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TO RUEHC/SECSTATE WASHDC PRIORITY 9498
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UNCLAS SECTION 01 OF 02 OTTAWA 000425 
 
SENSITIVE 
SIPDIS 
 
STATE FOR E, EB/DCT, WHA/EX, WHA/CAN 
 
STATE PASS USTR (SULLIVAN) 
 
COMMERCE FOR ITA/MAC (WORD) 
 
TREASURY FOR IA (WEYER) 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV EIND PREL PGOV CA
SUBJECT: Prime Minister announces proposal to expand NAFTA's 
government procurement commitments to provinces 
 
Ref: Ottawa 393 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY 
 
¶1. (SBU) Summary:  Prime Minister Harper is receiving guarded 
support from Canada's provinces over his proposal to counter "Buy 
American" measures by expanding the NAFTA government procurement 
chapter.  The government hopes such an expansion will secure access 
for Canadian suppliers to the U.S. sub-federal procurement market. 
However, this strategy would require negotiation on two fronts: 
first, the provinces must be persuaded to drop their own 
protectionist barriers; and second, the United States and Mexico 
must then be persuaded to expand the NAFTA procurement chapter. 
Were this to happen, it would be a positive opening of Canadian 
markets but would not be a panacea for the disruptions caused by Buy 
America provisions. End Summary 
 
Harper's Response to "Buy American" 
----------------------------------- 
 
¶2. (U) On June 3, Prime Minister Harper announced his intention to 
pursue an expansion of sub-federal government procurement 
commitments in the North American Free Trade Agreement (NAFTA). 
Growing Canadian concerns over potential business losses resulting 
from "Buy American" provisions in the American Recovery and 
Reinvestment Act of 2009 (ARRA) and other pending federal 
legislation (reftel) prompted Harper's announcement. 
 
¶3. (U) Harper stated that while the WTO and NAFTA contain 
prohibitions against national preferences for federal level 
procurement, they do not apply to provinces and municipalities 
(i.e., sub-federal entities).  "I believe it would be interesting 
for all of our countries to look at dealing with that problem here 
in North America," stated Harper. "Obviously, at a time when we're 
trying to keep borders open internationally, I do think that the 
proliferation of domestic preferences in sub-national government 
procurement is really problematic. It is part of the creeping 
protectionism, not just in the United States, but elsewhere, that we 
must avoid to ensure a global recovery." 
 
¶4. (U) While Canada has previously resisted formalizing 
provincial-level procurement access for foreign suppliers, recent 
actions in the context of the planned free trade talks with the 
European Union have help ease the way for Harper's proposal.  As a 
pre-condition for launching the FTA talks, the EU persuaded Canada 
to bring the provinces to the table for procurement talks. Canada's 
Minister of International Trade, Stockwell Day, indicated that the 
EU action "really opened the door" to the current federal-provincial 
dialogue on the NAFTA. 
 
Day as Provincial Consensus-Builder 
----------------------------------- 
 
¶5. (SBU) Minister Day has been given the job of building consensus 
among provinces - with Quebec and Ontario already voicing a degree 
of support.  One of Day's challenges is to overcome provincial 
reluctance to give up buy-local provisions in their existing 
provincial regulations. The Canadian public also tends to be 
fiercely protective of social, health, and cultural matters - and an 
obvious foreign commercial presence in these areas might trigger a 
backlash against Harper's minority government.  While 
municipal-level procurement does not appear to be on the table at 
Qmunicipal-level procurement does not appear to be on the table at 
this stage, the results of the Federation of Canadian Municipalities 
(FCM) annual meeting on June 6 (reftel) will likely help shape 
federal and provincial thinking on the issue.  During the FCM 
meeting, more than 1000 municipalities will consider a slate of 
actions to counter "Buy American" restrictions. 
 
No pain, no gain 
---------------- 
 
¶6. (SBU) Canadian trade watchers suggest that the domestic debate 
will hinge on comparing the costs and benefits of new procurement 
commitments against the current informal mechanisms governing 
provincial procurement.  According to Canadian trade lawyer, Simon 
Potter, while most provinces already allow U.S. companies to bid on 
 
OTTAWA 00000425  002 OF 002 
 
 
their contracts, it is a difficult process complicated by a 
patchwork of rules, exceptions and protectionist measures. 
Responding to the Prime Minister's announcement, Lawrence Herman, 
another Canadian trade lawyer, stated that "It will take a lot of 
effort to get the provinces to agree, but it's the only realistic 
way to solve the problem." 
 
¶7. (SBU) Comment: Herman's hope that this will "solve the problem" 
raises a tactical issue for us and the Canadians: even were these 
negotiations to come to fruition, they would not be a a panacea for 
"buy national" provisions on both sides of the border. For one 
thing, the offers by states and provinces will be limited by 
geographical scope and by sector; for another, municipalities will 
not be covered at all. We suggest keeping in mind that this opening 
of Canadian markets will be a very positive step for U.S. exporters 
and investors but will not put to rest the arguments over "Buy 
America" and "Buy Canada" regulations. End comment.