Considering Canada’s Response to “Buy America” Restrictions on Redevelopment of the Prince Rupert Ferry Terminal Facility in British Columbia

On January 19, 2015, the Government of Canada made an Order pursuant to the Foreign Extraterritorial Measures Act (FEMA) that prohibits any person in Canada from complying with U.S. “Buy America” requirements in relation to the redevelopment, including any “alterations or improvements” generally, of the Prince Rupert ferry terminal facility in British Columbia. Specifically, the Certain Foreign Territorial Measures (United States) Order, 2014 (the “Order”) directly responds to a solicitation for bids issued by the Alaska Department of Transportation and Public Facilities (DOT&PF) which specified that all iron and steel products associated with the ferry terminal redevelopment project are subject to the “Buy America” legislation.1 This is the first time that Canada has invoked the FEMA outside of the context of the U.S. Cuba legislation. The FEMA is a “blocking statute” that prohibits compliance with foreign laws that are viewed as being applied to Canada in an extraterritorial manner. In this instance, Canada is targeting the extraterritorial application of the “Buy America” legislation to a project being undertaken in Canada.

It is now being reported that, as a result of the impasse between the Canadian and American legal requirements, the DOT&PF has suspended the redevelopment project until further notice.

When the solicitation is re-issued or otherwise proceeds, all parties involved will need to ensure that they comply with both Canadian and U.S. law.

The Prince Rupert ferry terminal facility is a crucial transportation hub for residential and commercial traffic in the Alaskan Marine Highway System, connecting the ferry system that serves remote communities in Alaska with the North American highway and rail system. The facility is operated by the Alaska DOT&PF on land in British Columbia that is leased by the State of Alaska. The DOT&PF solicited bids for a major redevelopment project involving the removal and replacement of the facility. This solicitation specified that the “Buy America” measures would apply to all iron and steel products incorporated into the project, which meant that such materials had to be manufactured in the United States.

On the basis that these “Buy America” restrictions would preclude Canadian producers of iron and steel materials from participating at all in the procurement process or the subsequent redevelopment project, the Government of Canada responded by issuing the above-referenced Order pursuant to paragraph 5(1)(b) of the FEMA. This provision authorizes the Attorney General of Canada, with the agreement of the Minister of Foreign Affairs, to make an order prohibiting “any person in Canada” from complying with foreign measures that, in the opinion of the Attorney General: (i) have had or are likely to have an adverse effect on significant Canadian interests in relation to international trade and commerce involving business carried on in whole or in part in Canada; or (ii) have otherwise infringed or are likely to infringe Canadian sovereignty.

The wording of paragraph 5(1)(b) of the FEMA indicates that the scope of this legal prohibition is very broad. In the present case, it covers not only compliance with the “Buy America” measures themselves, but also with any directives, instructions, intimations of policy or other communications supporting the application of the “Buy America” restrictions – including those contained in any tender documents issued in respect of the redevelopment project – from a person who is in a position to direct or influence the policies of the “person in Canada”. The Government of Canada has expressly stated that one of the effects of the Order “is to prohibit any person in Canada from complying with any certification or declaration requirements that state that the successful bidder will comply or has complied with applicable ‘Buy America’ measures, such as those found in the applicable tender documents (e.g., Material Origin Certificate).”

It should be noted, however, that the Order provides that a person who has already acted contrary to the prohibition before the Order comes into force will only contravene the Order if they take a further prohibited action on or after the date that the Order comes into force. It is also noteworthy that such a contravention will only lead to an offence and potential liability under the FEMA if the “person in Canada” has been served with a copy of the Order. On the other hand, the FEMA provides that a contravention of an order under paragraph 5(1)(b) that would be punishable as an offence under the FEMA if it were committed within Canada may be tried and punished as an offence under FEMA even if it is committed outside of Canada. Maximum penalties under the FEMA for each offence include fines of up to $1.5 million for corporations and fines of up to $150,000 and/or imprisonment not exceeding five years for individuals.

The Order raises important questions for parties who were – or who will continue to be – involved in the procurement process and also other stakeholders. The extent to which such an order might affect a contract that is awarded entirely in the United States, or the execution of such a contract within Canada, remains uncertain. In this respect, the applicability of such an order may depend upon whether potentially prohibited activities occur in Canada, or in the United States, or in a combination of both countries, and the exact nature of those activities. Related to these questions is the uncertainty with respect to the meaning and effect of the term “any person in Canada”. Taking these considerations into account, it is not clear whether, or to what extent, or on what terms participants in the procurement process or the subsequent work related to the Prince Rupert ferry terminal redevelopment project may risk contravention and liability under the FEMA if both the Order and the “Buy America” measures continue to apply when the solicitation is re-issued.

What is clear, however, is that all parties will need to carefully consider the ramifications of both the Canadian legal requirements and the U.S. legal requirements in planning their next steps.