President Donald Trump's negotiators tabled stringent Buy American demands at the NAFTA talks in Ottawa that would drastically curtail bidding by Canadian companies on U.S. government-funded infrastructure projects, insiders have told The Globe and Mail.
One Canadian insider described the U.S. demands as the "worst proposal in any trade agreement" that has ever been presented, saying it is being strongly resisted by Canada and Mexico.
The Trump administration proposal calls for boosting the minimum dollar threshold for government projects available for foreign bidders. It would also cap the total amount that Canadian and Mexican companies can receive in American procurement contracts at what U.S. companies get in those countries.
Sources, with knowledge of the U.S. proposal, said the oil-rich Persian Gulf country of Bahrain would have greater access to bid on infrastructure and other government procurement work in the United States than Canada.
"It should be attributed for what it is. Shock value with a first offer and obviously it is unacceptable and they know that," a Canadian source, close to the NAFTA negotiations, told The Globe on Thursday.
Canadian trade lawyer Lawrence Herman said U.S. negotiators are taking their marching order from an anti-free-trade President who espouses an America First policy that favours American companies and workers.
"They only want a deal on their terms. Why would we expect anything less than the highly aggressive and demanding set of terms that the U.S. is putting on the table," Mr. Herman said in an interview. "The U.S. position is a bullying one and they are presenting proposals that will be extremely difficult for Canada and Mexico to accept or even negotiate over."
Under the North American free-trade agreement, Canada and Mexico are exempt from Buy American requirements as long as the contract is being offered by a U.S. government agency and the amount is above certain thresholds. The U.S. proposal would remove those guarantees and block any attempts by Canada to include state and municipal procurement in the 23-year-old trade pact.
Foreign Affairs Minister Chrystia Freeland alluded to the Buy American proposal on Wednesday at the conclusion of five days of talks during the third round of negotiations to revamp NAFTA.
Ms. Freeland said a rewritten NAFTA should emulate the kind of "mutual access" that was achieved in the Canada-European Union trade agreement (CETA). She wants companies to be able to bid on U.S. government contracts but also procurement work at the state and municipal level.
"I say this with some pride that mutual access to government procurement contracts was one of the great achievements of CETA," she told a news conference. "We would like to encourage our immediate neighbours to meet the levels of ambition that we have been able to achieve with our partners across the Atlantic."
Under the European trade deal, Canadian firms will now have unfettered access to the $5-trillion EU procurement market, the world's largest.
Former deputy assistant U.S. trade representative for North America Matt Gold said the Trump administration's demands go against the whole concept of free trade and would only spur a protectionist counter-attack from Canada and Mexico.
"We have never seen free trade reciprocity work that way before," said Prof. Gold, who teaches international trade law at Fordham University. "The right response for Canada would be to say: 'That's fine but we are going to cap the number of American goods and services providers that can bid on Canadian contracts.'"
Ontario Premier Kathleen Wynne has already threatened to respond to protectionist measures if the U.S. implements Buy American policies. In April, she was part of the lobbying that led to the defeat of a Buy American proposal in New York state.
Prof. Gold, who served under former president Barack Obama, said the U.S. Buy American proposal misses the point of free trade and the fact that while Canada gets access to the much larger U.S. market for government procurement, it also faces far greater competition from U.S. bidders for government contracts in Canada.
President Trump vowed in April to pursue a "Buy American, Hire American" agenda which his negotiators are attempting to force into the new NAFTA deal. He signed an executive order making it official administration policy and mandated federal agencies to assess it in their compliance with a number of Buy American laws.
Dan Ujczo, an international trade lawyer with the cross-border law firm Dickinson Wright, said Mr. Trump's Buy American order appears to be sweeping in scope.
"The way that I've interpreted the Buy American provisions is that this applies to everything, including those old [Canada-U.S.] defence procurement agreements from the 1950s," Mr. Ujczo said.
Ms. Freeland was blunt in her assessment of the Trump administration on Wednesday, saying it is "unconventional" and "overtly protectionist." Although the Trump White House believes erasing the U.S.'s trade deficit – the amount that imports exceed exports – should be the country's top priority, Ms. Freeland argues trade deficits are not a problem and that overall economic growth is all that matters.
Officials are bracing for even tougher times ahead in the next round of NAFTA talks in mid-October in Washington, when the U.S is expected to table its demands for trade dispute settlement mechanisms and stricter restrictions on auto and auto parts content.
U.S. negotiators are expected to introduce a proposal that would increase the requirements on the content of automobiles to be manufactured in North America for vehicles to qualify for tax free status under NAFTA. The Americans are also expected to demand higher U.S. content in autos and auto parts.
President Trump, who has repeatedly criticized NAFTA as an unfair deal for the United States, has called for the rules of origin for autos to be tightened, citing trade deficits of $64-billion (U.S.) with Mexico. Trade between the U.S. and Canada is balanced, with the U.S. having a surplus in services and a deficit in goods trade, largely because of Canadian energy exports.
The U.S. is also expected to push for the end of Chapter 19 in the NAFTA pact that provides a binational dispute resolution system to challenge anti-dumping and countervailing duties. Canada has said it would walk away from the talks if the Americans insist on scrapping this provision.
- With a report from Campbell Clark