CIIT Committee Report

The Canada US Agreement on Government Procurement (CUSGP)

A Supplementary Opinion of the NDP

Peter Julian MP

May 2010

New Democrats welcomed an open discussion to assess the outcomes of the Canada US Procurement Agreement and sincerely thank the members of the committee for supporting our motion for hearings on this issue.

The NDP regret that the conservative government has hastily finalised the agreement without consultation with many of the stakeholders, including parliament. Unfortunately, the agreement was signed rapidly and without due regard for meaningful consultations.

The NDP is pleased that the committee conducted broad and extensive hearings on Canada-US procurement. The report of the Standing Committee on International Trade provides a fair and useful account and analysis of the key issues brought forth by a broad spectrum of witnesses.  We are however also providing a supplementary opinion to highlight the major flaws of this agreement as well as the NDPs perspective on a  Buy Canadian public procurement policy which stands in opposition to the policy upheld by both the Conservative government and the Liberal party. 

The NDP’s main objections to the CUSGP

“To sum up, the GPA commitments will curtail Canadian provincial governments' ability to prefer Canadian goods or suppliers or to use government purchasing as an economic development tool, while leaving existing Buy American preference policies almost fully intact”.

Scott Sinclair (Senior Research Fellow, Canadian Centre for Policy Alternatives)

The CUSGP amounts to a unilateral give away. The deal gives away access to all levels of government procurement with no substantial limitations or fixed term of entry, and without any substantial guarantees of access to the American market, and without a clear effective dispute resolution mechanism. The deal, negotiated from a position of weakness, happened after 98% of the funds provided under the American Recovery and Reinvestment Act of 2009 were committed.

The Importance of preserving broad policy options for public procurement for domestic job creation and regional development cannot be understated and should be at the heart of Canada’s procurement policy.

Federal, provincial and territorial procurement was worth approximately $ 22 billion to Canadian businesses in 2006-2007. This figure does not include municipalities, government agencies, health entities and crown corporations. The CCPA estimates that in Canada the purchase of goods and services by all levels of government and public sector institutions amounts to at least $100 billion annually.

Yet, neither the Harper Government nor department officials appearing before the committee have provided any information on the assumptions on which they based their agreement. We see no impact assessment, hardly any numbers, no net effect on jobs and no explanation as to what assumptions the agreement was based on.  The following critical questions were left unanswered:

- How much US stimulus spending did the government assume we would get?

- How much (on a state-by-state basis) does the government assume the provinces will be able to access?

- What are the net jobs/economic impacts of the CUSGP?

US states operate in a market 11 times the size of the Canadian market. American firms bidding for provincial and municipal procurement would use their scale advantage to outbid Canadian small and medium size businesses that are permanently located in the community and support local job creation and produces.

Moreover the deal has the potential to free interprovincial procurement competition which further impairs the ability of provincial & municipal governments to stimulate and sustain local economic development, which would hurt job creation in some of the poorer regions of Canada.

“Unfortunately, this agreement is only the second-worst agreement that Canada has ever signed. The first one was softwood lumber…. Canada approached the United States basically telling them we needed a deal at any cost. If you say that to anyone, you'll get one, and we did get one, and that cost is high”.

Renowned Trade Expert Carl Grenier, Professor & Former Trade Negotiator

The NDP reaffirms its support for a Buy Canadian Government Procurement Policy

When we try to sell in Ontario or in Quebec, 15 minutes away from our home base, we find we're actually out-manoeuvred by the U.S. competitors that put the pressure on us in the U.S., stretch our means and make our means thin in terms of financing, then they can come and compete with us in our own backyard and they can win against us. So we're hurting on both sides… to think that there is actually reciprocity between the U.S. and the Canadian economies. It's not true. We know the situation”.

Omar Hammoud (President and Chief Executive Officer, APG-Neuros Inc.)

New Democrats deplore that the Liberal and Conservative Members of the committee have rejected our recommendation for a Buy Canadian Policy for public sector expenditure. New Democrats firmly believe, as has been concisely stated by Wayne Peppard, the Executive Director of the British Columbia and Yukon Territory Building Construction Trades Council, that [s]uch a policy could be a win-win if it were to develop meaningful language to support Canadian manufacturing while continuing to be a part of an integrated and cooperative North American market…”

This policy principle should be a part of a broader national procurement strategy and economic recovery package.  The NDP wants a free, fair, and equitable “Buy North America” policy for federal, state and provincial, and local procurement.  Such a shared procurement market will allow governments to target their recovery packages effectively but ensure that items such as automobiles and steel products, whose component parts may cross the border four or five times in the course of manufacturing, are not excluded.  These exemptions could be worked out on a case by case basis, through the use of quotas, or through individual policies that take into account the realities of certain sectors of the economy. Managed correctly, these policies will create a shared North American procurement market that will ensure that stimulus money will be spent efficiently within North America but still provide for the creation of jobs at home.

We should remember that U.S. states have always had, and have often utilized, the authority to prefer local or domestic products in their procurement.  Canadian jurisdictions should retain the same ability under their own Buy Canadian policies with provisions for reciprocal exemptions for the United States. 

The Conservative government and the Liberals have erroneously framed Buy American policies as an extension of rising protectionist policies, and subsequently undermined their legitimacy. As pointed out by Dr Teresa Healy, this will have “a chilling effect on government’s commitments to use public purchasing power to support economic development in the future”.

By negotiating from a position of weakness, the Government has missed a unique opportunity to push for a fair and sustainable sharing of the benefits of public investment and level the playing fields in what is undoubtedly a highly competitive, yet uneven, landscape for public procurement.

Carl Grenier has noted that “… in this instance, the U.S protected its stake and we didn’t, and that’s a permanent thing, unfortunately”   

Canada should conduct robust negotiations on procurement grounded in the principle of Fair Trade, consistent with the NDP’s Made in Canada Procurement Policy Bill (C-435 & C-392).

To help develop Made in Canada procurement policies, the NDP has introduced Bill C-435 in the House of Commons that lets the government favour products made in Canada in new procurement spending. This bill will follow all of our WTO-NAFTA treaty obligations, but will ensure that any federal tax dollars spent outside of Canada only flow to those countries which grant Canada reciprocal procurement access and respect certain core labour standards set by the International Labour Organization.

While Bill C-435 (Made in Canada Procurement Act) supports a reciprocal arrangement with the US, it would also ensure that Canadian companies and industries are given priority on all government procurements and services.  Fair Trade in government procurement would be achieved by ensuring that a 50% Canadian content on the value of a product manufactured in Canada, as well as making room for exemptions and thresholds. It would encourage a healthy transparent framework to help facilitate negotiations between the federal government, provinces, as well as the American and State governments. Bill C-435 Made in Canada Procurement Act) is also WTO and NAFTA compliant.

The NDP’s Views on Government Procurement

The Conservative Government and the Liberal Opposition see the Buy America provisions in US states and local stimulus spending as a threat to North American trade and creeping protectionism, contrary to the spirit of free trade.  This kind of rhetoric is simply an attempt to scare Canadians into following an agenda of deep integration with the US. However, the debate about whether the U.S. stimulus spending legislation’s targeted procurement policies endanger the free market or constitute “protectionism” misses the larger point, because the issue of government procurement is only marginally related to trade. 

The U.S. is certainly our most important trading partner, and for the most part increased cross-border commercial traffic has benefited both of our countries.  However, the Canada-US agreement on procurement is not about commercial trade or private investment, and so questions of “protectionism” or “free trade” do not apply.

Procurement rules and agreements should promote domestic job creation within sustainable practices; the focus should be on businesses and cooperatives that invest in their communities.

Public spending is not private commerce; it comes from taxpayers and should work for the benefit of the community.  As Canada and the U.S. attempt to climb out of the global economic recession, it makes sense for our various levels of government to attempt to target their recovery packages in their own countries and localities. 

If the point of Keynesian stimulus spending is essentially to put more money into the economy, then don’t democratically-elected governments have a right and a responsibility to ensure that their taxpayers’ money is being spent to the benefit of those taxpayers?

Is the objective behind a reciprocal procurement policy based on Free Trade to create jobs for Canadians though increased exports from the private sector? If it is, then why pursue a policy that looks at jobs depending ironically on the public spending of the government of another country?

It is misleading to suggest that we need the public spending of another country (and not our own) to generate jobs here in Canada. Why not have Canadian governments (federal, provincial, municipal) put a priority on creating the jobs here in Canada instead of eyeing the pittances coming from another country’s sub national government?

This is why the NDP has been advocating for a “Buy Canadian” strategy with regard to our own stimulus spending.  Such a strategy would give Canadian jurisdictions more control over their stimulus spending and a stronger bargaining position in seeking exemptions from Buy America provisions. 

A Buy Canadian policy would allow Canadian provinces and municipalities the same ability that U.S. jurisdictions have to target their stimulus spending within the country, and give Canadian firms more opportunities to do business here. 

“Trade reciprocity does not mean blindly and needlessly forcing countries to dismantle policies that aim to achieve positive social and economic ends. Trade reciprocity also does not mean abiding by the strictest doctrines of free trade, at any cost” ….Many of our largest trading partners, including the United States, the EU, China and Japan, which make up 90% of our trade in goods and services, consistently attach domestic content requirements to public purchases. These policies actively promote domestic economic development but it also encourages foreign investment. These are also not all knee-jerk reactionary policies to the economic crisis…”

Jenny J.H. Ahn (Director, Government Relations, CAW)

It is important that the federal government sets this example, but the provinces and municipalities must also do their part and ensure that their own stimulus spending goes to the right targets by passing their own Buy Canadian provisions. These provisions are somewhat unevenly reflected in the thresholds of provincial exemptions and carve outs in the February 2010 Canada-US agreement on procurement.  

Therefore, the NDP recommends

“that the Government of Canada develop a Buy Canadian policy for public expenditure which would prioritize a cooperative approach to domestic job creation and seek exemptions from Buy American provisions in steel and other highly integrated sectors of the Canadian and US economies.”

The Conservative government should learn from its mistakes and abandon its standard practice of entering into trade or public procurement negotiations with the aim of negotiating a deal at any cost, often without proper consultations and without conducting sustainability impact assessments. It should have the courage to provide transparent information to all stakeholders and ensure that representatives of all Canadian sectors affected by these negotiations are included in the process.

Peter Julian MP (Burnaby-New Westminster)

NDP International Trade Critic