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Buy American issue is back in the news

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No one should be surprised that a Buy American provision has been included in the American Jobs Act, President Obama's new job creation bill. Such provisions have been standard features of U.S. infrastructure spending and procurement legislation for decades.

Despite the economic importance of this bill, there is a lot of misinformation on what it actually means in regards to Canada-U.S. relations and future international trade policies.

The Buy American provisions in the 2009 stimulus bill (the Recovery Act) and those in the current jobs bill are consistent with U.S. obligations under the NAFTA and the WTO government procurement rules. The U.S. government has been careful to exempt its key Buy American programs -- such as laws requiring state and local governments to use U.S.-made steel on highway and construction projects funded by Washington -- from its international trade agreements.

Despite what you might hear from the Conservative government and many media reports, the 2010 Canada-U.S. Government Procurement Agreement (GPA) did not provide Canada with its sought-after exemption from the Buy American provisions in the Recovery Act.

Instead, the deal granted Canada a temporary waiver covering seven specific programs funded under the Recovery Act. The overall budget for these seven programs totalled $US 18 billion (about 6% of the $275 billion of procurement contracts funded by the Recovery Act.)

By Dec. 31, 2009 two-thirds of Recovery Act contracts had already been allocated, limiting the contracts available to Canadian suppliers to no more than $US 6 billion (just 2% of the procurement contracts funded by the Recovery Act.).

But the value of the access granted to Canadian suppliers was actually considerably less. By the time the Canada-U.S. deal was finally concluded in mid-February 2010, almost 90 per cent of the funds under these seven programs had already been allocated, leaving less than $US 2 billion available to Canadian suppliers.

For example, the US Environmental Protection Agency reported that by Feb. 15, 2010 over $US 3.5 billion of the $US 4 billion allocated (87.5%) under the Recovery Act to the Clean Water State Revolving Fund was already under contract. Similarly, by Feb. 15, 2010 over $US 1.8 billion of the $US 2 billion (90%) allocated to the Drinking Water State Revolving Fund was already under contract.

In a February 16, 2010 briefing on the agreement for Quebec labour groups, a senior Quebec Ministry of Economic Development official stated that the ministry estimated the value of the unallocated funds under the seven U.S. programs at $US 1.3 billion (just .05% of the total $US 275 billion procurement contracts funded under the Recovery Act). That figure is probably close to the mark.

In return for these slim pickings, Canadian governments made temporary commitments covering a range of municipal and crown corporation construction amounting to roughly $CAD 25 billion. The deal was remarkably one-sided, with the bulk of the benefits going to the U.S.

Another core demand of Canadian governments when they first entered negotiations with the U.S. in the summer of 2009 was that any deal should protect Canada against Buy American rules in future U.S. legislation. As is now obvious, the Canadian government did not achieve this goal. The GPA merely provides for consultations, which are highly unlikely to lead to any change in the U.S. Buy American provisions.

The 2010 GPA failed to provide a meaningful exemption for Canadian suppliers from the Buy American provisions in the previous U.S. stimulus package. The prospects for getting a waiver from the current jobs bill are even more remote.

Buy American policies are nothing new and the desire of the current U.S. administration to ensure that U.S. stimulus spending primarily benefits U.S. workers and manufacturing is easily understandable.

Instead of antagonizing the Obama administration by opposing its jobs initiative, Canadian governments should be enacting new stimulus measures of their own which make better use of our substantial public purchasing to boost Canadian jobs, support new industries such as renewable energy, and assist marginalised groups.

When it comes to government procurement, the U.S. has a history of bolstering its markets and jobs within both its international trade treaties and in stimulus packages. It is time Canada took the same position.

Scott Sinclair is Director of the CCPA's Trade and Investment Research Project.

This article first appeared in Behind The Numbers.

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