To quote a well-known Canadian singer, “isn’t it ironic, don’t you think …”
As the United States is moving to end over half a century of frozen relations with Cuba, and is poised to end trade embargos that sideswiped Canadian business, it is also taking steps to keep Canadian steel out of a construction project on Canadian soil by applying Buy America Rules outside its borders. The result is that the Government of Canada has been compelled to issue an Order under the Foreign Extraterritorial Measures Act (FEMA) to counter the application of Buy America to the Prince Rupert Ferry Terminal project. FEMA, which was enacted in 1985 to deal with extraterritorial application of U.S. trade sanctions aimed at Cuba, has only been used once before (in 1992) to prevent Canadian Corporations from taking any steps following U.S. measures prohibiting commercial relations with Cuba. The FEMA is now being used for a second time, but the issue is not Cuba or the global application of U.S. sanctions on a third party. For the first time, FEMA is being rolled out in the bi-lateral context.
Last November, we reported on Canada’s concerns about the application of U.S. Buy America rules to a major infrastructure project at the Port of Prince Rupert, British Columbia [see https://www.wl-tradelaw.com/buy-america-affecting-projects-in-canada/]. The project involves the upgrade of the Prince Rupert ferry terminal on British Columbia’s West Coast. 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 maintains that the $15 million project is subject to Buy America because the funding comes from the U.S. Federal Highway Administration. Thus, in spite of the fact that the project is located on Canadian soil, all iron and steel used in the Prince Rupert Project must be of U.S. origin.
While Canada has made its objections to the application of Buy America legislation in this case quite clear, along with its overall opposition to the policy, the next legal step was announced on January 19, 2015. The Government of Canada issued an Order under FEMA prohibiting compliance with the Buy America requirement in connection with the Prince Rupert project [http://www.international.gc.ca/media/comm/news-communiques/2015/01/19a.aspx?lang=eng]. The Order can be enforced directly by the Attorney General of Canada. Breaching an Order pursuant to the FEMA is a criminal offence and a Canadian corporation (including a Canadian subsidiary of a U.S. corporation) can be subjected to fines of up to $1.5 Million, or in the case of an individual, a prison term of up to five years [http://laws.justice.gc.ca/eng/acts/F-29/page-4.html#h-9].
In the second part of this report on Buy America, we will take a closer look at blocking legislation and explore other possible trade law avenues.
