How Canada left itself vulnerable to U.S. protectionism: We’re "governed by provincial satrapies"

International anxiety is mounting over the so-called “Buy American” provisions allowed in projects funded by Washington’s $800-billion (U.S.) stimulus spending package. Canadian premiers and even some U.S. state governors are upset over the prospect of Canadian firms being blocked from bidding for lucrative U.S. public works contracts. The World Bank president has waded in. A “Buy Chinese” policy emerging in Beijing raises fears about 1930s-style cascading global protectionism.

Trade Minister Stockwell Day is trying to pull Canada’s provincial premiers together for a united push to cut a last-minute deal to secure access for Canadian companies. Few Canadians realize, however, that provincial governments have for many years opposed any reciprocal deal with the Washington that would prevent them from excluding not only U.S. firms, but also companies from elsewhere in Canada, from bidding on provincial or municipal contracts.

Nobody knows this history better than Gordon Ritchie. As ambassador for trade negotiations, Ritchie was a key player in the making of the 1989 Canada-U.S. free trade deal. As chairman of Hill & Knowlton’s public affairs practice in Canada since 1999, he remains a sought-after expert on trade and economic issues. Ritchie spoke to Maclean’s about how Canada left itself vulnerable.

Q. Why isn’t Canada protected against Buy American policies?

A. In the initial [Canada-U.S.] free trade negotiations the provinces were adamant that they were not willing to have their procurement, or that of their municipalities, governed by the agreement. So a very elaborate procurement chapter was put together that applied only to the federal level, and even then with some limitation. So, for example, the U.S. national security exemption was narrowed, but you could still drive an armored truck through it.

Q. Was there a chance to bring provincial and state procurement into the deal when it was expanded in 1994 to include Mexico as the North American Free Trade Agreement?

A. In the NAFTA, which I was not involved in negotiating, an uncaring observer would say Canada had no objectives at all except simply to be a part of it. But certainly there was no push to encompass sub-national procurement.

Q. Was it the same story at World Trade Organization talks?

A. In the WTO negotiations—this was back in the eighties, early nineties—again because of the clout and the protectionist bent of the provinces, Canada was not willing to put sub-national procurement into the mix. That caused considerable annoyance, especially among unitary-state governments.

Q. Were other countries more enlightened?

A. Well, the U.S. has reached a number of free trade agreements, so-called, with countries in which sub-national procurement was included.

Q. So companies from those countries can bid on U.S. procurement projects from which ours are excluded?

A. That’s right.

Q. In retrospect, should you and the other negotiators have pushed harder back in 1988 to get the provinces to cave on this point?

A. You have to appreciate that if we had had to get the agreement of all the provinces, there would have been no agreement. So in the end we had to be content to let the scope narrow down until it was almost entirely federal jurisdiction.

Q. Where were the Americans on this issue back then?

A. At the time I was negotiating with them they had no enthusiasm on their part to bring in states because, despite the mythology, they had no capacity to bring them in. So it was kind of mutually more convenient for both parties to leave that off.

Q. Is it surprising to you that we’ve never moved in the all the years since to fix this problem?

A. The core problem from an international point of view is we’re not a country. We have a central government but it doesn’t have authority over the provinces over matters that are now considered part of international trade.

Q. But there’s a push now from Trade Minister Stockwell Day’s office to get the provinces to agree to somehow rectify the situation in the face of the Buy American provisions in Washington’s current stimulus package. What do you make of that?

A. It’s not going to happen. They have to be seen to try. But the fact is, it’s foolishness.

Q. Is it Canada’s own fault that we’re in this position now?

A. Well, it wasn’t that important until very recently, because until very recently most states and provinces were looking for the lowest bidders. The fault lies squarely with the U.S. Congress for putting in the new Buy American provisions. All the [Obama] administration was able to do was circumscribe them with the U.S.’s WTO obligations.

Q. So would it be fair to say that the immediate blame falls on Congress, but the reason we’re vulnerable is because we never embraced reciprocal free trade in procurement at the provincial and state level?

A. It’s something we brought upon ourselves. You have to understand, if I’m an Ontarian I’m not even guaranteed access to procurement markets in Nova Scotia. We have a fragmented economy governed by provincial satrapies.