Prime Minister announces proposal to expand NAFTA's

UNCLAS SECTION 01 OF 02 OTTAWA 000425 SENSITIVE SIPDIS STATE FOR E, EB/DCT, WHA/EX, WHA/CAN STATE PASS USTR (SULLIVAN) COMMERCE FOR ITA/MAC (WORD) TREASURY FOR IA (WEYER) E.O. 12958: N/A TAGS: ECON EFIN ETRD EINV EIND PREL PGOV CA SUBJECT: Prime Minister announces proposal to expand NAFTA's government procurement commitments to provinces Ref: Ottawa 393 SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY ¶1. (SBU) Summary: Prime Minister Harper is receiving guarded support from Canada's provinces over his proposal to counter "Buy American" measures by expanding the NAFTA government procurement chapter. The government hopes such an expansion will secure access for Canadian suppliers to the U.S. sub-federal procurement market. However, this strategy would require negotiation on two fronts: first, the provinces must be persuaded to drop their own protectionist barriers; and second, the United States and Mexico must then be persuaded to expand the NAFTA procurement chapter. Were this to happen, it would be a positive opening of Canadian markets but would not be a panacea for the disruptions caused by Buy America provisions. End Summary Harper's Response to "Buy American" -------------- ¶2. (U) On June 3, Prime Minister Harper announced his intention to pursue an expansion of sub-federal government procurement commitments in the North American Free Trade Agreement (NAFTA). Growing Canadian concerns over potential business losses resulting from "Buy American" provisions in the American Recovery and Reinvestment Act of 2009 (ARRA) and other pending federal legislation (reftel) prompted Harper's announcement. ¶3. (U) Harper stated that while the WTO and NAFTA contain prohibitions against national preferences for federal level procurement, they do not apply to provinces and municipalities (i.e., sub-federal entities). "I believe it would be interesting for all of our countries to look at dealing with that problem here in North America," stated Harper. "Obviously, at a time when we're trying to keep borders open internationally, I do think that the proliferation of domestic preferences in sub-national government procurement is really problematic. It is part of the creeping protectionism, not just in the United States, but elsewhere, that we must avoid to ensure a global recovery." ¶4. (U) While Canada has previously resisted formalizing provincial-level procurement access for foreign suppliers, recent actions in the context of the planned free trade talks with the European Union have help ease the way for Harper's proposal. As a pre-condition for launching the FTA talks, the EU persuaded Canada to bring the provinces to the table for procurement talks. Canada's Minister of International Trade, Stockwell Day, indicated that the EU action "really opened the door" to the current federal-provincial dialogue on the NAFTA. Day as Provincial Consensus-Builder -------------- ¶5. (SBU) Minister Day has been given the job of building consensus among provinces - with Quebec and Ontario already voicing a degree of support. One of Day's challenges is to overcome provincial reluctance to give up buy-local provisions in their existing provincial regulations. The Canadian public also tends to be fiercely protective of social, health, and cultural matters - and an obvious foreign commercial presence in these areas might trigger a backlash against Harper's minority government. While municipal-level procurement does not appear to be on the table at Qmunicipal-level procurement does not appear to be on the table at this stage, the results of the Federation of Canadian Municipalities (FCM) annual meeting on June 6 (reftel) will likely help shape federal and provincial thinking on the issue. During the FCM meeting, more than 1000 municipalities will consider a slate of actions to counter "Buy American" restrictions. No pain, no gain -------------- ¶6. (SBU) Canadian trade watchers suggest that the domestic debate will hinge on comparing the costs and benefits of new procurement commitments against the current informal mechanisms governing provincial procurement. According to Canadian trade lawyer, Simon Potter, while most provinces already allow U.S. companies to bid on OTTAWA 00000425 002 OF 002 their contracts, it is a difficult process complicated by a patchwork of rules, exceptions and protectionist measures. Responding to the Prime Minister's announcement, Lawrence Herman, another Canadian trade lawyer, stated that "It will take a lot of effort to get the provinces to agree, but it's the only realistic way to solve the problem." ¶7. (SBU) Comment: Herman's hope that this will "solve the problem" raises a tactical issue for us and the Canadians: even were these negotiations to come to fruition, they would not be a a panacea for "buy national" provisions on both sides of the border. For one thing, the offers by states and provinces will be limited by geographical scope and by sector; for another, municipalities will not be covered at all. We suggest keeping in mind that this opening of Canadian markets will be a very positive step for U.S. exporters and investors but will not put to rest the arguments over "Buy America" and "Buy Canada" regulations. End comment.