News that Buy America rules will force a remote B.C. ferry terminal to be rebuilt with U.S. steel provokes predictable reactions from Canadians.
Indignation. Anger. Retribution.
We want to believe that getting even is the answer to acts of U.S. protectionism.
Ottawa and the provinces could hit back with Buy Canada rules on all major government-funded infrastructure projects, such as Montreal's Champlain Bridge.
Or perhaps we could pay for the disputed U.S. customs plaza on the Michigan side of the new Windsor-Detroit bridge, but insist it be built entirely with Canadian products – from steel and lumber to the flag pole flying the Stars-and-Stripes. Then, we slap a large sign on the side of the building: "Proudly built with 100 per cent Canadian content."
In a perfect world, revenge would give Ottawa leverage to bring the U.S. to its knees, begging for reciprocity on government purchasing.
Revenge might be sweet, but it's not always effective in the real world.
"The problem is that those guys are so much bigger than we are," argued Michael Kergin, who was Canada's ambassador to Washington from 2000 to 2005. "Where does the balance of power lie? Very often, the Americans have more weight on these things than we do."
The economic reality is that the U.S. government market is so vast that Canada and other countries have long tolerated limited use of Buy America-type purchasing restrictions under both North American free trade agreement and World Trade Organization rules. Among the perfectly legal exemptions: federal funds spent by state and local governments as well as U.S. highway money (including the cash paying for the Alaska-owned ferry terminal in Prince Rupert, B.C.).
Then, there is politics. Protectionist measures, such as Buy America, are mandated by the U.S. Congress, and continue to enjoy broad political support, making it tough for a U.S. President to budge, particularly a lame-duck one whose party no longer controls the Senate.
Striking back with Buy Canadian rules on the Champlain Bridge and other major infrastructure projects might upset a few U.S. steel suppliers, which often have operations on both sides of the border. But it's unlikely to move Congress or the Obama administration.
Canadian Trade Minister Ed Fast insists he's exploring "all options" in the case of the B.C. ferry terminal, which sits on federal Crown land, but is owned and operated by the Alaska ferry service.
The local port authority, a federal agency, could have demanded a Buy America waiver as a condition of its recently negotiated 50-year lease with Alaska. It didn't do that when the lease was renewed in 2013.
Laura Dawson, an Ottawa-based trade consultant who used to work for the U.S. embassy in Ottawa, said Canada could invoke the Foreign Extraterritorial Measures Act, a law passed in the early 1990s to counter the application of anti-Cuba sanctions in Canada. The law allows the government to protect Canadian interests against foreign governments seeking to apply domestic laws in Canada.
But that won't help Canadian companies who are being shut out of lucrative export opportunities as protectionist rules are written into a growing number of U.S. spending bills.
Industry sources say Mr. Fast is also looking at directing the Canadian International Trade Tribunal to investigate the economic impacts of Buy America. That at least would give Ottawa a tally of the damage, while building the case that Buy America-type laws aren't good for either country because of the highly integrated nature of many industries. Typical is steel, where the raw material is often milled in one country, and fabricated in the other, creating a product that is both Canadian and American.
The best outcome would be a long-term deal that extends reciprocity to all government purchasing that isn't already covered by NAFTA or the WTO. Unfortunately, promises made in 2010 to try to reach a deal have gone nowhere.
The Trans-Pacific Partnership negotiations are another opportunity to "whittle down some aspects of Buy America," argued Toronto trade lawyer Lawrence Herman.
As with other successful episodes of deal-making with the U.S., Canada will need to present a compelling economic case. It must enlist U.S. allies. It will have to give to get. And it must engage at the highest levels of government.