Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Contentious “Buy American” Issue Resurfaces

Posted July 07, 2014

Protectionist Measures Threaten to Undermine Market Access and Confidence in “Free Trade” 

With the much-touted Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union apparently stymied by a number of unresolved issues and the ambitious Trans-Pacific Partnership (TPP) making little substantive headway despite more than 20 rounds of negotiations to date, the biggest threat to the Harper government’s vaunted free trade agenda may be coming from an unexpected quarter — Canada’s largest trading partner.
After temporarily resolving a dispute in early 2010 over the protectionist “Buy American” provision in the Obama Administration’s $800 billion stimulus package, the same issue has resurfaced in the new U.S. Water Resources Reform and Development Act, which stipulates that all the iron and steel used in projects must be made in the U.S. to be eligible for federal subsidies. The contentious “Buy American” provision also appears in the massive government-backed Grow America Act, which calls for 100 percent U.S. content in all federally funded transit projects.

The proposed measures have Canadian exporters and manufacturers crying foul. “What this really means is that Canadian companies are excluded from selling into the procurement market in the U.S.,” said Jayson Myers, president of the Canadian Manufacturers and Exporters. “And more than that, it sends a chill through the supply chain because distributors don’t want to hold Canadian, or foreign, products if they can’t be differentiated from U.S. products.”

In a statement issued during a meeting at the World Trade Organization (WTO) last month, International Trade Minister Ed Fast expressed concern about the repeated attempts to impose domestic content requirements for products purchased by federal, state and municipal-level governments within the U.S. “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,” Fast said.

In addition to new federal legislation, Canadian officials also singled out recent state bills, passed in Minnesota and being studied in New York and Massachusetts with new forced localization requirements pertaining to government procurement and specifically to steel. The Canadian government notes that even though such initiatives may not be enacted, the recurring threat of protectionist measures discourages foreign suppliers from developing new opportunities. “Uncertainty — in and of itself — has the potential to undermine market access,” said a Canadian brief presented during the WTO meeting.

Another trade-related grievance raised by Canadian officials is the USDA’s plan to increase the inspection fees for agricultural goods entering the United States, which it estimates would cost the Canadian trucking industry $15.5 million in new border fees.

A further irritant is the long-running trade dispute over discriminatory country-of-origin labelling (COOL) for meat, which has prompted a court battle as well as a challenge by Canada and Mexico at the WTO. The Harper government contends that the administration’s refusal to adequately fix the problem has resulted in significant damage to Canadian livestock producers and has threatened to retaliate by imposing tariffs amounting to $1 billion in the first half of 2015 on U.S. exports including such things as beef, pork, cereals, cakes, cookies and fruit.

When asked by reporters to respond to the various grievances raised at the WTO meeting, the office of the United States Trade Representative merely stated, “While we continue to engage with Canada on its concerns, would emphasize that all of the measures identified by Canada are fully consistent with U.S. international obligations.”