The Conservatives say the deal announced last week with the United States on the Buy American problem is a large victory. The Liberals and New Democrats call the deal a sellout. On both fronts, these claims are overblown. From what we know so far, the deal seems to be a reasonable one – not an overwhelming victory but certainly not a defeat.
We don't know the details on coverage and carve-outs, so we can't quantify the potential gains and the degree of compromise. But there's enough information on the table to conclude that it's a balanced outcome to a difficult problem, one that was largely of Canada's own making in the first place.
Let's look beyond the political atmospherics.
The effect of this deal is that Canadian companies gain access to bidding on the remaining U.S. state and local construction projects funded under the American stimulus package, in return for which the provinces now allow U.S. bidders reciprocal – though not identical – access to their own capital projects. Both Canada and the United States agree to work toward a long-term, permanent, sub-federal procurement deal, something that was supposed to be done under the North American free-trade agreement anyway.
So let's move on and take lessons from what happened with the Buy American problem and see where Canada can benefit in future trade arrangements.
The first lesson is to recognize that Canadian interests can be put seriously at risk by internal bickering and divisions and the difficulty in trying to line up consensus among Ottawa, 10 provinces and three territories on international trade matters. The Buy American problem resulted from the inability to get agreement within Canada 15 years ago on these procurement issues.
While other countries agreed to open up sub-federal procurement opportunities under the World Trade Organization agreement in the early 1990s, Canada stepped aside and excluded provincial and local projects. We did the same under NAFTA at the time. So the issue was swept under the carpet for 15 years because of internal federal-provincial differences and the limits we imposed on ourselves. It took the external threat of the Buy American program to force internal consensus that we couldn't seem to muster alone.
The second lesson relates to this. The Buy American issue illustrates that making gains in trade policy depends on the strength of federal leadership and the ability of Canada to speak with one loud, clear and compelling voice in international matters. No deal with the Americans would have been possible if Canada was at the negotiating table with 14 voices instead of one. This issue was resolved because of effective leadership in Ottawa in getting the provinces onside, by the expertise of the Department of Foreign Affairs and International Trade and by the unrelenting efforts of the Canadian embassy in Washington.
From a more elevated vantage, the lesson is that, if Canada comes to the negotiating table speaking through a multitude of voices, we will be at a huge disadvantage. No country could seriously engage with a Canadian team of such makeup and divergent viewpoints.
Mention was made over the past few days of the current trade negotiations with the European Union. Yet, for the first time, the Canadian team is made up of federal, provincial and territorial negotiators at the actual negotiating table. So, while the lessons in the Buy American situation might suggest otherwise, Canada is risking trade negotiations with the Europeans by presenting a team that emphasizes, rather than diminishes, internal differences and divided interests. Not particularly encouraging.
A final lesson in the Buy American issue is the importance of sustained engagement by Canada's private sector. The Buy American problem would not have been resolved had Canadian business interests not pulled together and made their collective voice heard. The Canadian Manufacturers and Exporters, the Canadian Chamber of Commerce and the Council of Chief Executives all spoke strongly and from the same song sheet on the need to resolve this issue. This had not happened with the same degree of effectiveness since the NAFTA and WTO negotiations in the early 1990s.
Regrettably, over the past number of years, the private sector has shown largely benign neglect and only intermittent interest in trade policy issues. Some of that disinterest is the result of head-office downsizing and the retrenchment of senior management from abstract policy concerns. Other reasons relate to the perennial disappointments in the WTO Doha round trade talks, with deadline after deadline being missed and expectations being dulled. As the world moved on, business has largely discounted the WTO from its strategic calculations, thereby reducing attention to trade policy generally.
Admittedly, the Buy American issue came as an unexpected surprise, and some might say there was nothing that the business community could have reasonably foreseen until we were faced with a full-blown crisis. Possibly. But it's wrong to dismiss the importance in having a fully engaged private sector on trade policy and for business to keep a watchful eye, not only south of the border but globally, to avoid being confronted with unexpected problems. And for Canada to speak with one loud, clear voice when those issues arise.
Lawrence Herman is international trade counsel at Cassels Brock & Blackwell LLP in Toronto.
