Evidence of meeting #2 for International Trade in the 41st Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was procurement.
A recording is available from Parliament.
Conservative
The Chair Conservative Rob Merrifield
We will call the meeting to order. We have a quorum.
We want to thank the officials for coming in from the Department of Foreign Affairs and International Trade. We have Jon Allen, Laurent Cardinal, and Kevin Thompson here to talk about the Buy American provisions. It's a rather relevant topic, particularly today.
Thank you for coming in to give your perspective on what's happening. The floor is yours for ten minutes.
Jon Allen Assistant Deputy Minister, Americas, Department of Foreign Affairs and International Trade
Thank you, Mr. Chairman.
Bonjour, and thank you for this opportunity to speak to you.
I am Jon Allen, the assistant deputy minister for the Americas at the Department of Foreign Affairs and International Trade, responsible for North and South America. With me today from the department are Laurent Cardinal, the director general of the North America trade policy bureau, and Kevin Thompson, the director of the government procurement, trade, and environment division. They are the real trade policy experts here. Kevin has just returned from the embassy, spending a number of years there, and Laurent is a long-time trade policy expert.
We have been asked here today to address the draft Buy American provisions in the proposed American Jobs Act of 2011. In my opening remarks I hope to provide an overview of the proposed bill, its Buy American provision, and the framework in place between Canada and the United States to address government procurement issues. I'll also summarize the specific steps taken by the Minister of International Trade and others here in Ottawa and throughout the United States to respond to this issue. Following my remarks, we will welcome your questions and comments.
At the outset, it is important to emphasize that Canada is not opposed to the American Jobs Act per se. As the Prime Minister stated in an open letter to the chairman of the G-20, the administration's job plan “will provide a welcome impetus to growth in the short term” in the United States. However, Canada regrets the inclusion of new Buy American restrictions in this bill. New trade restrictions, if passed into law, would send a negative signal to governments around the word that trade restrictions are an acceptable policy. They would also negatively affect both the Canadian and U.S. economies at this fragile point of the global recovery and run the risk of inviting similar responses elsewhere. Given the integrated nature of Canada-U.S. supply chains, new restrictions harm not only Canadian exporters but also U.S. firms that rely on Canadian inputs and U.S. governments that have come to rely on innovative Canadian products. We do much more than just trade with each other; we build things together.
On procurement, both Canada and the U.S. face huge challenges in improving our infrastructure on both sides of the border. We need to ensure there is as much competition as possible to maximize value for taxpayers. We know that free and open trade is the best way to protect and create jobs, to lower prices, and to produce better results in both our countries. That is the message we have taken and will continue to take to Washington.
Now to the American Jobs Act. On September 8 President Obama outlined his plan to address persistently high unemployment in the U.S. On September 12 his administration publicly released its legislative proposal, the American Jobs Act. This bill contains numerous elements, including payroll tax relief, transfer payments to prevent public sector layoffs, and investment in infrastructure. The administration estimates the total cost of the bill at $447 billion.
The bill also contains a Buy American provision that prohibits the use of any funds for the construction, repair, or maintenance of public infrastructure unless all iron, steel, and manufactured goods used in the project are produced in the U.S. This provision is nearly identical to the Buy American provision found in the American Recovery and Reinvestment Act of 2009, with which many of you will be familiar. The bill also stipulates that the Buy American requirement must be applied consistently with the United States' international trade obligations.
I should note that the bill is very much at the first stage of the legislative process. Despite President Obama's urging that Congress pass the bill quickly, numerous steps are required before it can be adopted. The non-partisan Congressional Budget Office has to assess the costs of the bill. In both the Senate and the House of Representatives, the bill will be referred to relevant committees, of which there are several.
Given the nature of the U.S. legislative system, it is unknown at this point what the final text will look like in comparison to the current draft proposals, or even if there will be a final text that becomes law. As you know, over the summer the debate in Congress over the increase to the U.S. debt ceiling and concerns about the size of U.S. deficit led to increased political tensions in Washington. In August 2011 the House Republicans introduced their own job creation plan, called “Plan for American Job Creators”. How these competing legislative proposals ultimately will fare is unknown at this stage.
Given this context, it's fair to say that the legislative path for this bill is quite uncertain. Moreover, we should bear in mind that while Buy American is an extremely important issue for Canadians--and as such is the one that the Canadian government has and will continue to engage on--other elements in the bill, such as the government's role in the economy and tax policy, will loom larger in the debate on Capitol Hill. We need to keep this in mind as we actively respond to this draft legislation.
It's also important to emphasize at this time that it is very difficult to calculate precise estimates of the potential impact of the bill on Canadian interests. The proposed funding mechanisms in the bill are complex, the distribution patterns of Canadian suppliers varied, and the application of U.S. international obligations content-specific. The bill stipulates that Buy American provisions must be applied consistently with U.S. international trade obligations.
That said, we are able and happy to share with you some preliminary observations. The Buy American provision is limited to funding for public infrastructure authorized by the bill. It does not affect other pre-existing authorization legislation that applies to annual appropriations. In other words, the majority of the federal transfers to states are not affected by this legislation. It applies only to goods, not services. The bill also provides for the waiver of the Buy American provision under certain circumstances, from which Canadian firms have benefited in the past.
The bill proposes funding amounting to approximately $105 billion for several infrastructure programs to which the Buy American provision would apply. However, this figure represents the total size of the intended U.S. stimulus, not the value of lost opportunities for Canadian exporters. That figure is considerably lower based on numerous factors, including labour costs and professional services, neither of which would be subject to Buy American provisions, as well as taxes and contractor profit. We would be happy to elaborate further in the question period; that's of course the royal 'we', as my trade policy colleagues are much better able to get into those details than I am.
Now, if I may, I'd like to turn to the framework currently in place between Canada and the U.S. regarding government procurement.
Since the mid-1990s, Canada and the U.S. have granted each other reciprocal commitments in relation to federal government procurement. These are found in the North American Free Trade Agreement, NAFTA, and the World Trade Organization agreement on government procurement. These commitments, however, did not extend to procurement at the provincial, territorial, or state level.
In February 2010, as a result of concerns from Canadian suppliers regarding the Buy American provision of the 2009 recovery act, Canada and the U.S. concluded the Canada-U.S. government procurement agreement, CUSPA.
The CUSPA--we officials have acronyms for everything--has three main elements. First, Canada and the U.S. exchanged commitments in relation to subnational procurement. Canadian suppliers now have guaranteed access to covered procurement in 37 U.S. states, while Canada made procurement commitments in all provinces and territories except Nunavut. These commitments are subject to certain limitations and exclusions, but as a result, after 15 years, Canadian suppliers now have the same guaranteed access to subnational procurement opportunities in the U.S. as other members of the WTO agreement on procurement.
Second, Canada and the U.S. exchanged temporary commitments in relation to certain types of infrastructure spending at the local level. The U.S. granted Canada a waiver from the Buy American provision of the 2009 recovery act for seven programs of interest to Canadian firms. In exchange, Canada granted U.S. suppliers secure access to infrastructure projects by certain provincial crown corporations and municipalities. These temporary commitments expire on September 30, 2011, because they coincide with the full expenditure of recovery act funds.
The third element of the CUSPA, and a particularly critical aspect for purposes of this discussion, is the agreement reached in 2010, a commitment by Canada and the U.S. to enter into discussions to explore possible expansion of government procurement commitments on a reciprocal basis. Two constructive meetings in furtherance of this commitment have already taken place.
Finally, the agreement includes a consultation mechanism for any matter related to government procurement. Under this mechanism, either party can request a consultation with the other, which is precisely what Minister of International Trade Fast did on behalf of the Government of Canada with his U.S. counterpart.
Shortly after the public release of the Obama administration's proposed American Jobs Act, our Minister of International Trade took quick and decisive action by writing to his U.S. counterpart, U.S. trade representative Ambassador Ron Kirk, to formally invoke this consultation mechanism. Consultations are scheduled to take place in Washington tomorrow morning. Indeed, my colleague, Mr. Cardinal, will represent Canada in Washington tomorrow.
The minister has also spoken with both Ambassador Kirk and U.S. ambassador to Canada, David Jacobson. The minister reminded both ambassadors that as each other's largest trading partners, both American and Canadian workers and businesses do best when trade-restrictive policies are not pursued. Minister Fast expressed the Government of Canada's concern with the proposed Buy American provisions and reiterated to each ambassador the Government of Canada's position that long-term economic growth and good jobs are best protected and created by broadening and deepening our trading relationships and removing trade barriers.
In addition, numerous other senior officials, including the Deputy Minister of International Trade and our ambassador to the U.S. in Washington, have reinforced the government's concerns with their U.S. counterparts.
Beyond pressing our case with members of the administration, given Congress's role in the preparation of the legislation, the Government of Canada is also reaching out to members of the House and to the Senate to outline our concerns, to explain the negative impact Buy American could have on U.S. firms and jobs, and to enlist their assistance.
We are also coordinating with industry groups in both Canada and the U.S. that opposed Buy American so that our shared concerns can be fully taken into account in any future debate.
In summary, the minister and the department and our missions in the U.S. continue to react in a timely and balanced fashion to this regrettable development. We are identifying where the potential problems may lie. We are proceeding in a deliberate and sustained manner, even as we are also aware of the significant legislative uncertainties associated with this bill.
Beyond this issue, ladies and gentlemen, it is important not to lose sight of the big picture, of the depth of the broader bilateral relationship. Canada and the U.S. share the largest and most dynamic bilateral trading relationship in the world. With almost $1.8 billion in goods and services crossing the border each day, the vast majority of these transactions, which total almost $700 billion per year, are free of irritants and disputes. The U.S.-Canadian trade relationship is the deepest and the broadest, and notwithstanding our concerns with the proposed Buy American provisions in this draft bill--and those concerns are real--this clearly remains the case.
Beyond the economic sphere, Canada and the U.S. work together, as you know, on a wide variety of issues that range from defence cooperation to border management, security, energy, and the environment, just to name a few.
In short, the relationship between our countries is broad and mature and durable. The Government of Canada will continue to meaningfully engage with the U.S. government on these important matters of shared economic interest.
With that, I hope I have kept within the ten minutes.
Conservative
The Chair Conservative Rob Merrifield
You went a little bit over, but you were so interesting, we allowed you to continue.
Nonetheless, we'll open it up to questions.
Mr. Chisholm, please start. You have seven minutes.
NDP
Robert Chisholm NDP Dartmouth—Cole Harbour, NS
Thank you very much.
This is interesting. I'm glad you're here. I'm glad that you as well as Mr. Cardinal and Mr. Thompson were invited.
This is an issue that has gotten some attention, both inside the House and outside the House. I've taken the opportunity to make a few calls and talk to some people about what this really means. I'm trying to get a handle on what's been going on. As much as I want to blame everything that happens—the weather, the fact that the tomatoes aren't big enough this year—on the government, I try to actually find out what's really going on.
I have a couple of questions. As we go through them, my colleagues on this side may also want to pipe in.
A couple of things come to mind. One is that my understanding is that by the time we got involved with the 2009 Buy American Act, it was 2010. At that point, according to the numbers I've seen, the consequences were that we had access to only 0.5% of the American infrastructure spending, which was $1.5 billion, whereas United States firms had access to $25 billion on our side. I raise that because I'm going to be looking to you to drill down a little on the point you made about the ongoing public transfers of $105 billion and what those actually represent to Canadian companies. That's one question regarding the last agreement.
The second part of that—and you've raised it—is that Canada was working at getting an ongoing exemption to prevent any further legislation like this from coming down the pipe. You said there were two meetings. I'm new at this; please appreciate that. Don't be too hard on me with your response. There have been two meetings. Given the severity and given how important this is and the impact, why haven't we been able to move more quickly on this in order to get that exemption under way?
Conservative
The Chair Conservative Rob Merrifield
You have the questions. I encourage the members to ask their questions as succinctly as possible. It took about three and a half minutes to ask, so we'll give you three and a half minutes to answer, if you need it.
NDP
Robert Chisholm NDP Dartmouth—Cole Harbour, NS
Mr. Chairman, before the answer, let me just say that my experiences on standing committees vary. Sometimes witnesses like to get the context and address things in that respect.
Conservative
The Chair Conservative Rob Merrifield
That's very well. We can discuss that.
Please go ahead and answer the question.
Laurent Cardinal Director General, North America Trade Policy Bureau, Department of Foreign Affairs and International Trade
Thank you for the question.
On the first part, on the percentage of access on the first stimulus package the U.S. put in place in 2009, I guess in the assessment of that.... I know that it was largely discussed in the work of the committee at the time of the agreement. As you know, it's very difficult to get exact figures and data on contracts and what is accessible to companies and what contracts are won by Canadian companies and all of that.
You also have to keep in mind that in the agreement Canadian companies secured access to 37 states that are part of the WTO in the U.S. Previous to the agreement, that access was not available to Canadian companies, so that part of the agreement was important also. It secured procurement from 37 big states in the U.S.
What you're referring to is more the access to what was a temporary part of the agreement that is going to expire at the end of September. For the figures on that, I'll ask Kevin to comment. It's difficult to assess what was accessible.
I just want to mention that in exchange for the access to the programs, what was committed to on the Canadian side was procurement of construction contracts at the municipal level. Most of those contracts were already accessible to the U.S. They secured for two years the fact that municipalities wouldn't put in place restraints on the accessibility of U.S. suppliers to this.
On the second question, I'll ask Kevin to explain the $105 billion and add his comments, if he wants to, on the dispute over the proportion of the contracts that was accessible to Canadian companies.
Kevin Thompson Director, Goverment Procurement, Trade and Environment, Department of Foreign Affairs and International Trade
Thank you very much.
Firstly, very briefly on this figure of $105 billion in the current American Jobs Act bill, I'd just like to emphasize that it's very difficult to assess the impact with any degree of precision, but we have been looking at the various funding envelopes under the bill, and there are essentially four that are of concern to us.
The Buy American provision relates only to public infrastructure spending. It does not relate to all elements of the bill. The bill contains tax relief. The bill contains transfers to states. So those parts of the bill are not implicated by the Buy American provision.
In terms of the public infrastructure spending, there are four programs. In particular, there's $50 billion for transportation infrastructure. There's $30 billion to modernize and renovate public schools and colleges. There's $15 billion for a neighbourhood stabilization program, including redeveloping abandoned and foreclosed homes. There's another $10 billion for a new national infrastructure program.
But it's important to emphasize that this figure represents the total of the U.S. stimulus and not the value of lost opportunities for Canadian exporters. I could elaborate on some of the factors that would go into that if you would like.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Thank you, Mr. Chairman.
Welcome to our witnesses. We appreciate the good work that you do for us every day.
I'm going to allow you to elaborate on that a little bit more, but just before you do, I do have a comment. This legislation came into effect, I think, on September 12.
No? Well, It was tabled. It didn't come into effect on September 12. It's a different thing altogether.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
I was with the minister at that time. He was immediately on the line with his counterpart, Mr. Kirk, and speaking to Ambassador Jacobson.
This is relatively new, and, without question, is certainly of major concern. To put it mildly, it's disappointing that we're back here going over this again. But at the same time, it's a very complicated process and is one that's just not a clear run. It's not a home run for them, not whatsoever, to put it through Congress.
I would like a little more elaboration on the numbers. And I'd ask the chair to allow me to share the rest of my time with Mr. Holder.
Director, Goverment Procurement, Trade and Environment, Department of Foreign Affairs and International Trade
First, in relation to the $50 billion proposed investment in transportation infrastructure, much of the transportation infrastructure spending in the United States is subject to longstanding, pre-existing Buy American restrictions. So there was legislation back in 1982 that essentially imposed a Buy American condition on federal transfers to states for transportation projects. There are some minor exceptions to that, but basically much of this $50 billion will go through pre-existing programs under which there have been longstanding restrictions on all foreign suppliers, including Canada. So these are not new restrictions.
Second, for many construction projects, residential as well as non-residential, a significant portion of the overall project cost goes into non-tradeable inputs: things like labour costs, taxes, demolition costs, permitting, and contractor profit. Based on our preliminary analysis, about 50% of the infrastructure spending is actually on these inputs, which are not internationally tradeable, so Canada would not have access to those particular inputs.
Third, there is a program, a neighbourhood stabilization initiative, and if prior experience is any indication, approximately 25% of the spending goes to the actual acquisition of the foreclosed or abandoned home. When you take that into consideration along with labour costs, demolition, taxes, and profit, then really about 30% of that remaining $15 billion is left over to purchase construction materials.
When you look at all of the elements that are non-tradeable internationally, the figure of $100 billion is reduced very significantly.
We also have to look at the extent to which Canadian suppliers participate in those markets throughout the United States. Our suppliers are much more active in certain markets than in others. And at this time it would simply be premature to try to determine where the money is going to be allocated if this bill is adopted, in which states it's going to be allocated, and whether or not Canadian firms are actually active and competitive in those regional markets.
Conservative
Ed Holder Conservative London West, ON
Thank you very much.
I would like to thank our guests.
This feels a bit like déjà vu of the time when we were dealing with this concern with regard to the American Recovery and Reinvestment Act.
Mr. Allen, you mentioned that the Buy American provision of the American Jobs Act is limited to funding for public infrastructure authorized by the bill and that certain things don't apply. I think we understand that.
I'd also like to quickly acknowledge that I think the officials did a good job with CUSPA, in getting, frankly, the only exemption from Buy American that any country got back in 2009.
But my concern is that this really speaks to confidence in terms of Canadian and American business. American business is saying that maybe it's not a good thing to do business in Canada because they know what their American government's really intent is. I will express, probably a little more strongly than Mr. Keddy will, not just my frustration but my disappointment in the American government's approach to this. I think it's wrong-headed, and it's bad legislation at a bad time for all the reasons you've articulated.
I know you've talked about timing and how long this will take. What's your belly-button guess--if I can be so crass? If you had to guess as to the implementation of this bill, on a scale of one to ten, and on the implications of it, what would you think?
Assistant Deputy Minister, Americas, Department of Foreign Affairs and International Trade
Well, it's very difficult to predict. You know the process. A bill was introduced into the Senate. Before anything can happen a bill has to be introduced into the House. The Republicans control the House. They could amend the current legislation, or they could kill the current legislation. And with respect to the timing, it's really very much in their hands. To some extent the tensions between the Republicans and the Democrats have only grown, as you know.
So we really can't predict. But I think the contacts we have made and others have made suggest this is going to be far from an easy go for this legislation. But as to exact timing, when it would end, I can't tell you that.
Conservative
Ed Holder Conservative London West, ON
You know, it really does speak to this issue of why we've had to be as aggressive as we have been to enter into other agreements beyond the United States. Look, they're our best partner, our great neighbour, and all the things we know that are positive about that relationship. But quite frankly, we can't be as dependent as we are, which I think speaks to why we've tried to do these deals.
I might well be out of time, and I will apologize if I am.
Conservative
Ed Holder Conservative London West, ON
Then I'll resume at another time, if I get a chance.
Thank you.
Conservative
The Chair Conservative Rob Merrifield
I think we got the gist of that, but go ahead and answer quickly.
Assistant Deputy Minister, Americas, Department of Foreign Affairs and International Trade
Let me just say that in respect of the negotiations that are ongoing now in respect of the new agreement, which was a question, there have been two very substantive meetings. A third meeting is planned.
Both sides are very serious about this. I think we are indeed making some progress. It takes time. It's not going to happen overnight. But there is a seriousness on both sides of the table, and I think that is also valuable and important, looking forward.