OTTAWA - Canada and the United States need to negotiate a new free-trade agreement on government procurement to head off a trade war over the Buy American issue, business leaders said Monday.
In a letter to the premiers and the federal government, Canada's top business groups say Canadian contractors are being excluded from state and local procurement markets in the United States.
And a movement among Canadian municipalities to fight fire with fire by discriminating against American contractors could ignite a trade war that would hurt both sides, the groups say.
The groups, which include the Canadian Manufacturers and Exporters, the Canadian Chamber of Commerce and the Canadian Council of Chief Executives, say the solution is an open market in government procurement, particularly at the municipal and provincial-state levels currently not covered by the North American Free Trade Agreement.
"We can, I think, come to a bilateral agreement with the United States that says our two countries will not discriminate against each other in sub-national procurement, enshrine it and make sure it sticks," said Perrin Beatty, head of the Canadian Chamber of Commerce.
The letter is especially targeted to the premiers, said Jayson Myers of the manufacturers association, whose members are on the firing line of Buy American laws because such an agreement affects their ability to direct contracts to local suppliers.
The issue was on the agenda at a meeting of federal and provincial trade officials in Yellowknife on Monday.
"Our government is doing everything possible to resolve this situation. We are taking action on a number of fronts, including engaging the provinces and territories," said federal Trade Minister Stockwell Day.
Business groups on both sides of the border have lobbied against Buy American clauses in U.S. federal stimulus bills.
Two Toronto-area firms - Hayward Gordon Ltd., and Belgian-owned Ipex Inc. - have complained they are being shut out of the U.S. market. In the case of Ipex, the firm's plastic pipe was ripped from a sewage line in California after it was found to be made in Canada.
But many believe the problem is much broader and that many Canadian firms prefer to lobby behind the scenes rather than cry foul publicly.
In response, some Canadian municipalities are proposing to respond in kind to Buy American by shutting out suppliers from countries that discriminate against Canada.
The Federation of Canadian Municipalities will vote on a resolution brought forth by Halton Hills council in Ontario later this week. The resolution would have cities and towns discriminate against U.S. suppliers as long as the Buy American laws remain in place.
"It's an effective stick ... and I think it gives us a powerful negotiating position," said Myers of the Halton Hills resolution.
"But nobody wants trade wars. Nobody wants protectionism either."
That is the message U.S. Chamber of Commerce chief executive Tom Donohue delivered to President Barack Obama in a recent letter, specifically citing the Canadian municipalities resolution as a example of how protectionism can rebound against American interests.
"In water and wastewater infrastructure, Canadian firms are now being excluded from U.S. municipal contracts," Donohue wrote.
"Retaliation by Canadian municipalities could result in US$3 billion in lost business for U.S. water and wastewater equipment manufacturers."
Mexico has already taken action in retaliation of their trucking industry being denied access into the U.S., often targeting protectionist lawmakers' districts.
Myers said Canada stands to lose little from guaranteeing free trade in provincial and municipal procurement because in practice, there are few restrictions on American suppliers.