March 04, 2010

Update - Canada-US Agreement on Government Procurement

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The Canada-US Agreement on Government Procurement Enters Into Force, Bringing New Market Opportunities for Canadian Businesses

A recent change in international trade law will bring new access to state and municipal level government procurement markets in the United States for Canadian businesses, and also opens the door for American competitors to enter the provincial procurement markets.

On 16 February 2010, the Canada-US Agreement on Government Procurement (the “New Agreement”) entered into force, formalizing the agreement-in-principle announced on 5 February 2010 between Canada’s Minister for International Trade and the United States Trade Representative. The New Agreement effects two principle changes to the current law – Canadian businesses will now be exempt from the “Buy American” provisions of the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”), and, more significantly, provides reciprocal access to state and provincial level government procurement markets through the World Trade Organization (“WTO”) Agreement on Government Procurement (the “GPA”).

The Recovery Act is the centerpiece of the Obama administration’s economic stimulus program, and requires that all iron, steel and manufactured goods used in the construction, maintenance or repair of a public building or public work funded by the Recovery Act be produced in the United States – effectively shutting out foreign companies from the $700 billion stimulus program. The New Agreement provides for a temporary exemption (until 30 September 2011) from this provision for Canadian iron, steel and manufactured goods. The exemption can be extended by mutual consent. Although most of the US federal stimulus funds available under the Recovery Act have already been allocated, there is about $200 billion in procurement contracts yet to be awarded, and Canadian businesses will now have guaranteed access to that market.

The more significant long-term aspect of the New Agreement is the permanent and reciprocal commitments at the state, provincial and municipal government level under the GPA. The GPA is an international treaty administered by the WTO that focuses on government procurement and to which both Canada and the United States are parties, along with 38 other countries and customs territories. The core concept underpinning the GPA is national treatment. Each party to the GPA is required to treat domestic and foreign suppliers equally under its laws and regulations of procurement. However, the GPA does not apply automatically to all government procurement of the parties to it. Governments must ‘opt-in’ to the provisions of the GPA by listing, in the Annexes to the GPA, the central government entities, sub-central government entities (i.e., states and provinces), government enterprises, services, construction services and threshold value of contracts that will be subject to the GPA.

Previously, only government procurement at the federal level between Canada and the US was covered by the GPA. The Canadian provinces and territories have never before agreed to open up their procurement markets to US suppliers, and the United States responded by inserting a broad exemption of the GPA to state-level procurement as against Canada. This new deal changes that stalemate. The Canadian government involved the provinces and territories in the negotiations from the start, and all except Nunavut have agreed to open up their procurement markets to US suppliers through the GPA. The United States has removed the Canada exemption, granting access for Canadian suppliers to the procurement markets of the 37 states that have previously signed on to the GPA. Canadian suppliers will have the same access, on the same terms, as domestic US suppliers in the procurement market.

The state and municipal level government procurement in the United States is a $500 billion a year market. The 37 participating states include Maine, Massachusetts, New York, Pennsylvania, Florida and the tenth largest economy in the world, California. The covered procurement includes a broad range of goods and services. This represents a significant new market for Canadian businesses that already have experience in providing goods and services to government, have operations in the United States or provide goods and services in demand in state and municipal level procurement. Reciprocally, competition may increase in local Canadian procurement markets, as American businesses target lucrative tenders.

Finally, the New Agreement provides for Canada and the US to enter into discussions within the next year for further and expanded access to government procurement markets. With states and provinces now willing to guarantee access to their procurement markets, business opportunities will only keep growing.

This Cox & Palmer publication is prepared by our Corporate & Commercial Group in St. John’s and is intended to provide information of a general nature only and not legal advice.

Please direct question or suggestions to Mark Russell at 709.570.5575

Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.