The Obama administration's decision to ban Canadian firms from bidding on $100-billion in American infrastructure contracts has blindsided the Harper government, thrown a wrench into the world's most complex trading relationship and placed an ambitious trade-and-security agreement in jeopardy.
The Beyond the Border action plan, which seeks to integrate continental security and ease border congestion, could be derailed before it is even launched at the end of this month, after the White House inserted a clause into its new jobs bill that prohibits foreign companies, including Canadian ones, from being chosen for government procurement contracts.
International Trade Minister Ed Fast said he was "very disappointed" when he learned of the Buy American clause.
He believed "that we had established an understanding that trade between our two countries is so integrated and so critical to each other's prosperity that putting up new barriers to trade just wasn't going to work for either one of our countries," Mr. Fast told The Globe and Mail.
The Harper government fought for, and ultimately won, an exemption from Buy American restrictions in the 2009 stimulus bill, only to see it resurrected in this new jobs bill.
If enacted, "it's going to stall growth, it's going to kill jobs, it's going to negatively impact our long-term economic prosperity," Mr. Fast predicted.
"We're going to do everything we can to persuade the Obama administration to exempt us," he said.
Canada will seek to fast-track a proposed consultation process that could exempt Canadian firms from Buy American provisions.
The American Jobs Act, unveiled this week, seeks to pump $450-billion (U.S.) into the U.S. economy to combat high unemployment and a threatened double-dip recession. Just under a quarter of the money is dedicated to government-funded building projects.
The act prohibits funding for any contract if the winning bidder is from outside the United States.
President Barack Obama and Prime Minister Stephen Harper personally launched negotiations in February that aim to further integrate continental security, harmonize regulations, and ease obstacles to cross-border trade. The results of the Beyond the Border negotiations will be unveiled before the end of the month.
But these latest Buy American sanctions will likely undermine public support for the security accord.
"This is exactly what we don't need right now," said Jayson Myers, president and CEO of Canadian Manufacturers and Exporters. "This comes at a really bad time, in terms of where we're trying to take our trading relationship. It sucks the air out of the room."
Gordon Giffin, who was American ambassador to Canada during the Clinton administration, cautioned that Canadians could be overreacting to standard language, inserted in any budget bill, that was likely not intended to include Canada.
"There is a track record of exempting Canada" from Buy American rules, he said. He believes the Canadian government should accept "almost as a matter of course" that there will be a Canadian exemption if and when the final bill clears Congress and is signed by the President.
Nonetheless, the provision "poisons the water," said Perrin Beatty, head of the Canadian Chamber of Commence. The Obama administration, he said, must quickly clarify whether and how Canada is exempt from the Buy American provision, lest the new border agreement be fatally impaired.
Mr. Fast said it would be "premature" to speculate that the Buy American clause would torpedo the Beyond the Border initiative.
"This is clearly a new a new irritant in our trade relationship," he acknowledged. "But it's my job to look at the larger picture – what is in the long-term interests of Canada."
But Robert Chisholm, NDP International Trade critic, said it was clear that the Harper government hadn't been following trade and political developments in the United States closely enough, and had been caught napping as a result.
David Jacobson, the U.S. ambassador to Canada, could not be reached for comment Wednesday.