For nearly 80 years, dating back to the Depression-era Buy America Act of 1933, the U.S. government has had protectionist domestic sourcing – or “Buy America” – laws on the books to create jobs, maximize the use of American-made products and ensure that federal tax dollars are reinvested in the U.S. economy. To support the country’s national security capabilities, “Buy America” laws were expanded in the 1940s to apply to defence spending. In the early 1980s, President Ronald Reagan signed into law a further expansion of “Buy America” for highway and mass transit projects that are funded by federal grants.
As one of his first domestic initiatives, in 2009, President Barack Obama signed the American Recovery and Reinvestment Act (“Recovery Act”), a sweeping $787-billion plan aimed at stimulating a devastated economy still reeling from the catastrophic meltdown of the real estate and financial markets the previous year.
The Recovery Act contained a controversial “Buy America” provision that required all iron, steel and manufactured goods used in construction projects receiving stimulus funding to be produced in the United States. This significantly expanded on existing U.S. legislation stipulating domestic preference criteria by widening the scope of products covered to include “all manufactured goods” with respect to any project funded by the Recovery Act.
Pressured by Canadian exporters complaining that the latest “Buy America” measures violated market access exemptions under the North American Free Trade Agreement and were therefore unfairly costing them business and jobs, the Harper government entered into negotiations with the Obama administration that eventually reached a procurement agreement in early 2010 which provided limited relief and access to some Recovery Act projects for Canadian goods. Key to the accord was persuading the Canadian provinces and territories to finally open up their procurement markets to U.S. suppliers by signing onto the WTO’s Government Procurement Agreement (GPA); a multilateral arrangement mandating that member countries provide reciprocal access to federal procurement projects and, in some cases, at the sub-federal level (i.e. states, provinces and cities).
Although the protracted dispute over the “Buy America” provisions effectively scuttled bidding access for Canadian exporters to most Recovery Act projects – funding having already been allocated by the time waivers pursuant to the Canada-US Procurement Agreement were finalized – it was widely assumed at the time that the bilateral accord and new commitments made under the WTO GPA had largely resolved the nettlesome issue of government procurement going forward.
Evidently not. In October 2011, President Obama proposed the American Jobs Act, a massive spending bill designed to inject billions of federal dollars into infrastructure projects such as the renovation of schools, the construction of roads and bridges and improving transit. Much to the surprise and frustration of the Canadian government and trade community the new bill included the exact same “Buy America” constraints of 2009’s Recovery Act.
“Canadian manufacturers that supply America’s building, transportation, and state and municipal infrastructure markets will be seriously affected if these new restrictions become law,” said Canadian Manufacturers & Exporters president and CEO Jayson Myers. In fact, there was no chance of that ever happening given the bill was politically doomed from the outset and never even made it out of the Senate.
Following defeat of the American Jobs Act, the White House decided to break up the $447 billion package and re-introduce it to Congress in the form of several standalone bills. The most significant of these to Canadian exporters was the Rebuild American Jobs Act that would have provided $60 billion for various transportation infrastructure projects and the creation of a National Infrastructure Bank. Like its predecessor, however, this bill also contained the same protectionist “Buy America” provisions requiring that all “iron, steel, and manufactured goods” used in public buildings or works be supplied by American firms. It too failed to gain passage in the U.S. Senate.
With an election looming at the end of the year, it seems highly improbable that any more federal legislation involving significant new government infrastructure spending proposals saddled with contentious “Buy America” provisions will be advanced by the current administration. That said, there are still numerous appropriation bills pending before Congress to fund the U.S. government through 2012 and beyond – any of which could be subject to amendments by lawmakers eager to protect domestic suppliers and/or score political points irrespective of (or oblivious to) government procurement agreements already in place.
Further complicating matters are various “Buy America” measures at the state level that continually arise in response to pressure by organized labour and industry lobby groups such as the Alliance for American Manufacturing. An example of one such action is California’s Assembly Bill 1097 signed into law by incoming Governor Jerry Brown last October that allows public transit systems in the state to set their own requirements for the minimum percentage of American-made content and components in federally funded buses and rail cars. As a result, transit agencies in California can now impose a higher U.S. content minimum, in addition to the federal requirement of 60 per cent (provided they don’t increase the purchase price beyond certain thresholds). “With our economy still feeling the effects of ‘the great recession,’ we need to keep working to create every job we can,” said Democratic representative Nancy Skinner, the author of the bill. “AB 1097 supports American jobs and the recovery of manufacturing at no cost to state or local governments.” Many other examples could be cited of similar protectionist initiatives in various states across the country within the past year.
In light of the foregoing patchwork of laws, it’s little wonder so much confusion exists in the U.S. supply and distribution chain these days about what is or is not subject to “Buy America” requirements.
Aiming to eventually alleviate this situation, the Canada-US Procurement Agreement vaguely committed both governments to “explore the scope for a long term government agreement” that would deepen, on a reciprocal basis, procurement commitments beyond those in the WTO GPA and NAFTA. Nothing to date however appears to have emerged from these exploratory discussions.
Until such time as a sensible, comprehensive, long-term agreement regarding cross-border government procurement is arrived at, Canadian exporters looking to participate in public infrastructure projects in the United States will still have to contend with a daunting maze of federal, state and municipal regulations specifying geographic production requirements and will therefore need to ascertain the root source of funding and corresponding legislation in order to determine whether or not they possibly qualify for exemptions based on wholly arbitrary thresholds (e.g., is the construction project in question valued at greater than $7.777 million or does it exceed $10,074,262?) as a result of U.S. international commitments under the NAFTA Chapter 10 and the WTO GPA (if applicable, that is – 13 states are not signatories).
One of the more clearly positive outcomes of the dispute regarding the “Buy America” measures in the Recovery Act was a provision in the Canada-US Procurement Agreement offering a “fast track” consultation process to address future concerns related to procurement issues, such as new legislation. While yet to be put to the test, in the case of the American Jobs Act and its scaled-down Rebuild American Jobs sequel, the Canadian government immediately declared its readiness in both instances to utilize this expedited process to obtain waivers for Canadian exporters from the “Buy America” exclusions similar to those secured with respect to the Recovery Act (only sooner and, presumably, with more practical effect).
“Buy America” provisions will most likely continue to bedevil the issue of government procurement for the simple reason that the arguments in their favour are compelling, practically valid, and overwhelmingly popular. As Scott Boos, Deputy Director of the Alliance for Manufacturing testified recently, “when tax dollars are used to purchase products made overseas – our governments reward those companies who moved their operations, investment dollars, and jobs to foreign countries where they can disregard environmental and safety regulations with impunity and where inefficient energy processes are the norm.” While that may well be the case when it comes to certain low-cost producing countries such as China, it most certainly isn’t applicable to Canada. And therein lies the problem – when it comes to trade with the United States, Canadian traders don’t want to be regarded as belonging to just another “foreign” country, but seek to be treated on an equal footing with U.S. suppliers. Indeed, as the CME consistently points out, the Canadian and U.S. economies are now so deeply integrated with “a shared vision for good jobs, increased investment and a higher standard of living” there should be no distinction between producers in the two countries when it comes to regional protectionism concerning government procurement.