Today, the United States and Canada announced the successful negotiation of an agreement intended to resolve concerns over the use of "Buy America" clauses in U.S. government spending bills and open up provincial and territorial government procurement to U.S. suppliers.1 It is currently anticipated that the text of the agreement will be released by February 10.

Canadian and U.S. Commitments under the Agreement

There are two important components to the deal that will have a significant impact on the Canadian and U.S. business communities.

First, the agreement provides for reciprocal guarantees of access on a temporary basis. Canada has agreed to provide U.S. companies with access, through September 2011, to a range of construction contracts across Canada’s provinces and territories, including a number of municipalities.

In return, the United States has agreed to provide Canadian suppliers with access to state and local public works projects in a range of programs funded by the American Recovery and Reinvestment Act of 2009. These include programs of the U.S. Department of Energy, the U.S. Department of Housing and Urban Development, and the Environmental Protection Agency. At this time, it is not clear how much of the stimulus package spending has already occurred, so immediate benefits to Canadian companies could be somewhat limited. Nonetheless, the exemption of Canada from these discriminatory measures sets an important precedent for future U.S. government spending measures, and at the very least is a significant symbolic victory for Canada.

Second, and more importantly for the longer term, under today’s deal Canada and the United States have agreed to make permanent commitments under the World Trade Organization (WTO) Government Procurement Agreement (GPA) such that suppliers in each country will be able to access state, provincial and territorial government procurement on a non-discriminatory basis and in accordance with standards established under the GPA.

Obligations Under the WTO Agreement on Government Procurement

At the present time, federal government procurement in both countries is covered under the GPA. However, the procurement of goods and services by Canada’s provinces and municipalities is not. The United States has made such commitments for 37 of its states, but those benefits have not been extended to Canadian business given Canada’s refusal until now to include its provincial procurement under the GPA.

Government entities and enterprises subject to the WTO’s GPA must comply with extensive requirements as to how they conduct their procurement of goods and services.

First and foremost, government purchasers are prohibited from discriminating against foreign suppliers, goods or services. The GPA also includes obligations regarding the use of technical specifications, establishing tendering procedures, how suppliers are qualified, in what circumstances and how suppliers may be invited to bid, selection procedures, time limits for tendering and delivery of tenders, the tender documentation, the opening of tenders and awarding of contracts, measures to enhance transparency, and procedures enabling suppliers to challenge tender decisions.

Opportunities for Canadian and U.S. Companies

Just as the agreement presents Canadian companies with new opportunities in U.S. procurement markets, U.S. suppliers of goods and services (and possibly suppliers from other jurisdictions) will see significant benefits from having access to provincial government procurement subject to the disciplines of the WTO’s GPA, including new mechanisms for challenging provincial tender decisions.

As always in these situations, "the devil is in the details," and the business community should be carefully monitoring further developments, in particular the details in the text, once released, of Canada’s listing in its Appendix to the GPA of provincial entities to be covered.

The Canada-U.S. deal may also bode well for ongoing negotiations between Canada and the European Union towards a Comprehensive Economic Trade Agreement, paving the way for sub-federal procurement commitments to be negotiated in that forum as well.

Members of McCarthy Tétrault’s International Trade and Investment Law Group will continue to monitor developments closely and are available to advise on these and other international trade and investment law matters.