On November 25, 2014, Minister of International, Trade Ed Fast, issued a statement raising concerns with the U.S.’ attempt to apply Buy American restrictions to a project at the Port of Prince Rupert, British Columbia. The full statement, available at http://www.international.gc.ca/media/comm/news-communiques/2014/11/25a.aspx?lang=eng, reiterates the importance of an integrated economy in North America and highlights the benefits of dismantling trade barriers and eliminating inefficiencies created by protectionist policies.
Buy America provisions require that U.S. products and materials be used in transportation infrastructure projects valued over USD$ 100,000.00 so that U.S. mass transit-related projects may only use 100% U.S. steel, iron and manufactured products.
The project in question involves the upgrade of the Prince Rupert ferry terminal on British Columbia’s West Coast [the “Prince Rupert Project”]. The Alaska Marine Highway System has exclusive use of the ferry terminal, which services passengers shuttling between Alaska and British Columbia, as part of a 50-year lease agreement between the Alaska Department of Highways and the Prince Rupert Port Authority. The State of Alaska has made it clear that the Prince Rupert Project, valued at approximately USD $15 million and located on Canadian soil, is subject to Buy America. Since funding for the Prince Rupert Project derives from the U.S. Federal Highway Administration, the Project must comply with Buy America provisions. Bidding documents on the Alaska Department of Transportation’s website also require that all iron and steel used in the Prince Rupert Project must be U.S. made. Consequently, Canadian iron or steel may not be used for this $15 million project in Canada.
In the wake of the recent Morrison Colorado South Park Bridge incident, where Canadian steel was used to repair the bridge in violation of the Buy America provisions, there has been a growing debate as to the impact of reciprocal trade provisions on U.S. – Canada economic integration. The Canadian Government is also facing mounting pressure from various stakeholders, such as the Canadian Manufacturers and Exporters (CME) Association to implement retaliatory and reciprocal measures against Buy American provisions to “even out the playing field”.
The North American Free Trade Agreement [“NAFTA”] does not address in great detail reciprocity between both countries in the government purchasing or government procurement arenas. With certain exceptions, under NAFTA, offers of iron and steel products from one of the NAFTA Parties, should receive equal consideration in tenders and should not be treated with discriminatory provisions. One of the exceptions to this provision can be found in the U.S. Federal Acquisition Regulations (FAR) Subpart 25.4. FAR Subpart 25.4 outlines certain types of service contracts that are exempt from NAFTA coverage, such as procurements that support national security or defence, and small business “set-asides”, as an example. FAR Subpart 25.4 also establishes specific dollar amount thresholds for the application of NAFTA provisions as follows:
- USD $ 25,000.00 and up for supply contracts;
- USD $ 79,507.00 and up for eligible service contracts; and
- USD $ 10,335,931.00 and up for construction contracts.
When these threshold amounts are met or exceeded, and no other exception applies (such as the small business set-aside or projects supporting national security or defence), a Canadian firm is entitled to receive equal consideration. In other words, if the above mentioned thresholds are met, Canadian goods and Canadian suppliers should be exempt from Buy American provisions.
To date, the Canadian Government has not taken steps to challenge the Buy America provisions. There may be a good basis for exploring the possibility of a NAFTA or WTO challenge. On the other hand, if both Canada and the U.S. adhere to and/or implement retaliatory bans on each other’s products, the impact is forcefully negative for both Canadian companies and American companies. It is important to note that Alaska is one of the 13 States who were not extended procurement obligations under the Canada-U.S. Agreement on Government Procurement. An important question to consider is whether or not the state of Alaska would effectively be subject U.S. procurement obligations because the funding is provided by the U.S. Federal Government.
For a more detailed look at the Morrison Colorado South Park Bridge project, see our recent blog post – https://www.wl-tradelaw.com/buy-america-and-the-integrated-north-american-economy
