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Prime Minister Brian Mulroney signs the North American Free Trade Agreement during a signing ceremony in Ottawa on Dec.17, 1992.TOM HANSON/The Canadian Press

Buy American is back with a vengeance.

And that's not good for Canada.

The U.S. Congress recently slapped so-called Buy American restrictions on billions of dollars' worth of water and sewer projects.

Now, the Obama administration is pushing a bill that would require 100-per-cent U.S. content in all federally funded transit projects, including subway cars, buses and high-speed trains.

"With U.S. elections coming up, Buy American is getting a lot of political traction these days," acknowledged Martin Lavoie, director of policy at Canadian Manufacturers & Exporters. "It's very disturbing."

The unfortunate reality is that the North American free-trade agreement did not create a true free-trade zone. It enshrined existing protectionist barriers, and left some gaping loopholes.

Neither NAFTA nor World Trade Organization rules prohibit restrictions on purchases by provinces, states and municipalities – even if the source of the funds is the federal government, pointed out Birgit Matthiesen, director of Canada-U.S. cross-border business affairs at law firm Arent Fox in Washington. Most of the U.S. federal money for water and transit projects is ultimately spent by local governments, she said.

Readers might recall that in 2010, Ottawa struck a deal with the U.S. government to exempt Canadian suppliers from Buy American rules.

But it was a stopgap. The agreement only covered projects funded by a massive post-recession stimulus bill. No effort was made to strike a broader bilateral deal to open up vast areas of government purchasing – as the Canada-Europe free-trade deal will.

Congress recently passed two new spending bills that mandate the use of "American iron and steel." The bills – the Consolidated Appropriations Act and the Water Resources Reform and Development Act – cover more than $25-billion (U.S.) worth of spending.

Potentially more devastating is the pending Grow America Act, which would ratchet up U.S. content requirements to 100 per cent by 2019 from the current 60 per cent on billions worth of federal transit projects. The legislation, expected to be introduced shortly in the U.S. Senate, would likely force Canadian companies, such as subway car maker Bombardier Inc. and bus makers Nova Bus and New Flyer Industries, to shift more production – and jobs – to their U.S. plants.

This all comes in spite of protestations from Gary Doer, Canada's ambassador to Washington, who had pleaded with congressional leaders to respect "Canada, your largest customer."

Former prime minister Brian Mulroney lamented recently that the United States has "moved away from the spirit of NAFTA" with moves such as Buy American rules and country-labelling requirements for imported beef and pork.

Canada's government purchasing market is generally more open to foreign suppliers than in the United States. But Canada is hardly a saint. U.S. Trade Representative Michael Froman's recently posted annual list of trade barriers pointed out that U.S. companies are barred from selling to 33 of 40 Crown corporations in Canada.

Some Canadian industry groups argue the only way to get the attention of Congress and the White House is to make U.S. suppliers feel some pain. Canadian Manufacturers & Exporters has urged Ottawa to impose tit-for-tat "Buy Canadian" restrictions on major federally funded construction projects, starting with the $5-billion (Canadian) reconstruction of Montreal's Champlain Bridge.

"The more you have reciprocity in the way you treat companies, the more leverage you have [and] the more they want to sign a deal with you," the CME's Mr. Lavoie said.

The suggestion has so far fallen on deaf ears in Ottawa. The recently released requests for bids on the Champlain Bridge has no local content requirements.

The painful irony is that U.S. companies that have lobbied hard in favour of Buy American provisions, such as pipe-fitting maker McWane Inc. of Birmingham, Ala., will continue to have unfettered access to Canadian projects.

Canada should push for fixing NAFTA to cover purchases by all levels of government, or pursue a separate procurement deal with the United States.

Do nothing and Buy American language risks becoming an insidious template for future U.S. spending bills and a permanent roadblock for Canadian exports.