On February 5, the U.S. and Canadian governments jointly announced an agreement to resolve several difficult issues in government procurement between the two countries. The two largest trading partners in the world, the United States and Canada had been embroiled in disputes about access to each others’ market for government procurement projects at the sub-federal (state and provincial) level.

The two governments announced an agreement in principle that will benefit suppliers of goods and services to sub-federal purchasing agencies in both countries. The agreement centers around the acceptance by Canadian provinces of the WTO Government Procurement Agreement (GPA) and the United States’ offer of reciprocal access. The agreement also grants Canadian manufacturers temporary access to American Recovery and Reinvestment Act (ARRA) funded projects that goes beyond the coverage of the GPA.

Canada’s Concerns Over “Buy American” Restrictions

When the ARRA, Pub. L. 111-5, was enacted in February 2009, Canadian provincial governments and many Canadian suppliers expressed serious concern that they would be excluded from economic stimulus projects supported by federal funds but actually put forward by state and local governments. While the GPA exempts products of Canada and other member nations from the Buy American restriction in many ARRA-funded projects, Canada’s provinces had never accepted the GPA. As a result, Canadian suppliers have not been accorded benefits under the GPA in procurements by American States. Much of the ARRA spending has been through federal grants to State and local agencies. Canadian manufacturers currently have no access to any sub-federal ARRA spending and no GPA members are guaranteed access to local or municipal contracts. Canadian provincial and local agencies responded to the ARRA Buy American provision by threatening to exclude U.S. suppliers from a variety of sub-federal projects in Canada.

Canadian Prime Minister Stephen Harper proposed to President Obama that both countries act to broaden access to their sub-federal government procurements on a reciprocal basis. Beginning in September 2009, the U.S. and Canada engaged in serious negotiations to resolve these issues and allow U.S. and Canadian suppliers to participate on an equal basis with sub-federal procurements in each others’ markets. The deal announced on February 5 partially resolves these issues.

Outline of the Agreement

The Agreement provides for improved market access in several areas:

  • Canada will extend GPA coverage to sub-federal government procurement and U.S. firms will have permanent access to provincial and municipal projects in Canada that are covered by the GPA.
  • Canadian firms will have permanent access to federal and sub-federal projects within the scope of the GPA. The GPA now applies to 37 States and to a variety of procurement projects. This would grant Canadian firms access to covered State procurements, but not to federally-funded local or municipal projects.
  • Canadian firms will have “preferential” access through September 2011 for seven ARRAfunded federal programs. The U.S. is listing the exempted programs in Annex 3 to its GPA commitments. With respect to the seven programs, the ARRA Buy American provision will not apply to Canadian iron, steel, or manufactured goods in procurements above the threshold for construction services. This will allow Canadian manufacturers to compete for ARRA-funded contracts administered by local and municipal governments. Because this agreement offers Canada greater access than other GPA members, the U.S. may have to extend these concessions to other countries on a most favored nation basis.
  • U.S. firms will have access to Canadian sub-federal construction projects until September 2011 where the GPA is not now applicable.

Ratification

According to a Canadian press conference on February 5, the tentative agreement is likely to be ratified quickly. Both governments said that the agreement should be in place by February 16. Canadian officials specifically announced that the tentative agreement is not subject to ratification by the U.S. Congress; our information is that the U.S. government concurs. The agreement employs Buy American waivers granted by the U.S. Trade Representative by authority delegated by the President. However, members of Congress and congressional committees may take an interest in the agreement and its implementation.

Opportunities for U.S. and Canadian Companies

U.S. and Canadian clients may expect more opportunities from Canadian and U.S. procurements. The agreement’s details have yet to be spelled out; however, the basic provisions will expand markets and provide more competition for government projects, which generally means that prices will be lower than otherwise, and that more stimulus projects can be funded on both sides of the border.

Until the details are spelled out, it is difficult to predict how the agreement will affect suppliers from other GPA countries. Clients should carefully review the agreement to see how they will affect individual companies and industries. Moreover, monitoring of individual procurement documents will be necessary to ensure compliance with the agreement.