UNCLAS SECTION 01 OF 02 VANCOUVER 000205

SENSITIVE
SIPDIS

STATE FOR WHA/CAN
STATE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON CA ETRD OVIP
SUBJECT: CODEL BOEHNER HEARS THE CANADIAN SIDE ON BUY AMERICA

REF: OTTAWA 440

VANCOUVER 00000205 001.2 OF 002



1. (U) Summary: A Congressional Delegation (Codel) headed by
House Minority Leader John Boehner (R-OH) met with Canadian
business, municipal and provincial representatives to discuss
the impact of ARRA Buy America provisions on cross-border trade.
The Codel heard first-hand accounts of how Buy American erodes
integrated supply chains, with loss of business to Canadian
companies and their U.S. suppliers. Canadian presenters
expressed concern over a broadening of Buy America sentiment,
with similar regulations creeping into other legislation and the
attitude spreading into the general American market place. They
warned of a brewing trade war as Canadian unions and
municipalities pressure their own government to implement Buy
Canada regulations. And they urged quick action to halt the
spread of protectionism, pointing out that while other regions,
such as Europe and Asia, are using integration to become more
powerful in the market place, North America is going in the
opposite direction and poised to lose its competitive edge. End
Summary.


2. (U) Representatives from the Canadian Manufacturers and
Exporters Association (CME), the Pacific Northwest Economic
Region (PNWER), the city of Surrey and the BC Ministry of Small
Business, Technology and Economic Development, met with Codel
Boehner on August 12 to discuss Canadian concerns over Buy
America legislation. Jayson Myers, President and CEO of CME,
told the Codel that supply chains between Canadian and U.S.
companies were so integrated that any loss of business by
Canadian companies had immediate repercussions on U.S.
suppliers. Currently the U.S. has a trade surplus with Canada,
but the potential for lost business from Buy America will lead
to Canadian companies cutting back on U.S. inputs, both parts
and raw materials, affecting the trade balance.


3. (U) CME members at the meeting gave first-hand accounts of
negative impacts already felt because of Buy America. Company
representatives noted that even if the rules don't apply, the
provisions are so confusing Canadian companies are suffering
loss of business as "Buy America" attitudes spread into all

sectors. They expressed concern about expansion of the
provisions into other legislation, such as the Water Quality
Investment Act and the Green Schools Act. Members from the water
management sector relayed how U.S. municipal contracts, once the
mainstay of their business, had all but dried up. One producer,
who buys gear boxes from Wisconsin and motors made in Georgia,
is facing substantial cuts in these procurements because he no
longer has the contracts to support purchasing inputs in the
U.S.



4. (U) Another fear is an escalating trade dispute, as Canadian
municipalities and labor unions make louder and louder calls for
reciprocal trade practices. A CME member relayed how one of his
key pipe suppliers from the U.S., who had been doing a booming
business in Canada where the current market is more robust, has
seen a dramatic decrease in orders as Canadian municipalities
begin buying Canada only. Dianne Watts, Mayor of the border town
of Surrey, south of Vancouver, warned that the Canadian
Federation of Municipalities (CFM) already had adopted a "Buy
Canada" resolution and as the situation now stands, the CFM
resolution is likely to be formally endorsed at leadership
meetings in the fall (ref).



5. (U) PNWER Executive Director Matt Morrison provided the Codel
with four recommendations developed by the organization that
they believed could be adopted by OMB as part of its ARRA
implementing regulations that could mitigate the negative impact
of the legislation:


a. final Section 1605 rules should require state and municipal
governments to follow the same international procurement
agreements to which the federal government is party;


b. support a definition of 'manufactured good' and 'component'
that reflects how integrated global supply chains create U.S.
jobs, as many U.S. corporations have final production facilities
abroad that use mostly US inputs, and domestic manufacturers
often employ thousands in the final production facilities, but
use some foreign inputs;


c. OMB should provide waivers to projects if only one domestic
producer exists for a specific implement, as monopolies threaten
to balloon project costs, limiting the reach and effectiveness
of ARRA projects; and,

VANCOUVER 00000205 002.2 OF 002




d. encourage a Section 1605 administrative process that quickly
funds ARRA projects. The 'Buy America' rules should be simple
and clear, applying equally to federal, state, and local
governments. Recovery projects will benefit if project
contractors can source the same materials across various
jurisdictions. OMB should also publicize current exemptions and
waivers where products and components are not covered by the Buy
America requirement.


Morrison also highlighted that public and private sector
entities in Canada and the U.S. have already expressed concern
over Buy America's impact on mega-projects in development, such
as the Alaska natural gas pipeline, with companies and state and
provincial parties worried about severe monetary and regulatory
costs.



6. (SBU) Robert Musgrave from the BC Ministry of Small Business
informed the group that the GOC was preparing a proposal for the
USG, which would request an exemption for Canada on Buy America
in exchange for multiple guarantees on the Canadian side.
Musgrave stated that the BC provincial government contributed to
the proposal guarantees of open markets for all provincial
procurement, including BC crown corporations. Although he gave
no details, he indicated that other provinces were following
suit with similar offers. Jock Finlayson from the BC Business
Council pointed out to the Codel that they should not forget
capital investment. He noted that four million jobs in the U.S.
depend on capital investment from Canadian companies and any
protectionist measures could have a significant impact on the
capital flowing across the border.



7. (U) Several Codel members remarked that they support free
trade but it is difficult to argue for free trade when so many
companies are closing and moving operations to lower-wage
countries such as Mexico and China. The members added that many
employees in the U.S. do not realize their jobs are created by
trade and therefore vulnerable to trade wars. They encouraged
companies to educate their employees on the positive benefits of
trade. Congressman Boehner told the group that despite our
differences over this issue, the U.S. and Canada should continue
to work on strengthening their relationship. He noted that he
represents a significant agricultural constituency and farmers
in particular really understand the benefits of free and fair
trade. He added that trade is not a zero sum game, but should be
beneficial to both sides.




8. (U) Codel Boehner cleared on this cable.
HILL