Cameron Miranda
The Buy American Act, in place since the 1930s, requires U.S. federal agencies to preferentially purchase goods and services produced in the U.S. for public use. This has implications for Canadian businesses, as they are often at a disadvantage when selling goods and services to the U.S. government. While waivers are available, they are difficult to obtain and require companies to disclose potentially sensitive information. However, there are agreements in place, such as the Canada-U.S. Defence Production Sharing Agreement, which allow Canadian firms to compete on equal footing with American firms in certain sectors. The impact of the Buy American Act on Canada is an ongoing concern, with recent amendments and changes in U.S. administrations bringing the topic back into the spotlight.
| Characteristics | Values |
|---|---|
| Date of Enactment | 1930s |
| Applicability | All U.S. federal government agency purchases of goods valued over the U.S. micro-purchase threshold (currently set at US$10,000) |
| Requirements | Federal agencies to procure domestic materials and products |
| Conditions for Applicability | 1. Procurement must be intended for public use within the United States; 2. Items procured or materials from which they are manufactured must be present in the U.S. in sufficient and reasonably available commercial quantities of satisfactory quality |
| Waivers | Allowed if requirements are inconsistent with U.S. public interest, or if the required materials aren't produced in the U.S. in sufficient quantities and/or quality, or if the use of domestic material increases the project cost by more than 25% |
| Exceptions | Long-standing U.S. DoD bilateral reciprocal defence procurement agreements, such as the Canada-U.S. Defence Production Sharing Agreement (DPSA) |
| Impact on Canada | Affects Canadian businesses' access to the U.S. market, particularly in infrastructure projects involving highways, public transportation, airports, aviation, and water infrastructure |
| Related Agreements | Canada-U.S. Agreement on Government Procurement, North American Free Trade Agreement (NAFTA), World Trade Organization Agreement on Government Procurement (WTO GPA) |
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What You'll Learn
Canadian businesses' access to the US market
The Buy American Act (BAA) has existed in the US since the 1930s. It requires federal agencies to preferentially purchase goods and services produced in the US for public use within the country. This applies to purchases over the micro-purchase threshold of $10,000 USD for construction projects, infrastructure investments, and goods and services.
The BAA puts Canadian goods and services at a disadvantage when applied to a procurement process. However, there are some waivers and exceptions. For instance, waivers are allowed when the required materials are not produced in the US in sufficient quantities and/or satisfactory quality, or when the use of domestic material over foreign material would increase the project cost by more than 25%.
The Canada-US Agreement on Government Procurement, which came into effect on February 16, 2010, provides some relief for Canadian suppliers. It includes provincial and territorial procurement commitments under the WTO GPA for all provinces and territories, except Nunavut, in exchange for US sub-federal GPA commitments and US exemptions for Canada from the BAA.
Additionally, the Canada-US Defence Production Sharing Agreement (DPSA) gives Canadian companies access to the US market by waiving Buy American requirements. Canadian firms also enjoy a unique relationship with the US DoD market, allowing them to compete on equal footing with American firms.
The Canada-United States-Mexico Agreement (CUSMA), which came into force on July 1, 2020, does not contain any government procurement commitments between Canada and the US. However, Canadian suppliers benefit from the same treatment as American suppliers when bidding on US federal procurements covered by the revised World Trade Organization Agreement on Government Procurement (WTO GPA), to which both countries are parties.
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The impact on Canadian goods and services
The Buy American Act (BAA) has existed in some form since the 1930s. It requires the US government to preferentially purchase goods and services produced in the US. This policy applies to purchases of more than $10,000 by federal agencies for construction projects, infrastructure investments, and goods and services.
The BAA has a significant impact on Canadian goods and services. While the BAA does not apply to Canada, it means that Canadian businesses are at a disadvantage when attempting to sell their goods and services to the US government. This is particularly true for infrastructure projects, which often require the use of American-made iron, steel, construction materials, and manufactured products.
There are some exceptions to the BAA. Waivers can be granted if the required materials are not produced in the US in sufficient quantities or satisfactory quality, or if the use of domestic materials would increase the overall project cost by more than 25%. However, obtaining a waiver can be a complex and arduous process, requiring companies to disclose potentially sensitive information.
The Canada-US Agreement on Government Procurement, which came into effect in 2010, provides some relief for Canadian suppliers. This agreement ensures that Canadian suppliers have access to federal-level procurement opportunities and sets out common rules and procedures regarding covered government procurement activities, reflecting the principles of non-discrimination, transparency, impartiality, and fairness.
Additionally, the Canada-U.S. Defence Production Sharing Agreement (DPSA) gives Canadian companies access to the US market in the area of defence production. Regulatory changes that will take effect in the future will also authorize agencies to apply an enhanced price preference to domestic end products and construction materials considered critical items or made up of critical components.
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Canadian firms' relationship with the US DoD market
The Buy American Act (BAA) requires the US government to preferentially purchase goods and services produced in the United States. This applies to purchases of more than $10,000 by federal agencies for construction projects, infrastructure investments, and goods and services.
However, Canadian firms enjoy a unique relationship with the US DoD market. The Defence Production Sharing Agreement (DPSA) and Defense Federal Acquisition Regulation Supplement (DFARS) allow Canadian firms to compete on equal footing with American firms. The DPSA views Canadian companies as vital to North America's industrial base and puts their bids on equal footing with those of US firms. The DFARS helps US DoD procurement specialists understand how they should treat Canadian bids and contract with Canadian suppliers.
The US DoD relies on Canadian exports for a vast array of military goods and services, worth more than $2 billion a year. In 2020-2021, the US DoD awarded $922 million in new export contracts to large and small Canadian companies. Some of the most sought-after solutions include search, detection, navigation and guidance technologies, aircraft parts and manufacturing, and small arms ammunition and manufacturing.
Canadian companies are treated as domestic sources of supply, giving their proposals equal consideration as US firms. The Canadian Commercial Corporation (CCC) acts as the prime contractor for US DoD contracts over $250,000. The CCC helps Canadian businesses sell their products and services to the US military, providing expertise and support. The CCC also helps Canadian companies navigate the process of selling to the US DoD, answering questions, interpreting documents, and helping them navigate to successful contract wins.
When bidding on US federal procurements covered by the World Trade Organization Agreement on Government Procurement (WTO GPA), to which Canada, the US, and 46 other countries are parties, Canadian suppliers benefit from the same treatment as American suppliers. However, waivers to the Buy American Act are allowed when the requirement for a particular project would be inconsistent with US public interest, the required materials aren’t produced in the US in sufficient quantities and/or satisfactory quality, and the use of domestic material would increase the project cost by more than 25%. Obtaining a waiver can be complex and may put Canadian businesses at a competitive disadvantage.
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The Canada-US Agreement on Government Procurement
The Recovery Act, enacted in 2009, aimed to stimulate the US economy by requiring that "all iron, steel and manufactured goods" used in the construction and repair of "public works and public buildings" funded by the Act be produced in the United States. This provision was of concern to Canada as it could negatively impact Canadian suppliers given the lack of international obligations at the sub-federal level between the two countries.
Prior to the Agreement, Canada and the US had government procurement commitments to each other at the federal level through NAFTA and the WTO GPA. The new Agreement provides permanent and reciprocal commitments under the WTO GPA with respect to provincial, territorial, and state procurement. Canada, for the first time, covers its provinces under the GPA, and the US provides Canada with access to 37 states already covered by the GPA.
The Agreement also includes temporary reciprocal guarantees of access through September 2011. Canada guarantees American companies access to a broad range of construction projects undertaken by provincial and municipal entities, and in turn, Canadian companies are exempt from Buy American requirements for many infrastructure projects funded under the Recovery Act. This exemption applies to projects above the WTO GPA threshold (over US$7 million).
The seven programs covered under the Agreement are:
- US Department of Agriculture, Rural Utilities Services, Water and Waste Disposal Programs
- US Department of Agriculture, Rural Housing Service, Community Facilities Program
- US Department of Energy, Office of Energy Efficiency and Renewable Energy, Energy Efficiency and Conservation Block Grants
- US Department of Energy, Office of Energy Efficiency and Renewable Energy, State Energy Program
- US Department of Housing and Urban Development, Office of Community Planning and Development, Community Development Block Grants Recovery (CDBG-R)
- US Environmental Protection Agency, Clean Water and Drinking Water State Revolving Funds, for projects funded by reallocated ARRA funds where contracts are signed after February 17, 2010
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Waivers and how to obtain them
Waivers are allowed when the Buy America requirement for a project is inconsistent with the public interest, and the required materials are not produced in the U.S. in sufficient quantities and/or satisfactory quality. The use of domestic materials must also not increase the overall project cost by more than 25%.
The process of obtaining a waiver can be complex and arduous, and it is not designed for fast-moving projects. It is a transparent process that requires companies to disclose their business strategies, which could be a competitive disadvantage. Canadian businesses are advised to seek legal advice to understand how the Buy American Act will affect their trade with the U.S. Government.
There are three types of waiver requests that can be considered:
- Non-availability waiver: This addresses the unavailability of American-made iron, steel, manufactured products, or construction materials. The waiver request should describe the market research activities and methods used to identify domestic manufacturers, including the timing of the research and the conclusions on the availability of sources.
- Unreasonable cost waiver: This is available if the inclusion of iron, steel, manufactured products, or construction materials produced in the U.S. will increase the overall project cost by more than 25%.
- Public interest waiver: This is issued when the Buy America requirement is inconsistent with the public interest. There is a 15-day public comment period for this type of waiver.
The U.S. Department of Transportation (DOT) has issued waivers for specific territories, such as the Pacific Island Territories and the Freely Associated States, and for de minimis costs and small grants. The DOT has also waived requirements for construction materials for certain contracts and solicitations to assist project sponsors in transitioning to using U.S. materials.
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Frequently asked questions
The Buy American Act (BAA) is a US federal law that requires the US government to preferentially purchase goods and services produced in the US.
The BAA affects Canada by limiting the ability of Canadian suppliers to participate in certain US government procurement processes. This is particularly true for transportation-related projects funded by certain federal Department of Transportation programs, where the BAA imposes a requirement that "all iron, steel and manufactured goods" be produced in the US.
Yes, there are some exceptions and waivers available for Canadian companies. The US government waives Buy American requirements for long-standing US-Canada bilateral reciprocal defence procurement agreements, such as the Canada-US Defence Production Sharing Agreement (DPSA). Additionally, waivers can be granted for the public interest, or if the cost of US products is unreasonable compared to equivalent foreign products.
