Thank you very much, Mr. Chair and honourable members.
Thank you for the invitation to appear today and for the opportunity to discuss the February 2010 Canada-U.S. government procurement agreement.
The Canada-U.S. government procurement agreement, which I'll refer to from now on in my remarks as “the agreement”, in my view fails to provide a meaningful exemption for Canadian suppliers from the Buy American provisions employed in the February 2009 U.S. stimulus package, the recovery act.
As you're aware, the agreement has three main elements: an exchange of permanent commitments under the WTO agreement on government procurement; a temporary agreement, lasting until September 2011, providing mutual access to certain state, provincial, and municipal infrastructure projects; and a pledge to explore the scope for further negotiations and agreement to expedited consultations regarding future procurement-related matters.
In the time allotted, I will briefly discuss each of these elements.
First, on the permanent commitments, under the agreement Canada will bind, for the first time, certain provincial government procurement under the WTO GPA, while in exchange the U.S. will extend its 1994 GPA commitments at the sub-federal level to Canada.
Thirty-seven U.S. states have varying levels of commitments under the GPA. Until now, Canadian suppliers have not had the right to challenge decisions to exclude them from bidding on contracts covered by these 37 U.S. states. It is difficult to estimate the quantity of state-level procurement covered by the U.S. under the GPA. Despite obligations to do so, the U.S. government does not report detailed statistics on covered procurement at the state level to the WTO committee on government procurement.
The quality of the U.S. GPA commitments at the sub-federal level, however, is poor. As I think you're aware from previous testimony, the U.S. has various exceptions, most notably for the Buy American restrictions attached to federally funded mass transit and highway projects, as well as for small business and minority set-asides. Public utility contracts are carved out, and of course there are the 13 states that have no commitments. Even in many of the 37 states that have signed on, Canadian suppliers will not be permitted to supply construction-grade steel, vehicles, or printing services, and there are other exclusions.
Importantly, Canadian suppliers are currently denied access to the 23% of U.S. federal procurement dollars set aside for small business and minority-owned businesses. Comparable set-aside programs at the state level are also fully exempted. In some states, these range from 25% to 40% off the top, as set aside for local small or minority-owned businesses. Municipal governments, as you're aware, are also not covered by the U.S. GPA commitments.
Now, in 1995, the Canadian representative to the WTO committee on government procurement, looking at this identical offer, summed up Canada's response by saying:
It was Canada's position that, in providing increased and secure market access to its trading partners, it was not unreasonable to expect the same degree of reciprocal market access in return. In the context of the present offers, this circumstance simply did not exist.
I believe that assessment is still valid today.
For their part, Canadian provinces have agreed to cover a range of goods, services, and procurement, mainly by provincial government ministries. This is the first time that Canadian sub-national government procurement has been committed under an international agreement.
Canadian provincial governments have excluded a range of procurement programs--entities such as crown corporations and sectors such as renewable energy and mass transit--from Canada's GPA commitments. Canadian municipal government is not covered under the permanent commitments; it is under the temporary commitments, which I'll come to in a minute.
I just want to emphasize that the GPA rules prohibit governments from negotiating or considering any form of local content or “any condition or undertaking that encourages local development”, even if the procurement contract is open on a non-discriminatory basis to foreign bidders.
So you can't even look at which proposal, from whatever bidder, provides the greatest benefit to my community, region, or province or to the country.
To sum up, the GPA commitments will curtail Canadian provincial governments' ability to prefer Canadian goods or suppliers or to use government purchasing as an economic development tool, while leaving existing Buy American preference policies almost fully intact.
I'll turn now to the temporary commitments.
The second main element of the agreement is an arrangement that lasts until September 30, 2011. It provides mutual access to certain infrastructure and construction projects not otherwise covered by the GPA. It is difficult to obtain precise numbers on the value of the temporary commitments, but the best available estimates show that this part of the agreement greatly favours the U.S. The agreement gives Canadian suppliers an opportunity to bid on the remaining contracts under seven specific federally funded programs. While the overall budget for the seven programs totals $18 billion U.S., by December 31, two-thirds of the grants, loans, and transfers under the recovery act had already been allocated. Canadian suppliers will therefore have an opportunity to compete for no more than an estimated $6 billion U.S. of federally funded stimulus projects, representing just 2% of the procurement funded under the recovery act. The rest falls outside the scope of this agreement. The amount actually open, as a practical matter, to Canadian suppliers will be considerably less than this.
Further funds were allocated between December 31 and the date of entry into force of the agreement. Canadian suppliers' access will be restricted to contracts above the threshold. To give an example, for one of the seven programs--I think the largest--the U.S. Environmental Protection Agency reports that by February 15, 2010, over $3.5 billion U.S. of the total of $4 billion U.S. allocated under the recovery act to the clean water state revolving fund was already under contract. Similarly, by February 15, 2010, over $1.8 billion U.S. of the total of $2 billion U.S. allocated to the drinking water state revolving fund was already under contract.
In a February 16 briefing on the agreement for Quebec labour groups, a senior Quebec Department of Economic Development official stated that the ministry estimated the value of the unallocated funds of the seven U.S. programs to be $1.3 billion U.S. Given how long the negotiations have taken, the fact that only a sliver of total recovery act funded projects are covered, and that most of these moneys have already been allocated, Canadian suppliers can expect to see very little practical benefit from the temporary commitments.
In return, Canada has guaranteed U.S. suppliers access to a range of municipal and crown procurement construction projects until September 2011. The value of these contracts can be roughly estimated to be more than $25 billion Canadian. During questions I can explain how I arrived at that figure. U.S. suppliers will have the opportunity to bid on the full amount of these contracts, right up until the deadline. In sum, the temporary commitments are remarkably lopsided, with the bulk of the benefits going to the United States.
I'll comment briefly on the third element. A key demand of Canadian governments when they first entered the negotiations was that any deal should protect Canada against Buy American rules in future U.S. legislation. The agreement did not achieve this objective. Instead, it provides for expedited consultations at the request of either party on any matter related to government procurement. Such consultations must begin quickly--within 10 days--but the agreement provides no legal safeguards or guarantees to protect Canada from Buy American preferences in future U.S. legislation. In addition, the agreement provides for Canada and the U.S., as you know, to enter, within one year, discussions to explore an agreement that would expand, on a reciprocal basis, commitments with respect to market access for procurement.
It is difficult to say what the outcome of such talks might be, but the unbalanced nature of the current agreement and the fact that despite paying a fairly steep price Canada was unable to gain any lasting or meaningful relief from the Buy American preferences in the recovery act are not good omens for future negotiations.
Thank you.