There are Better Plans than Buy Canadian By Leslie Campbell Published June 17, 2009

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WASHINGTON—After enduring years of border thickening and complaining with little result, the "Buy American" provision in President Obama's stimulus bill may have gone one step too far, awakening Canada from its torpor and simultaneously uniting the federal, provincial and municipal governments around one problem—something few other issues can do.

As is now well known, Obama's stimulus plan, formally called the American Recovery and Reinvestment Act of 2009, contained a provision stipulating that all of the "iron, steel and manufactured goods used in the project are [to be] produced in the United States."

The Canadian Manufacturers and Exporters (CME) noted in a May 25 briefing document that two subsequent bills, the Water Quality Investment Act, and the Green Schools Act contain similar protectionist clauses and the CME fears that most new appropriations bills will contain similar language.

Initial hopes that Canada would be protected by existing trade agreements proved mostly false. Much of the stimulus money is transferred to the states and local government for "shovel-ready" public projects to be started immediately. State and municipal procurement preferences are not covered under existing international treaties.

The Canadian government has been active on the issue since Buy American first emerged, and the Canadian Embassy in Washington brought all 13 of Canada's consul generals to Capitol Hill on June 9 to hold meetings with a reported total of 75 members of Congress and staff.

Trade Minister Stockwell Day was in Washington on May 26 and subsequently asked Canadian premiers to endorse a unified approach on Buy American. A June 9 Council of the Federation press release described the American restrictions as "acting at cross purposes to the economic stimulus they were intended to generate" and states the premiers' support for a new procurement liberalization agreement.

Canadian industry has also mobilized and on June 10, CME president Jayson Myers took part in a Washington discussion of Buy American hosted by the Global Business Dialogue.

Buy American has also drawn Canadian municipalities into the trade debate and a number of Canadian local jurisdictions are thinking of fighting fire with fire. The town of Halton Hills, Ont., led the way with a resolution calling for reciprocal market access, saying in effect, "We won't discriminate against your goods if you don't restrict ours."

The Federation of Canadian Municipalities, in an emergency resolution backed by 25 municipalities, expressed even stronger sentiments, but adopted a 120-day waiting period to allow Day and Harper to negotiate a solution with the U.S. before some municipalities adopt "Buy Canada" restrictions for local projects.

"Buy Canadian" is an understandable sentiment but an illogical impulse given the asymmetries between the two countries. Taken to its potential conclusion, Canada would be threatening to forego a market of 300 million people in return for keeping Americans out of a country of 33 million—not a viable long-term strategy.

There are different tactics that could be used to confront the Buy American problem. While Canada typically accepts the broad strokes of American action, we tend to search for narrow exemptions and understandings worked out between officials. Something a little more dramatic may be in order this time.

The stimulus bill already provides for three possible exceptions to Buy American: the application of the rule would be inconsistent with the public interest; the goods needed are not produced in sufficient quantities in the United States; and U.S. produced materials would increase the cost of the project by 25 per cent or more.

Of these, the first should be of most interest to Canada. Why not ask for a "public interest" waiver that would exempt Canadian goods from the restrictions? It's a way of bypassing Congress, and, even if not granted, is a shot across the bow, demonstrating to Obama how Canada views the world's largest trading relationship.

The Office of Management and Budget (OMB), the executive branch body responsible for setting rules on government spending, was asked by the Canadian government to define what "inconsistent with the public interest" means. The OMB replied that it is a "subjective term subject to broad discretion of the official with the authority to issue a waiver."

A strong case can be made that protectionism giving rise to retaliatory action by America's largest trading partner in the midst of a recession is against the U.S. public interest. Prime Minister Harper may want to pursue this line of argument directly with President Obama.

Sure, there are a variety of other strategies available, such as negotiating new procurement agreements, including local and state government in NAFTA, or filing a trade action with the WTO. None of these remedies will address the problem quickly enough to affect the $90 billion in infrastructure spending that requires that half of all projects be under way in June 2009 and fully "under contract" by February 2010.

The Canadian reaction to Buy American has been laudable. The CME has pulled out the stops and the Canadian government, the Canadian embassy in Washington and consulates across the U.S. have revved up the advocacy machinery, but it may not be enough to stop a sentiment that has infected Congress and is likely to keep spreading.

The protectionist race is off and running, and, barring a dramatic intervention involving prime minister and president, it's hard to imagine why "Buy Canadian" won't become a familiar rallying cry. After all, the same impulses exist on both sides of the border and it will be hard, if not impossible, to contain them in Canada while indulging them in the U.S.

editor@embassymag.ca

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