Exporting: Buy American

(Canadian Business – Rachel Pulfer)

New rules make it harder, but not impossible, for Canadian exporters to fight to the end and win

Just before his trip to Canada, United States President Barack Obama signed the US$787-billion American Recovery and Reinvestment Act into law. The act represents billions of dollars in government spending, but it also carries a Buy American rider stating that funds spent on iron, steel and manufactured goods will go to U.S. suppliers only.

Buy American won’t stop trucks at the border or apply new tariffs, but it will restrict Canadian access to business opportunities opened up by new stimulus funding. Judy Bradt, a U.S. trade consultant based in Washington, D.C., believes that Buy American will apply to the approximately US$35 billion slated for projects that could be considered construction and public works.

“If the prime contract is worth more than $8.8 million,” says Bradt, “then Canadian firms may supply products as prime or subcontractors without any special permissions or waivers,” as protected under NAFTA. If the value of the contract is less, however, Canadian firms will need to negotiate a waiver in advance.

Procurement rules under NAFTA prevent government discrimination in favour of local suppliers, but only when it affects bidding on federal contracts, explains Chris Cochlin, an international-trade lawyer with the Ottawa office of Fraser Milner Casgrain LLP. When it comes to selling to state and local governments, it’s a different story.

At the lower levels, Canadians are not protected by NAFTA and never have been. That, says Cochlin, means Buy American can be enforced by state and local officials in a manner that is entirely consistent with America’s obligations under international treaties.

Unfortunately for Canadian exporters, Buy American rules also have another catch that circumvents such treaties. “If one dollar of federal funding with Buy American provisions is used for a state or local project, all the dollars spent on that project must comply with the Buy American provisions,” Bradt explains.

That means it’ll be up to governors and mayors to decide how to apply Buy American since much of the stimulus will not flow directly from the feds. As has always been the case, Canadian companies can apply for waivers to access those opportunities. “But those waivers will be more difficult to get,” says Bradt. Read the complete article here.