The facts on the Free Trade Agreement

Posted on June 11, 2009 in Debates – FPComment – The facts on the Free Trade Agreement: Herman and Chipeur are both wrong on procurement
Posted: June 11, 2009.   By Bill Dymond

There is no doubt that the Buy American rider in the U.S. stimulus package is costly and retrograde protectionism. The Prime Minister and the premiers deserve high praise for forming a common front. However, flagellating ourselves for missed opportunities that were never there, as Lawrence Herman did on this page earlier this week, or beating our constitutional chests, as Herman and Gerald Chipeur both did, won’t get the job done.

Herman argues that the Canadian provinces refused to open their procurement markets to American suppliers during the negotiations of the North American Free Trade Agreement (NAFTA). Let’s get our facts right: The basic agreement on government procurement was done in the Canada-U.S. Free Trade Agreement, not the NAFTA. I was the Canadian negotiator for government procurement in the free-trade negotiations and was in the room when Derek Burney for Canada and Treasury Secretary Jim Baker for the United States made the deal on procurement. Here is what happened:

Canada proposed, with the consent of the provinces, that all government procurement by all level of government in the two countries be open. The United States replied that such a deal would never be accepted by the Congress since the U.S. market was at least 10 times the size of the Canadian market. All that the United States would agree to was a modest easing of Buy American, so modest that the question of opening up provincial government procurement never arose.

To put it another way, there was nothing Canada could have offered on provincial procurement to get a bigger deal from the United States. As they say, you can read all about it, in the book Michael Hart and I co-authored on the free trade negotiations, Decision at Midnight.

Both Herman and Chipeur argue that the federal government should assert its constitutional power over trade and commerce. Here again a little history would help. The trade and commerce power in the BNA act is indeed robust, on paper that is. However, court decisions dating back to the 1870s have steadily whittled the trade and commerce down to the point that, in the view of one constitutional scholar, it is effectively eviscerated. It is rather like a shiny suit of clothes in the shop window: looks good, but once you wear it, the buttons fall off and the zipper fails on the first try. Invoking the trade and commerce power to challenge provincial procurement policies would be a highly risky bet.

The retaliation option, as proposed by the Canadian Federation of Municipalities. would be dumber than dumb. The Americans would react as they did when I proposed open procurement 25 years ago: They’d explain that Canada’s market is 10% of the U.S. market. If we retaliate and they don’t change Buy American, it’s a good deal for them.

The most pressing short-term need is to get the U.S. administration to clarify the scope of Buy American, i.e., to limit the collateral damage from its application well beyond the iron and steel products cited in the legislation. The government should make Canadian unions their allies in working with their U.S. counterparts to get this done.

In the long term, the Canadian proposal to negotiate a bilateral open procurement deal is the only sensible course to take. But a deal would take  time to negotiate, assuming the United States would agree, and even more time for Congress to legislate. And it is unlikely to have any chance as a stand-alone proposal so obviously tipped in Canada’s advantage.

What is needed is a bold Canadian initiative led by the Prime Minister to reconfigure the Canada-U.S. relationship on a host of issues — from border management to environment and energy to procurement to shared security interests — to reflect the realities of the integrated North American market. The alternative is almost certainly more and more problems like Buy American and worse.

Financial Post
Bill Dymond is senior executive fellow, Centre for Trade Policy Law and former Canadian government trade official.


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