Is new US President Joe Biden’s Buy American pledge a nothing or a potential billion dollar blow to the Canadian economy?
It could go both ways.
The real scope of Biden’s insistence on buying American goods – and what that means in practice – will be revealed at several events in the New Year.
What we do know is that Biden this week reiterated his plan to launch a massive construction program, and its intention to only award contracts to US companies.
This commitment underlines that international trade tensions not all of them will magically disappear with the departure of Donald Trump from the White House.
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But when it comes to “buy local rules”, the devil is in the breathtaking details. And few people know these details better than the former U.S. trade negotiator. Jean Heilman Grier.
During a quarter-century career in the U.S. government, she negotiated numerous supply agreements with other countries, including a major one with Canada, the 2010 pact which exempted Canadians from certain American buying rules.
“[Biden]is a strong supporter of Buy American, ”said Heilman Grier, now a consultant working outside of government.
“The question is: what is he going to do with this?”
We’ll start getting answers in January – right after two Senate races in Georgia that will determine which party controls the Senate.
Will there even be a big infrastructure plan?
Biden’s US $ 2 trillion clean infrastructure plan is the crown jewel of his campaign to reduce greenhouse gas emissions.
He also hints at possible riches for energy, transportation and construction companies who will all want a share of that staggering amount of money.
Yet, there is no guarantee that this will ever happen.
Getting a landmark bill through Congress tends to be difficult – let alone a bill with a 13-figure price tag.
Now add another possible obstacle: Senate Republicans.
We’ll learn on January 5 if Biden’s Democrats will control the US Senate – and the party that controls the Senate decides which bills are even allowed to vote.
If Democrats lose either of Georgia’s two elections on that day, Republicans will retain a majority and Republican Leader Mitch McConnell will decide which bills get voted on.
A Canada-US trade expert says he expects both sides to want to do something about infrastructure. But the details are far from being settled.
“I think we’ll see some kind of infrastructure [bill]. The size and scope are yet to be determined, ”said Dan Ujczo of the Ohio law firm Dickinson Wright.
“It won’t be in the first 100 days [of the next administration]. ”
What about trade agreements?
Once we see the bill, it is time to read the fine print. More specifically: will such a bill refer to international trade agreements and promise to respect them?
Canada and the United States have entered into free trade supply agreements.
There is the World Trade Organization agreement on federal contracts. In addition, some state and provincial are covered by Annex 2 of the WTO Agreement. There are also separate agreements on military contracts.
Canada received approximately $ 674 million value of US government contracts in 2015, out of a total of $ 12.1 billion awarded to foreign companies, according to a 2019 article by US federal researchers.
Canada and other countries would therefore search any future bill for references to these agreements and see if they were respected.
Biden knows this ground well.
He was instrumental in the last major infrastructure bill that launched a “Buy American kerfuffle”: the $ 900 billion stimulus package in 2009.
In this bill, a version adopted by the United States House of Representatives did not contain any reference to trade agreements; the Senate later added a clause on compliance with international trade agreements.
Biden was the Obama administration’s go-to person on this controversial 2009 stimulus package.
“He was sort of [leading] this through Congress, ”said Heilman Grier, who predicted that a future bill would respect trade agreements.
“I would expect you to see this kind of provision in any infrastructure bill.”
A legacy of that Buy American dispute from 2009 was a pact between Canada and the United States that made it easier for some state and provincial agencies to award contracts to companies across the border.
But there are still many gaps.
Where are the gaps?
Whether an infrastructure project is covered by trade agreements depends on where the federal funds are spent. Federal money flows to states and cities – and the rules are completely uneven, with different standards for departments in different places.
If Canadians want to understand why, we can start by looking in the mirror.
The Canadian provinces have refused to open some of their large agencies to free trade in supply, such as Hydro-Quebec and Infrastructure Ontario.
Toronto expert lawyer Mark Warner says Canadians like to complain about supply protectionism, but they are far from flawless.
“If your starting position is ‘You, United States, open everything and we hardly open anything,’ it’s really hard to see how you progress from that,” Warner said in an interview.
Heilman Grier, who negotiated the 2009-2010 deal for the United States, said Americans could be brought back to the table if Canada offers something.
“Yes [Canada] came and said: ‘We will give you [access] to Hydro-Québec if you have given us the [U.S. power utilities] then we could have a conversation, ”she said.
“This is a question for Canada.”
But Heilman Grier said she couldn’t imagine such a reform in the coming months because it would require complex and politically tense negotiations between Washington and state governments.
Lawyer Ujczo cited another limitation of free trade in public procurement: fear.
He said some Americans will simply be too afraid to use foreign suppliers. This includes companies looking for contractors and buyers from state and local governments, who are concerned about the law and think it’s safer to simply buy locally.
“For me, Buy American is always more about perception than reality,” Ujczo said.
What else could Biden do?
Heilman Grier is anticipating a few more Buy American shares from Biden. She said he could tighten some of the many executive orders signed by Trump even further.
For example, Trump has proposed increase by several percentage points the US content that different products must have to be considered US good.
In a Biden-Harris administration, “Buy American” will be more than a slogan.
We are going to invest an additional $ 400 billion in buying products made in the United States and keeping good paying jobs here at home. https://t.co/HrOOkXerMP
& mdash;@Joe Biden
The rule, which has yet to come into effect, would raise the current 50 percent threshold for most products to 55 percent US content, with a much more dramatic increase for iron and steel products.
Heilman Grier said Biden could toughen him up further. She also said the new president’s team may also consider tightening exemptions to the US buying rules.
For example, a US buyer can circumvent these rules by claiming that a certain product is not available in the domestic market.
She said that US manufacturers can already challenge this claim for contracts awarded by the US Department of Transportation; this kind of rule could be extended to other departments.
The bottom line? The American purchasing rules are not going away.
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Free market purists can do whatever they want when it comes to comparative advantage, and they can point out that these rules result in higher costs for taxpayers, but that won’t change that political reality, Ujczo said.
“You really roll the stone if you try to [complain about] Buy American, ”Ujczo said.
“What you need to do is find exemptions, exclusions and side agreements.”
How Canada Can Succeed
Ujczo’s advice in Canada is twofold, but based on the same principle: slip by repositioning “Buy American” into “Buy North American”.
First, Canadians should show up early and try to convince the US government to take a North American purchasing approach for pandemic-related medical equipment. COVID-19 is what Washington is currently focusing on.
In a few months, when the focus is on infrastructure, Ujczo said Canada can ask to replicate the same buying approach in North America there.
He said large public-private investors in Canada could also offer to help fund U.S. projects and tie the funding to certain conditions – like a Buy American exemption.