Better stimu-late than never

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The US and Canada have reached agreement over the ‘Buy America’ clause in the stimulus package. It will not be applied retro-actively.

While much of the Canadian cheering in February came from its Olympic gold-medal ice hockey performance, there were similar shouts of glee in the water sector over an agreement exempting Canada from certain ‘Buy America’ restrictions for stimulus funds.

The US and Canada formed a new agreement on 5 February, allowing local US projects funded by the stimulus programme – including those in the water and wastewater sector – to use certain Canadian equipment and supplies. The agreement reversed what had essentially turned into a ban of Canadian equipment for the $6 billion set aside to be invested in water and wastewater projects from the American Recovery and Reinvestment Act of 2009 (ARRA).

Both Canada and the US have greeted the news enthusiastically. “This agreement with Canada is a good first step,” said Myron Brilliant, the US Chamber of Commerce’s senior vice president for international affairs. “The ‘Buy America’ rules in last year’s Recovery Act disrupted commerce and cost jobs on both sides of the 49th parallel,” he stated to GWI.

The ‘Buy America’ clause included in the $787 billion stimulus package had required that all the steel, iron and manufactured goods purchased with the funds had to be made in the US, or in one of the 38 countries with US agreements on government procurement, which includes the European Union and many of the US’s trade partners. However, it excluded Canada, which had refused to sign the agreement when the WTO was formed in 1995. Because water infrastructure projects have historically been funded at the municipal or county level, meeting these procurement standards had not been necessary for Canadian suppliers to compete on US infrastructure projects. Most municipalities do not have similar ‘Buy America’ restrictions.

“This agreement gets us back to 16 February 2009, where basically we had open market access on both sides of the border,” said Jean-Michel Laurin, vicepresident of global business policy for Canadian Manufacturers & Exporters, a trade organisation that pushed hard to remove the restriction. “The water and wastewater industry was integrated on both ends of the border, and was one of the best examples of economic integration between the two countries.”

When the ‘Buy America’ provision went into effect, it included a requirement that goods be manufactured in the US, a requirement that was left for each federal agency to individually interpret. The US Environmental Protection Agency (EPA) published a checklist of considerations that would be used to determine whether a good could be considered to be US manufactured.

For goods partially manufactured in Canada, criteria such as whether there was a ‘change in character or use of the good or the component in America’ became relevant in determining whether a part would be American enough to pass muster.

“A certain percentage of the goods could be manufactured in Canada, but then another portion would have to be manufactured in the States, with assembly and final testing in the US,” said Jay Lindgren, a Minneapolis-based attorney at Dorsey & Whitney, who specialises in the legal implications of the stimulus for manufacturers.

Following the initial ‘Buy America’ barrier, some larger Canadian companies shifted operations to the US or partnered with US manufacturers to meet the requirements. Some smaller firms opted not to bid on the contracts, suspecting that even though waivers could be granted to bypass the restriction, the need to do so would have made their product less competitive in the bidding process.

The provision makes Canada eligible for the remaining portion of $108 million of funds left to the EPA for water and wastewater infrastructure projects. It will not, however, be applied retroactively, and contracts already awarded will not qualify.

While the change comes too late to bid on the lion’s share of projects, the news has still generated optimism among Canadian suppliers such as H2O Innovation, which was already fully compliant with the clause because of its US operations.

“The new agreement might open up opportunities that we have not had, because contractors or engineering firms would not have called upon us, out of concern about whether we would meet the American requirements,” said Guillaume Ducharme, director of communications at H2O Innovation.