This article was first published in the Globe and Mail on February 12, 2009.
In one of his more dramatic Question Period performances, the federal NDP Leader announced last week that the “United States has had a Buy American Act for 76 years,” and that “it's perfectly legal.” He then followed up: “Can the Prime Minister tell us what's wrong with a Buy Canadian policy as permitted under continental and global trade rules?”
The question was prompted by the new protectionist proviso attached to Congress's economic stimulus bill. It is, however, premised on a faulty foundation.
The legal truth is a complicated one. It involves a fine analysis of U.S. legislative history, along with Canada's treaty obligations under the North American free-trade agreement, and the World Trade Organization rules and their annexes on central and subcentral government procurement policies. The Canadian Auto Workers, with their allies the United Steelworkers, have procured a legal opinion on which Jack Layton's assertions are apparently based, although a careful reading of the opinion reveals the complexity. But if you think organized labour and its politicians can't turn a multifaceted legal question into a singular polemic about economic nationalism, then you don't know Jack.
Since 1933, the United States has had Buy American protections for government procurement projects. Restrictions on suppliers began to loosen during the Tokyo round of trade negotiations in the late 1970s, when the World Trade Organization took its first stab at government procurement rules. Under the Trade Agreements Act of 1979, the president is authorized to apply a so-called “public interest waiver” of the Buy American rules and exempt countries that reciprocally waive their own buy-local restrictions for U.S. firms.
Waivers have been issued to signatories to the WTO's Agreement on Government Procurement, which came into force in 1981, and to states that have signed conventions with the United States that contain their own chapters on government procurement. As a party to the original Canada-U.S. free-trade agreement (FTA) since 1989 and NAFTA since 1994, Canadian suppliers have benefited from these waivers.
There is much to criticize in the current congressional initiatives. The most restrictive Buy American provisions, which until now have applied only to purchases of steel and manufactured products by the Transportation Department, will, if the stimulus bill is not amended, apply to all U.S. government projects. Domestic suppliers will be given a cushion that allows public works to exceed by 25 per cent the price that they would cost if cheaper imported materials were used. Moreover, in the House of Representatives version of the bill, waivers will no longer be given to trade-agreement partners.
The Senate has softened the protectionist impulses of the House, adding an “assurance” that these policies will be “applied in a manner consistent with U.S. obligations under international agreements.” That vague statement, however, is still not an unambiguous confirmation that the waivers that have protected Canada, and about 15 other countries with which the U.S. has trade arrangements, will remain in place. Stronger legislative language is needed if President Barack Obama's commitment not to damage trade relations is to become reality.
Congress's protectionist instincts are, of course, not only bad for us, they're bad for the Americans. Who but the American taxpayer will foot the inflated bill for domestic steel and other supplies once imports are all but eliminated? The same would be true for Canadian taxpayers under the bloated project costs one could expect under a Buy Canadian policy.
Domestic steel may be cushioned, but the rest of us would make up for the loss of U.S. sales. More importantly, protectionist initiatives misconstrue the stature of treaties. These legal commitments, whether with international institutions, our allies or our trading partners, are more than policies of the moment, they are for the long haul. They can be breached or terminated if necessary, but at a cost that is well beyond the changes in policy that occur with a new budget or a new administration. Canada's larger commitment to multilateral legality and the international community ought not to be so quickly sold out.
The NDP Leader ended Question Period asking rhetorically: “What would be wrong with policies that have us just buy here?” The answer was given 25 years ago by the European Court of Justice in its famous “Buy Irish” judgment condemning an ad campaign promoting domestic goods.
The current congressional bill, and any proposed Canadian backlash, is, as the European judges said of Ireland's campaign, designed to “frustrate the aims of the community.” In international legal relations, that's generally a bad idea.
Ed Morgan is a law professor, University of Toronto