On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment
Act of 2009 (“Recovery Act”). The Recovery Act, and similar “stimulus bills” such as the Water
Quality Investment Act, authorize billions of dollars in stimulus funding; however, they contain a very
controversial “Buy American” clause (see section 1605 of the Recovery Act) that requires projects that
are funded by the “Stimulus Funding Plan” to use iron, steel and manufactured goods that have been
produced in the U.S. While they also require that the application of the “Buy American” requirements
be consistent with U.S. obligations under International Trade Agreements, including the North
American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) Procurement
Agreement, there are serious repercussions for Canadian, and many other foreign suppliers as these
Agreements do not, for the most part, cover local (State or Municipal) procurements.

Buy American and Local Procurements

Canada and the U.S. have agreed to provide national treatment obligations only for procurements
at the federal level under NAFTA. Similarly, the WTO Procurement Agreement applies only to U.S.
federal entities. Therefore, subject to certain NAFTA specifi c interpretations, there are no trade
law procurement obligations at the sub-national level (i.e. States or Municipalities) in the case of
Canadian contractors. Thus, the “Buy American” clause applies at the sub-national level. States and
municipalities can only use iron, steel and manufactured goods produced in the U.S. when using funds
allocated to them from the Recovery Plan.

Exceptions

There are limited exceptions or “waivers” for the “Buy American” clause:

  1. Non-availability of material;
  2. Unreasonable costs (over 25%);
  3. On the basis the “involved” federal Agency deems them “inconsistent with the Public interest”;
  4. International Trade Agreement obligations; and
  5. Presidential waiver under the 1979 Trade Agreements Act (section 2511(b)(1)(B)) based on
    reciprocal treatment.

Effective May 22, 2009, pursuant to the above noted waiver authority, the Environmental Protection
Agency (EPA) granted a nationwide waiver to the Recovery Act’s “Buy American” clause for de minimis
incidental components of eligible water infrastructure projects funded by the Recovery Act. This means
that non-domestic iron, steel and manufactured goods may be purchased with Recovery Plan money
allocated to a Clean or Drinking Water State Revolving Fund (SRF), so long as the non-domestic products
do not constitute more than 5% of the total cost of the materials used and incorporated into a single
project fi nanced by the SRF. The waiver to the “Buy American” clause envisages the use of such low-cost
items as nuts, bolts, fasteners, tubing and gaskets, but is not limited to these items. The EPA states that
subjecting such incidental components to the “Buy American” clause would not be in the public interest,
leading to increased costs and delays for contractors in particular. These delays would not be consistent
with the Recovery Act’s directive to ensure expeditious SRF construction.

It should be noted that this waiver is limited in its scope, and the “Buy American” clause and the lack of
procurement obligations at the sub-national level remains a signifi cant threat to Canadian producers.
This clause may also appear in the future in United States procurements unless Canada negotiates, or
attempts to apply NAFTA rules to federally controlled procurements where the money is locally spent.
Miller Thomson LLP lawyers are working with the Canadian Government, the Canadian Manufacturers and
Exporters Association and the Chamber of Commerce towards a negotiated solution.