The Canadian government is asking the provinces to join it in creating a new trade deal with the United States.
Motivated by growing concern that Canadian firms are being frozen out of billions of dollars worth of bids in an increasingly protectionist United States, the Prime Minister is attempting to redraw the U.S.-Canada trade map.
Because the 1993 North American free-trade agreement does not include spending by local jurisdictions, contracts across North America involving everything from sewage systems to subway repairs are being awarded outside the framework of continental free trade.
And as the recession continues, Canadian firms have reported it is increasingly difficult to win rich contracts in U.S. cities because of the Buy American provisions of President Barack Obama's massive economic stimulus package, even though NAFTA countries are supposed to be exempt from them.
So at a press conference yesterday, Prime Minister Stephen Harper said he wants to bring the awarding of local contracts - in both the United States and Canada - under the free-trade umbrella.
Any Canadian proposal to add a new chapter to NAFTA, however carries the risk that the United States will demand trade concessions in other areas.
Mr. Harper said a new deal on local government spending would prevent "creeping protectionism."
To take his message to the United States, he needs to get the provinces onside.
That will take arm-twisting, but has a precedent in the deals struck to launch trade negotiations with the European Union.
Last night, the Prime Minister joined Quebec Premier Jean Charest in hosting U.S. representatives and the premiers of Manitoba and New Brunswick at a private dinner in Quebec City.
"There are broad prohibitions against national preferences within NAFTA in particular and within the [World Trade Organization]as well, on … federal-level procurement," Mr. Harper said at a news conference in Quebec City.
"But those things do not apply to provinces, to municipalities."
He noted that provinces have agreed to negotiate free trade in public procurement with the European Union.
"I believe it would be interesting for all of our countries to look at dealing with that problem here in North America," Mr. Harper said.
"Obviously, at a time when we're trying to keep borders open internationally, I do think that the proliferation of domestic preferences in subnational government procurement is really problematic. It is part of the creeping protectionism, not just in the United States, but elsewhere, that we must avoid to ensure a global recovery."
Mr. Harper cautioned that no formal talks have been held yet with Canada's NAFTA partners, the United States and Mexico.
But he raised concerns about protectionism during last night's dinner.
Mr. Harper received the support of Vermont Governor Jim Douglas, who next month becomes the head of the National Governors Association representing 55 state and territorial leaders in the United States.
"I don't think it is in any nations' interest to erect barriers to free trade. I opposed the inclusion of the Buy American language in the Recovery Act when it was considered by the Congress," Mr. Douglas said yesterday.
He pointed out that the protectionism creates "artificial barriers" that will delay and obstruct many of the U.S. infrastructure programs.
Trade Minister Stockwell Day has been canvassing the provinces on the idea of opening up local spending to free trade, citing the consensus on EU free-trade talks.
The Europeans would not launch the talks until Canadian provinces committed to negotiating a deal that would allow their companies to bid for provincial and municipal contracts on an equal footing. Only Newfoundland refused.
"That's really opened the door to the discussion now that we're having with the provinces," Mr. Day said yesterday.
Exporters say that the Buy American ethos is spreading through local governments in the United States.
"The talk now is that it's embedding itself into the lower levels of procurement in the U.S., and our companies will be shut out because, even if it's not the law, they think it's the right thing to do given the times," Ontario International Trade Minister Sandra Pupatello said.
Most provinces say they already allow U.S. companies to bid on their contracts, but there is a patchwork of rules, exceptions and protectionist measures, said trade lawyer Simon Potter of McCarthy Tetrault. Ontario, for example, buys only Ontario food for its prisons.
"It will take a lot of effort to get the provinces to agree," said trade lawyer Lawrence Herman of Cassels Brock. "But it's the only realistic way to solve the problem."
The provinces' immediate reactions were mixed. Manitoba Premier Gary Doer was cautious, noting that municipalities are debating the issue.
But Mr. Charest backed the idea: "I am among those who believe that we could do infrastructure projects together and take our inspiration from the Europeans," he said.
Ms. Pupatello said Ontario backs the idea of such a deal because it is dependent on exports and already allows U.S. bids on most provincial contracts - but she expressed doubt that the United States could get its states and cities onside.
"Unless the Americans, federally, are about to enact something that the state and municipal levels would have to abide by - that is what's going to be useful for us," she said. "Therein lies the Buy America difficulty."Report Typo/Error