Mr. Chair, members of the committee, thank you for the opportunity to appear before you to discuss the United States' Buy America jobs plan and the U.S. president's recent executive order.
You have heard from several government officials, including some ministers, that they would not let the Biden administration further restrict our companies' access to the U.S. market and would seek a blanket waiver. One speaker also talked about coming to a sectoral agreement with the United States. Obviously, I can't cover everything in this presentation, but I want you to know that, under international economic law, we have very little room to manoeuvre in response to the measures in the Buy America plan. I will unfortunately be going against the grain of what you have been told.
In my analysis, the United States cannot legally negotiate an agreement with Canada at this time. Nor would it be possible to reach a sectoral agreement. I will explain why.
The United States and Canada are among 48 states in the world that are parties to the World Trade Organization's Agreement on Government Procurement, or WTO GPA. This means that Canada and the United States have agreed to subject their government procurement to international competition.
However, when it comes to government procurement, each state has the ability to restrict its commitment. In other words, each state determines the entities subject to open procurement, the products or services covered, and the amounts above which the agreement applies. In its schedules of commitments, the United States has inserted significant limitations to allow it to continue to favour its suppliers in government procurement. Because of these limitations, therefore, the United States can have measures such as those in the Buy America plan.
Now, can the United States grant a waiver in favour of Canadian suppliers? Unfortunately, the answer is no.
In fact, the WTO GPA provides for compliance by states that are party to the most-favoured nation, or MFN, clause. In law, this clause is simple to apply. If a state gives an advantage to another state, it must extend that advantage to all states that are party to the agreement. In other words, if the United States gives Canadian companies preferential access to government procurement that is subject to the Buy America plan, it must extend that preference to the other 46 states that are party to the WTO GPA.
You may say that the United States had nevertheless agreed in 2010 to a general waiver in favour of Canada following the Obama administration's massive investment plan. But the context has changed.
In fact, there is one exception to the MFN clause I just mentioned: free trade agreements. That is, if states enter into a free trade agreement, they can give each other mutual preferences—that's even the objective—and they can do so without having to extend those preferences to other states. But beware, because, for this exception to come into play, there has to be a proper free trade agreement, which excludes sectoral agreements. I can come back to that during the question period, if you want.
In 2010, Canada persuaded the Obama administration to allow Canadian suppliers to participate in U.S.-only tenders. At that time, we had a free trade agreement, NAFTA, the North American Free Trade Agreement, that covered government procurement. In other words, NAFTA allowed us to have a preferential agreement with the United States on government procurement.
Today, the Canada-United States-Mexico Agreement, or CUSMA, has replaced NAFTA, and this new agreement now applies. It contains no rules on government procurement pertaining to relations between Canada and the United States. So we can no longer avail ourselves of that exception.
In this context, we have a few scenarios available to us. I will not be able to present them all to you, but here are some of them.
First, we unfortunately accept this as a fact of life; we don't have a waiver and our suppliers of goods and services cannot bid on most large infrastructure projects in the United States. In fact, they will be able to bid on some projects within the scope of the GPA, but that's extremely technical. For contracts not covered by the GPA, Canadian and U.S. companies will be able to apply for ad hoc waivers, but it's a very complex mechanism, that, most importantly, provides no predictability for our Canadian companies.
Second, we don't accept that solution and we reopen CUSMA negotiations. Let's be clear: after years of painful negotiations, and given the fact that the U.S. government is quite protectionist at the moment, I don't think that's a good idea.
Third, another solution would be to negotiate a blanket waiver with the United States. However, as I have already said, it would be risky for the Americans because it would go against free trade rules, against their commitments. So that remains to be seen.
Fourth—and I feel we should opt for this scenario when we know more about the specific measures taken by the Biden administration—Canada absolutely must begin a comprehensive analysis of how compliant the measures under the Buy America plan are with the GPA and with U.S. commitments.
This is because it is a good bet that some measures are questionable from a legal perspective. That could provide an opportunity to engage in a fact-based dialogue with a view to limiting the measures arising from the Buy America plan. If no agreement is reached, a dispute settlement procedure could be initiated at the WTO. Obviously, it would not satisfy our desire to move swiftly, but it could put pressure on the United States, especially if other major trading partners like China or the European Union were to join Canada.
This situation is yet another indication of our vulnerability when it comes to trade, and that vulnerability is a direct result of our dependence on the U.S. market. The answer seems simple enough: Canada needs to diversify its export markets. However, that's been slow to happen. We do have free trade agreements with many other countries and with major trading blocs, but, at the level of our businesses, diversification has been slow to materialize. That can likely be attributed to a number of factors. I don't have time to go into them in detail, especially since it goes beyond the scope of the trade relationship with the United States. But I would be happy to address them if you have any questions along those lines.
Thank you for your attention, and I remain available to you.