After the US Congress approved a $1.9trn Covid-19 relief package, in which infrastructure plays a big role, Canada’s chief trade negotiator Steve Verheul told the House of Commons he was concerned that “much of [the package] would go down to state governments and municipal governments”.
The industry is concerned that, should that be the case, accessing bidding and procurement processes would become much more challenging and limited not only for Canadian companies, but potentially for foreign companies on the whole.
Canada is normally exempt from so-called ‘Buy American’ business frameworks and has managed to secure exemptions from similar provisions in the past. For instance, the country was eventually granted a waiver from the ‘America first’ procurement policies under the American Recovery and Reinvestment Act in 2009.
However, officials and industry observers point out that Biden’s infrastructure bill has yet to go through Congress, and at this stage the possibility of protectionist clauses within it cannot be excluded.
All eyes are looking towards what extent Canadian and other foreign investors will be granted access to what is shaping up to be a very significant spending plan.
Can the US afford to cut Canadian infrastructure ties?
The US has been trying to calm such worries, with the Department of State telling the press that the Biden administration will seek to work with Canada on market access and procurement.
I don’t think Biden’s plan will exclude ingrained firms such as GHD Group, Ellis Don, SNC-Lavalin and so on. I think these are just initial jitters. David Baxter, PPP consultant
Local advisers and industry experts also agree that it is unlikely that Canadian companies will be shut out or even significantly restricted in their ability to participate in the US’s future procurement pipeline.
“Canadian engineering companies with a long-standing and well-established presence in the US infrastructure procurement market are plenty,” says private-public partnership (PPP) consultant and expert David Baxter. “I really don’t think that Biden’s plan will exclude ingrained firms such as GHD Group, Ellis Don, SNC-Lavalin and so on. I think these are just initial jitters.”
He highlights the important role that Canadian companies have already played in the financing of existing infrastructure projects in the US. Many of these, he argues, are structured as PPPs and require special purpose vehicles that normally include both Canadian and US companies.
“On the other hand, there are plenty of US companies that regularly invest in Canadian infrastructure projects,” Baxter adds. “Should Canada be excluded from the US pipeline, there will likely be repercussions on its side of the border, and I reckon that the Biden administration will be mindful of such risk.”
Michael Likosky, a partner at Advantage Infrastructure Advisors, points out that the US is not a protectionist market and that infrastructure will benefit from strong cash injections over the next few years. This will therefore mean that it is in the government’s best interest to keep the investor base wide open.
“It is true that rules and requirements exist when first entering the market and generally this administration will add some elements to it, but they are pretty low requirements compared with other industrialised countries,” he says.
“What the opportunities are going to be is yet to be determined, but a lot of the Covid relief package that was recently approved has unrestricted funding that will go to local governments and therefore into infrastructure. Opportunities will not be lacking for both domestic and foreign investors.”
What does ‘Buy American’ really mean?
These jitters from the Canadian side of the border can mostly be traced back to deeper concerns over the ‘Buy American’ agenda of Donald Trump during his tenure in the White House. While this is not a policy as such of the Biden administration, it still erodes trust in the US market’s openness to foreign capital.
It is undeniable that Biden’s infrastructure plan puts a strong emphasis on creating US jobs, but foreign investment can be used to achieve that goal.
“The ‘Buy American’ provision existed under the Trump administration too,” says Baxter. “Democrats have so far been focused on establishing international agreements that would benefit the middle class by creating jobs and opportunities. So foreign companies will be required to create American jobs for sure, but that doesn’t mean they will face restricted access if that requirement isn’t fulfilled.”
‘Buy American’, he adds, is targeted more at Chinese companies and products than it is at countries such as Canada.
Why Canadians are wary of the ‘Buy American’ agenda
While Canada may not have been the target of the ‘Buy American’ agenda, that doesn’t mean to say that the country has been unaffected by the policy.
Canadian businesses have an issue with the ‘Buy American’ label, as the danger of potentially being shut out of the US federal pipeline has long been perceived. Trevor Kennedy, Business Council of Canada
“Canadian businesses have an issue with the ‘Buy American’ label, as the danger of potentially being shut out of the US federal pipeline has long been perceived and predates both the Biden and Trump administrations,” says Trevor Kennedy, director of trade and international policy at the Business Council of Canada.
While he acknowledges that improvements to the US-Canada relationship have been made in the early days of Biden’s presidency, Kennedy stresses that the current US administration has clearly signalled that its domestic focus takes priority.
“During the negotiation for a new North American Free-Trade Agreement, for instance, Canada was pushing to open up more,” he says. “The North American supply chain for manufacturing is integrated, for instance, but things tend to get more complicated when procurement is involved.
“Unfortunately, in the new agreement [the US-Mexico-Canada Agreement, or USMCA], we lost the procurement chapter. Our market access is limited to the World Trade Organisation Agreement on Government Procurement.”
Kennedy adds that tightening content provisions under the new executive order in the US is a point of concern for Canadian businesses. “We expect a tightening of domestic requirements, which will affect existing rules,” he says. “Canada is protected from some of it but not from all, and we do not yet know where content thresholds will be set.”
However, it is not all doom and gloom, and opportunities are likely to arise for Canadian businesses from the large infrastructure plan that the Biden administration is putting in front of Congress. “It sounds like green policies and critical minerals will play a key role in the plan,” says Kennedy. “In both areas, Canada is seen as an important partner. We are cautiously optimistic. Encouraging signals are there, but it will take some work with Congress to secure Canada’s access to the US future infrastructure pipeline.”
It would seem that worries on the Canadian side of the border may be a little premature, but after years of ‘America first’ rhetoric pouring from the White House, such concerns are not entirely without merit.
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