Canada: "Buy America" In US Stimulus Package

Last Updated: February 9 2009
Article by Milos Barutciski, Jesse Goldman and Darrel Pearson

On January 28, 2009, the U.S. House of Representatives approved an $819-billion economic stimulus bill, including strict "Buy America" rules for steel and iron used in infrastructure projects funded by the bill. The U.S. Senate is currently considering a bill that would extend the "Buy America" requirement to manufactured goods used in infrastructure projects. In their current form, these provisions would effectively shut out Canadian and other foreign suppliers from a significant portion of the U.S. infrastructure market.

These provisions are likely contrary to U.S. international trade obligations under the WTO, NAFTA and other international trade agreements. Prime Minister Harper has spoken out against these provisions in the House of Commons and Trade Minister Day has compared these measures to the "beggar-thy-neighbour" protectionism that prolonged the Great Depression in the 1930s. It is expected that the threat of mounting U.S. protectionism will be high on the agenda for U.S. President Obama's first foreign visit when he meets with the Prime Minister in Ottawa on February 19, 2009.


Canada – EU Air Transport Agreement

On December 9, 2008, Canada announced the successful conclusion of negotiations with the EU on a comprehensive air transport agreement, setting the stage for significantly liberalized air travel and foreign investment for carriers.

The agreement is multi-phased and immediately provides both Canadian and EU carriers unrestricted direct point-to-point service, including provisions for third-country flights for all cargo carriers.

The agreement will also raise airline foreign ownership limits for EU and Canadian investors to 49 percent. The Canadian limit is currently 25 percent. A 49-percent equity interest in a widely held airline could amount to de facto control, thus allowing for an unprecedented degree of integration between Canadian and European airlines. An acquisition by a European investor of a 49-percent voting interest in a Canadian airline would also be subject to review by the Minister of Industry under the Investment Canada Act to determine whether the transaction is of "net benefit to Canada".

Trade And Investment

Canada-EU Trade Agreement Consultations

The Government of Canada has initiated preliminary consultations with businesses and other stakeholders with regard to determining areas of potential interest in expected Canada-EU free trade agreement negotiations. The scope of the proposed negotiations is broader than any of Canada's or the EU's existing regional or bilateral free trade agreements and will include services, investment, air transportation, and procurement.

Early 2009 will see Canada and the EU engage in a pre-negotiation scoping exercise to determine the range of issues and areas of mutual interest. The Canadian government has initiated a formal consultation with business and other stakeholders and senior EU officials will travel to Canada in February and March to further the process.

The Canadian government will be seeking provincial governments' commitments to negotiate in areas of provincial and joint federal– provincial jurisdiction, such as trade in services, professional/technical qualifications and procurement, which have been identified as key areas of interest for the EU. Of critical interest to Canadian exports will be reduction in technical barriers to trade, liberalized trade in services and improved market access for agricultural products.

The Canada-EU initiative may be the most significant international trade development for Canada since the NAFTA.

For a more comprehensive discussion of the Canada-EU initiative and its consultations with the public, please go to http://www.bennettjones. com/Images/Guides/Update4256.pdf.

Product Regulation

Proposed US Country-of-Origin Labelling Rules Delayed

The U.S. Department of Agriculture (USDA) has delayed the implementation date of a mandatory country-of-origin labelling (COOL) final rule.

The mandatory country labelling of all beef, pork, lamb, chicken and goat meat and "certain perishable commodities" sold in U.S. stores was implemented on September 30, 2008, as an interim final rule, triggering a six-month transition period prior to enforcement. As a result of consultation requests brought by Canada during the transition period, the final COOL rule stated that the order of the countries on the label would not matter, pleasing Canadian producers.

The USDA's announcement will extend the final COOL rule's March 16 implementation date by 60 days. It is expected that the USDA's decision to invoke a 60-day delay will be followed by an immediate reopening of a comment period for 30 days.

If the COOL rule is put out for notice and comment, U.S. cattle groups that now oppose the final COOL rule in such a future comment period would certainly seek to include changes designed to reduce the use of Canadian animals in U.S. packing operations—changes that would reverse provisions Canada had successfully worked with the USDA to have included in the final rule.

Canada undertook to suspend for at least eight months a World Trade Organization challenge against the COOL rule as inconsistent with the WTO Agreement on Technical Barriers to Trade. That commitment will certainly not be honoured if the new administration significantly alters the relevant provisions in the final COOL rule.

Trade Regulation

EU REACH Legislation Proceeds with Phase In

The EU Registration, Evaluation, Authorization, and restriction of Chemical substances regulation (REACH) on chemicals and their safe use phased in compliance for non-EU registrants on January 1, 2009. Non-EU chemicals and cosmetics companies that did not register substances under REACH by January 1, 2009, are barred from the EU market.

The relatively short period for non-EU company substance regulation has resulted in a number of problems, mostly related to the EU's reliance on its own European List of Notified Chemical Substances and the European Inventory of Existing Commercial Chemical Substances. Some imported chemicals and cosmetics were not so listed and the EU has refused to modify REACH to address different standards and nomenclature for chemicals outside of the EU. Of note, 21 countries filed a complaint at the last WTO Technical Barriers to Trade Committee regarding REACH and its discrimination against non-EU suppliers.

Trade Facilitation And Security

Borders Report

The Canadian International Council (CIC) issued an important report titled A New Bridge for Old Allies in November 2008. The CIC report was co-authored by Michael Kergin, Senior Advisor to Bennett Jones LLP and Chair of the CIC Border Issues Working Group.

The CIC report examines how security modalities and vital Canada–U.S. trade can effectively co-exist in the context of an integrated North American economy. The report examines factors that have contributed toward a thickening of the border and consequent impairment of trade and supply chain competitiveness in both countries. Mr. Kergin's report recommends, among other things, a Parliament Joint Border Commission, a joint transportation strategy and a Bi-national Regulatory Council to promulgate trade sensitive border rule making in Canada and the U.S.

To view the report visit: workinggro/borderissu.


WTO Draft Texts of Anti-Dumping and Subsidy and Countervailing Measures Agreements

The WTO Negotiating Group on Rules released its latest draft text on anti-dumping and subsidies on December 19, 2008. This text supersedes the previous draft released in December 2007. Reform of anti-dumping and subsidies agreements has been a significant point of disagreement between WTO members in the stalled seven-year-old Doha Round talks.

The new draft text continues controversial proposals such as mandatory 10-year termination of anti-dumping measures, anti-circumvention provisions that would shift anti-dumping measures to related products, and limited provision for "zeroing" when calculating dumping margins, contrary to certain WTO jurisprudence.

The draft subsidies text also proposes a "roadmap" for introducing subsidies disciplines into the fisheries sector. The inclusion of fisheries subsidies are contentious to say the least, given the reliance of developing economies on fisheries exports and global environmental-sustainability concerns with fisheries.

The WTO Negotiating Group on Rules is expected to resume talks in February.

Trade – WTO

Lamy Hopes G20 Meeting Will Restart Doha Process

World Trade Organization Director-General Pascal Lamy said in a speech on January 22 he hoped world leaders use the occasion of a meeting of the so-called G20 countries in London in April to commit to conclude Doha Round modalities on agriculture and non-agricultural market access (NAMA) this year.

Lamy also noted that key differences remained on the special safeguard mechanism (SSM) that is to help developing countries shield their farmers from import surges and sudden price drops. Nevertheless, he insisted it was the lack of political will rather than technical solutions that had prevented agreement on either the SSM or the sectoral initiatives.

Although it was feared that the round would go into hibernation as administrations change in several countries and the economic crisis continues around the globe, the April meeting of world leaders in London will give renewed focus to Doha as part of a coordinated response to the world economic crisis and a guard against trade destructive protectionism.

The next steps will likely be a review of the progress made thus in the Doha Round and an assessment of whether countries are willing to try to conclude a breakthrough deal before August. If they are, there could be a resumption of negotiations by the time of the G20 summit in April.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Milos Barutciski
Jesse Goldman
Darrel Pearson
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