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Joe Biden’s tougher Buy American rules raise fears among Canadian business owners

U.S. President Joe Biden buys ice cream at Moomers Homemade Ice Cream, with Sen. Debbie Stabenow and Sen. Gary Peters, on July 3, 2021, in Traverse City, Mich.

Alex Brandon/The Associated Press

President Joe Biden’s tougher Buy American rules, potential protectionism in his US$550-billion infrastructure package and a vow to move medical and military supply chains out of foreign countries are raising fears that Canadian companies will be squeezed out of the U.S. government procurement market.

Mr. Biden on Wednesday unveiled his long-promised tightening of the Buy American Act. Under his new rules, goods bought by the U.S. federal government – from vehicles to construction materials – will have to contain 75 per cent U.S.-made content by 2029, up from 55 per cent today.

Contractors will also have to provide more paperwork to the government to prove that they are complying with these content requirements.

“They’ve got a new sheriff in town,” the President said at a Mack Truck assembly plant in Macungie, Pa. “We want to be the ones making the innovative parts of every product.”

Biden to tout tougher ‘Buy American’ rules in visit to Pennsylvania Mack Trucks plant

Mr. Biden also promised to use the infrastructure deal, which has support from both Democrats and Republicans, to direct public money to U.S. companies building roads, rail lines and broadband networks. And he announced a plan to encourage companies to manufacture some critical goods in the United States rather than importing them.

The exact value of U.S. public procurement for Canadian companies is unclear. One 2015 estimate by the U.S. Government Accountability Office put the figure at US$15-billion annually for all levels of government, including US$674-million from the federal government specifically.

A senior Canadian government official said Ottawa is not particularly worried about Mr. Biden’s Buy American rules because they will mostly be neutralized by the World Trade Organization’s Agreement on Government Procurement. Under that deal, Canadian companies are exempted from Buy American requirements on most U.S. federal government contracts. The source said Mr. Biden’s aim appears to be primarily to punish non-allied countries, such as China, which is not a party to the agreement.

The official said the Canadian government is far more concerned that Mr. Biden or members of Congress will put U.S. content requirements into the infrastructure package. Most of that spending will be funnelled through local and state governments, which are not subject to the WTO rules. The official said Canada is lobbying the White House for exemptions to ensure Canadian companies are not hurt.

The Globe and Mail is not identifying the official so they can provide a better understanding of the Canadian government’s thinking on Mr. Biden’s actions.

Daniel Ujczo, an Ohio-based trade lawyer with clients on both sides of the border, said Buy American could still cause Canada pain. U.S. companies with government contracts might be discouraged from sourcing goods from Canada because of the hassle involved in doing more paperwork to meet Mr. Biden’s higher compliance requirements, he said. The rhetoric around Buy American could also have a chilling effect, in which U.S. companies decide not to deal with Canada out of fear they will somehow break the law.

“The problem will be the perception. Companies might say ‘we don’t want to go through all these requirements to deal with Canadians,’ and just use U.S. suppliers,” he said.

Canadian companies that could be affected are largely those that supply components for construction used in U.S. federal government buildings, he said: metals manufacturing, wires, transformers and hydraulics.

Mark Agnew, vice-president of policy at the Canadian Chamber of Commerce, said Canada could also be sideswiped by a White House plan to move supply chains for critical goods into the United States.

The Biden administration has listed numerous products, from computer components to medications, that it wants manufactured domestically to prevent other countries from cutting off the supply to the U.S. The administration also wants to lock down supplies of minerals, such as lithium, aluminum, uranium and potash.

On Wednesday, the President said he would create new incentives for the U.S. government to source these from American factories as a way to encourage companies to find domestic suppliers. Such a move is largely targeted at Beijing, which Washington fears could hobble the U.S. military or health care facilities by cutting off vital supplies.

But Mr. Agnew warned that such a policy could hurt even allied countries such as Canada.

“Our government needs to be aggressive on critical minerals, on promoting the shared defence-industrial base,” he said. “This is not targeted at Canada, but there is nothing that I saw today that indicates Canada is going to have special treatment.”

Canadian companies have been battered in previous rounds of U.S. procurement protectionism. But they have also won significant exemptions in the past: Former president Barack Obama gave Canada a pass from Buy America rules in his 2009 stimulus package, for instance.

So far, Prime Minister Justin Trudeau has been unable to secure anything similar this time. Earlier this year, Mr. Biden privately told Mr. Trudeau that Buy American policies would not hurt existing trade relationships. But the President has not made any firm commitments publicly.

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