The ‘Buy American’ clause in President Obama’s American Jobs Act is like déjà vu for Canadian politicians and industries. The 2009 U.S. stimulus package contained a similar clause and the Canadian government fought for an exemption to it and won. Canada and the United States are, after all, part of the North American Free Trade Agreement (NAFTA), which guarantees equal access to government procurement contracts of a certain size. However, the stimulus package now proposed by Obama contains a clause that says projects will be denied funding unless “all of the iron, steel and manufactured goods used in the project are produced in the United States.”
According to the CBC, Canada’s Minister of International Trade, Ed Fast, is seeking an exemption from the ‘Buy American’ provisions to ensure that Canadian companies have equal access to projects stemming from stimulus funding. “We believe that protectionism is counterproductive, especially during these difficult economic times around the world,” Fast told the CBC. Around 75% of Canada’s trade is with the United States and blocking Canada from more than $100 billion worth of projects that involve renovating schools, constructing roads and bridges, and improving transit, is likely to hurt Canadian industries and reduce the return on investment of the stimulus package. If the United States is only looking for a taxpayer subsidized temporary jobs boost, then protectionist measures may provide that. However, as Fast told the CBC, “history shows protectionist measures stall growth and kill jobs.”
Ultimately, as a result of NAFTA, the Canadian and American economies are strongly linked. If Canada is not given an exemption, it is not only Canadian companies that will suffer, but also American companies that may need to completely re-tool their supply chains because they use some Canadian inputs. Jason Myers, president of the Canadian Manufacturers and Exporters, told the CBC that U.S. business owners will likely find the deal “tremendously confusing.” Even if Canada is able to obtain an exemption under NAFTA, as it has in the past, there is concern that U.S. businesses and local government procurement staff will only see the “Buy American” box that they need to tick off and will not read the fine print that indicates that it doesn’t apply to Canada.
At the same time as seeking an exemption to the ‘Buy American’ clause, the Canadian government is continuing to focus on trade agreements with other countries, such as the European Union. The World Trade Organization (WTO) is also working on possible revisions to trade rules involving government procurement. An editorial in the Globe and Mail concluded that “the Canadian government should indeed work hard to turn this problem into an opportunity for comprehensive agreements on governmental purchasing, with Europe, the U.S. and all WTO members.”
Ultimately, there is a difference between a positive ‘Make it in America’ agenda that seeks to provide conditions for success for American industries and a protectionist clause that seek to shut Canadian companies out of a competitive process. The former seeks to make the United States more competitive, while the latter promotes complacency and can stall economic growth.
Photo credit: srqpix on flickr