In a May 22, 2008 decision, the Federal Court of Appeal closed the door on non-Canadian suppliers using the Agreement on Internal Trade (“AIT”) as a basis to challenge federal government contract awards before the Canadian International Trade Tribunal (“CITT”). The Court held that a party can only seek access to the CITT procurement complaint procedure if it can demonstrate that it is a “Canadian supplier”. The net effect is that non-Canadian suppliers who want to avail themselves of the AIT will have to submit a bid through a Canadian subsidiary or a Canadian branch office.
THE COURT’S DECISION
Following the award to Lockheed Martin of a contract for advanced targeting pods (to be used with the Canadian Forces’ fleet of CF-18 aircraft), Northrop Grumman filed a complaint with the CITT. The complaint alleged that the Government had failed to properly evaluate Northrop Grumman’s bid contrary to article 506(4) of the AIT which requires that the evaluation process be conducted in accordance with an identified methodology.
From the outset of the CITT’s review, the Attorney General of Canada took the position that the CITT lacked jurisdiction to consider the complaint on the basis that the AIT, a domestic trade agreement negotiated for the purposes of reducing and eliminating trade barriers within Canada, only affords rights and protections to Canadian businesses. Though traditionally this had been an accepted line of argumentation,1 the CITT departed from the previous jurisprudence and held that non-Canadian businesses (in this case a non-Canadian supplier) could rely on the AIT to found a complaint.
On May 22, 2008, the Federal Court of Appeal overturned the CITT’s decision. Justice Ryer, writing for the majority, concluded that non-Canadian suppliers are not able to rely on the AIT as a basis for accessing the CITT procurement complaint procedure. Though the CITT had correctly recognized that its jurisdiction over the complaint was dependent upon its finding of a “designated contract” as described in article 502 of the AIT, in arriving at its conclusion the CITT had failed to give due consideration to the “within Canada” requirement found in that same article.
In the Court’s view, satisfaction of the “within Canada” requirement involves the potential complainant demonstrating that it meets the requirements of the definition of “Canadian supplier”. Justice Ryer noted that, in the event that a potential complainant is unable to establish that it is a Canadian supplier, the potential complainant would be unable to meet the “within Canada” requirement set out in the AIT, and the CITT would, by operation of law, be without jurisdiction to hear the complaint.
Justice Ryer characterized the AIT, the NAFTA and the World Trade Organization Agreement on Government Procurement as “doors” into the jurisdiction of the CITT. A potential complainant in respect of a government procurement may pass through one of these “doors” and gain access to the CITT by demonstrating that the subject matter of the procurement and the activity contemplated by the potential complainant are within the scope of one of these agreements. For purposes of the AIT, this means that a potential complainant must demonstrate it is a Canadian supplier that would be engaged in a procurement within Canada if awarded the procurement. Absent such evidence, the AIT door is to be considered closed; the AIT is not available for use by non-Canadian suppliers seeking to commence a procurement complaint.
Non-Canadian suppliers engaged in procurements falling outside the protection of the NAFTA or the World Trade Organization Agreement on Government Procurement should pay particular attention to the Court’s restriction of the AIT’s applicability, or risk being precluded from accessing the CITT procurement complaint procedure. Quite simply, non-Canadian suppliers who wish to leave open the possibility of relying on the AIT are advised to submit their bids through Canadian subsidiaries or Canadian branch offices. Otherwise, non-Canadian suppliers may find themselves severely limited in terms of the avenues through which they are able to commence a complaint. Though recourse may be available through the courts, complainants who are unaware of the Court’s decision may find that the once-open door to the CITT has since been closed.