiations; and the winds of protectionism are blowing in Washington.
Support for Buy American policies exists within both parties, with a vocal new booster in President Donald Trump, but it’s especially strong among Democrats including those addressed in the letter.
“Imposing local content requirements on the purchasing decisions of private companies is unprecedented and would have potentially severe and wide-ranging consequences, including vis-a-vis international trade obligations,” said MacNaughton’s March 16 note.
“These are crucial principles that Canada and the United States have together championed for decades.”
The letter goes on to say that while the U.S. procurement market is larger, the Canadian one is more open—that just three per cent of U.S. federal contracts are won by foreign suppliers, while 11 per cent are in Canada.
It says Canadian suppliers win 0.15 per cent of U.S. contracts, while American suppliers win more than nine per cent of federal contracts in Canada—including Microsoft, North American Steel and 3M Cogent.
The letter concludes by making the case against protectionism: It drives up prices, results in fewer projects and ultimately costs jobs.
Two of the recipients of the letter held a press conference criticizing Trump for allowing the Keystone XL pipeline to be built with foreign steel. Tammy Baldwin said: “President Trump so far has shown that he will talk the talk when it comes to Buy American, but he won’t walk the walk.”
The lawmakers referred to a U.S. federal report that shows the U.S. allows far more foreign competition in government projects than the next five largest countries in the World Bank’s government procurement agreement—combined.
The U.S. opens $198 billion of its federal projects under that global agreement, according to the report from the U.S. Government Accountability Office—it says Canada offers just $2.25 billion, not including provincial and local projects.
A Canada-U.S. trade lawyer says the issue isn’t a slam-dunk case for Canada. But he says the letter from MacNaughton makes sense, given that NAFTA and the infrastructure bill could be coming up.
“I don’t think the ambassador’s letter is going to make the issue go away but it is not a surprising opening gesture,” said Mark Warner of MAAW Law in Toronto.
“I don’t think our trading partners agree that our procurement markets are as open as the ambassador suggests.”
He noted that Canada excluded Hydro-Quebec and Infrastructure Ontario from its European trade agreement. He says he expects the U.S. to seek the slight expansion of procurement in services Canada offered in the now-scrapped Trans-Pacific Partnership.
The 2016 U.S. report on foreign trade barriers said U.S. businesses have access to most procurement from Canadian federal departments, and a large number of provincial entities, and to some but not all of Canada’s Crown corporations.
The last time Buy American became a major Canada-U.S. irritant was 2009. Congress passed a major stimulus bill with protections for domestic construction companies; it took months for the Harper government and Obama administration to agree to a temporary, partial workaround.