Buy North American

Canadian newspapers have recently been flooded with negative stories about Buy America, largely focussed on a single scandalous incident at a Marine base in California.

The potential damage to Canada’s economy has been vastly overstated. To the extent that Buy America shifts US government contracts from offshore suppliers to American manufacturers that use Canadian components, Canada actually benefits. Overall, Obama’s massive stimulus bill will create far more business opportunities for Canadian exporters than its Buy America provisions will take away from them.

Of course, it would be even better if Canada could reap these economic benefits without losing any business opportunities. The Harper government’s efforts to date have consisted of shrill objections to the very existence of Buy America policies. Last week, The Toronto Star featured yet another more pragmatic proposal from the labour movement.

Ottawa’s best way to breach the ‘Buy America’ barrier

Canada should negotiate a binational approach with Washington on government procurement

Leo Gerard
Ken Neumann

Industry Minister Tony Clement has gone to Washington to lobby for the elimination of “Buy America” policies.

This goal is neither realistic nor desirable for Canada. It would be more realistic and desirable to negotiate a binational approach to government procurement that supports North American manufacturing on both sides of the border. 

The Buy American Act for federal purchases of goods has been in force since 1933. The Buy America Act for state and local spending of federal grants on transport infrastructure has been in effect since 1982.

A Canadian challenge of the latter under the North American Free Trade Agreement (NAFTA) in 2000 failed because this deal does not apply to provincial, state or local procurement. The recent extension of Buy America to other state and local infrastructure is equally permissible under NAFTA.

In the highly unlikely event that the U.S. government did agree to abandon the Buy America program, there is no reason to expect that contracts lost by American manufacturers would be won by Canadian manufacturers.

In fact, Canadian manufacturers have been losing U.S. market share to offshore competitors for years. The rising price of oil increased the value of Canadian petroleum products sold to the U.S. through 2008. However, as a proportion of American gross domestic product, imports of all other Canadian manufactured goods fell from 1.9 per cent in 2000 to 1.4 per cent in 2008.

The best strategy for Canada is not eliminating preferential procurement policies in the U.S., but embracing procurement policies that favour goods made in North America over goods imported from overseas.

North American manufacturing is highly integrated, with component parts crossing the Canada-U.S. border throughout the production process. A binational approach to government procurement would increase demand for both Canadian- and American-made products and allow firms with cross-border supply chains to fully exploit the advantages of this integration. U.S. policy-makers might very well be amenable to such an approach for two reasons.

First, Buy America’s objective is to ensure that public expenditure bolsters the U.S. economy. Without such a policy, much stimulus spending would leak offshore through the U.S. trade deficit. While both the U.S. and Canada run huge trade deficits with Mexico, Canada-U.S. trade is very balanced. Excluding petroleum products, Canada bought 93 cents of American manufactured goods for every dollar of Canadian manufactured goods sold to the U.S. in the first quarter of 2009.

Therefore, the U.S. cannot appreciably improve its trade balance by trading less with Canada. On the contrary, buying fewer goods from Canada would reduce demand for American-made components among Canadian manufacturers. Americans do not stand to gain by targeting Canadian producers. And that is not their current objective.

The second reason for Americans to support a binational approach to government procurement is that they have also been losing market share in Canada. As a proportion of Canadian gross domestic product, imports of American manufactured goods dropped from 20 per cent in 2000 to 12 per cent in 2008.

Canadian procurement policy favouring North American goods over offshore imports would help reverse this trend. In exchange for granting Canadian manufacturers preferential access to U.S. government contracts, American manufacturers would gain preferential access to Canadian government contracts.

We believe much good could come from a binational approach to regulating trade. Let’s start with a coordinated approach to government procurement, but let’s also talk about coordinated remedies to dumping by offshore producers, joint approaches to other unfair trade practices, and adequate labour and environmental standards that are enforceable. A joint approach to these issues is the real opportunity for both countries. And we will likely find allies in the U.S. for this position.

International unions like the United Steelworkers, representing workers on both sides of the border, would be strong allies in lobbying for a binational approach to trade that supports North American manufacturing.

In 2002, USW helped in obtaining Canada’s exemption from U.S. steel tariffs. In testimony this year to the U.S. Congress related to Buy America, we have called for a coordinated approach to strengthen industry and create jobs in both countries.

The government of Canada should be making an equally pragmatic case in Washington, rather than lecturing Americans about the theoretical virtues of global free trade.

So, Minister Clement, we suggest you start working with our closest ally on a common problem that has a common solution.

Leo Gerard is international president and Ken Neumann is Canadian national director of the United Steelworkers union.