June 27, 2014 - The Honourable Ed Fast, Minister of International Trade, today issued the following statement:
“Canada is very concerned over recent legislation in the United States that reflects repeated attempts to impose domestic content requirements for products purchased by federal, state and municipal-level governments within the U.S.
“On June 25, at the World Trade Organization’s Government Procurement Committee, Canada submitted an intervention registering its concerns over attempts by the United States to prevent Canadian companies from participating in government procurement opportunities in the U.S. Canadian stakeholders, who regularly have to compete with U.S. companies in the Canadian market, have repeatedly expressed their concerns over the double standard created by these new forced localization requirements.
“Canada’s focus is on eliminating trade barriers, not erecting new ones. Protectionism is bad policy and bad for businesses on both sides of the border. A total of over 10 million jobs in both countries depend on Canada-United States trade—8 million in the United States and 2.4 million in Canada. Due to our highly integrated supply chains, protectionist actions such as forced localization hurt the U.S. just as much as they hurt Canada.
“Our government will continue to engage the Obama administration on behalf of Canadian businesses and their workers to ensure that, together, we maximize job-creation and economic opportunities in both of our countries.”
Intervention by Canada at the WTO Committee on Government Procurement
In recent months, Canada has taken note of a number of legislative initiatives in the United States that increase domestic content requirements in procurement conducted by federal, state and municipal-level entities.
Canada would like to register our concern with these new forced localization requirements, concerns that have been repeatedly expressed by Canadian stakeholders, who regularly compete with U.S. companies in the Canadian market.
As a general point, Canada seeks clarification from the United States on the specific steps it has taken to comply with paragraph 6 of article XXII, which provides that “[e]ach Party shall seek to avoid introducing or continuing discriminatory measures that distort open procurement.”
Canada’s concerns relate to three separate categories of initiative.
First, on June 10, the President of the United States signed into law the Water Resources Reform and Development Act (WRRDA). The WRRDA contains a program that will provide financial assistance to large water infrastructure projects. The legislation imposes new “Buy America” restrictions on all iron and steel used in such projects. The WRRDA also imposes new and permanent Buy America restrictions on procurements funded by the Environmental Protection Agency’s clean water infrastructure fund—the Clean Water State Revolving Loan Fund (CWSRF).
While the WRRDA includes a provision requiring that the new Buy America restrictions be applied consistently with the United States’ international trade obligations, we understand that the EPA—a covered federal entity—does not actually conduct the procurement under this program. Canada understands that the actual procurement under the CWSRF is conducted by local government entities, which are not covered by the United States in the GPA [Government Procurement Agreement]. With this in mind, Canada requests, pursuant to article VI:1(b) of the agreement, that the United States provide an explanation of the practical effect of the provision requiring consistency with its international obligations.
In addition, in light of paragraph 6 of article XXII, Canada seeks clarification from the United States as to what, if any, specific actions it took to “seek to avoid introducing” these new “discriminatory measures that distort open procurement.”
Second, the United States federal government has tabled in Congress a new law that seeks to expand domestic content requirements attached to federal funding for urban transportation—the Generating Renewal, Opportunity, and Work with Accelerated Mobility, Efficiency and Rebuilding of Infrastructure and Communities Throughout America Act, or the GROW America Act. Section 3006 provides for an increase in the Buy America domestic content provisions for so-called rolling stock —buses, urban rail cars—from the current 60 percent to 100 percent by 2019. If passed, this bill would force GPA suppliers to localize production in the United States, in order to participate in these procurements.
Again, in light of paragraph 6 of article XXII, Canada seeks clarification from the United States as to what, if any, specific actions it took to “seek to avoid introducing” these new “discriminatory measures that distort open procurement”—particularly given the fact that the GROW America Act is an administration initiative.
Third, Canada is concerned with the growing list of Buy America legislative initiatives at the state government level. Since November 2013 alone, there have been seven state initiatives that have been brought to our attention. I will just highlight a few.
Minnesota: In May, the Minnesota state legislature passed the $1-billion Capital Investment Bill. This legislation contains a Buy America provision requiring any public entity that receives funds under the bill to use American-made steel. The bill makes no reference to compliance with the international obligations the United States has assumed on behalf of Minnesota. In the GPA, the United States has covered procurement by all Minnesota’s executive branch agencies. Canada requests confirmation from the United States that Minnesota will apply these new forced localization requirements consistently with the United States’ international obligations—in particular, obligations that the United States assumed on behalf of Minnesota after 2008, when the state legislature passed a statute requiring that it, in addition to the governor, give approval before the state may commit to any new international trade agreement’s procurement provisions (2008 chapter 300, section 3). This is important for complying not only with new obligations the United States has assumed at the sub-national level in relation to Canada as a result of revisions to the WTO GPA, but also any future accessions to the agreement.
New York: In early May, Bill A09521 was introduced in the state legislature. The bill will impose Buy America restrictions on a broad range of New York state procurement activities that mirror the restrictions imposed by the federal government for federally funded transportation infrastructure. In the GPA, the United States has covered procurement by all New York’s state agencies, state university system, public authorities and public benefit corporations. While the bill includes a provision that these restrictions must be applied consistently with the United States’ international obligations, New York has an explicit exclusion for “construction-grade steel.” Canada requests that the United States provide an explanation of the scope of “construction grade steel,” as the scope of this exclusion could greatly affect market access for Canadian suppliers.
Massachusetts: State Senate Bill S2904 was introduced in April and is currently with the State Senate Ways and Means Committee for study. The bill proposes a preference for domestic products purchased by state agencies—a clear offset. In the GPA, the United States has covered procurement by a range of Massachusetts executive offices. The proposed bill does not contain any explicit requirement to ensure consistency with the United States’ international obligations. Canada seeks assurances from the United States that this bill, if adopted, will be applied consistently with its international obligations.
These state initiatives raise several systemic issues of concern to Canada.
Uncertainty regarding consistency with international obligations and the lack of clarity regarding the scope and application of these measures inherently favours domestic suppliers at the expense of GPA competitors. Canadian suppliers have told us that the complexity of these new Buy America restrictions and the harsh penalties imposed for their violation cause U.S. distributors and general contractors to err on the side of caution and avoid using Canadian goods, even where international obligations should protect them. This amplifies the distortive effect of such discriminatory measures.
Furthermore, even though many of these new initiatives may not pass, the recurring threat of new forced localization requirements discourages foreign suppliers from investing time and energy in developing new opportunities in foreign public-procurement markets. This inhibits suppliers from taking advantage of the market access commitments that have been negotiated. Uncertainty—in and of itself —has the potential to undermine market access.
Lastly, again I turn to article XXII(6): “Each Party shall seek to avoid introducing or continuing discriminatory measures that distort open procurement.” Our question to the United States: what specific steps has the U.S. taken to fulfill this commitment in relation to these new forced localization requirements?
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For further information, media representatives may contact:
Shannon Gutoskie
Press Secretary
Office of the Honourable Ed Fast
Minister of International Trade
613-992-7332
Media Relations Office
Foreign Affairs, Trade and Development Canada
343-203-7700
media@international.gc.ca
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