Recommendation #3—Maintain and Enhance Goods Market Access

Much of the commercial activity governed by NAFTA goes on day-to-day without incident or notoriety. However, as close as the relationships are among the three NAFTA countries (especially between Canada and the U.S.), there are bound to be trade irritants. These ongoing disagreements include government procurement and its associated Buy America provisions in the U.S., softwood lumber, and dairy supply management in Canada, as well as the auto sector (given the uncertainty around future changes to the sector’s rules of origin).

Government Procurement: Securing Access to U.S. Transportation Projects and Increasing Coverage at the State Level

The renegotiation of NAFTA would be a good opportunity to update the Canada–U.S. Agreement on Government Procurement and negotiate permanent waivers to the Buy America provisions that apply to federally funded transportation projects.
Canada and the U.S. are both parties to the three-year-old Revised WTO Government Procurement Agreement (GPA). For the 19 signatory parties, the Revised WTO GPA opened domestic procurement markets to foreign competition for a wide range of goods and services, including construction services.11The WTO GPA is a multilateral free trade agreement on government procurement signed by 18 parties, including Canada, the United States, the European Union’s 28 member states, and Japan. The aim of the agreement is to ensure “fair, transparent, and non-discriminatory” competition for government procurement of goods, services, and construction services. See World Trade Organization, The GPA in Brief . In contrast with NAFTA’s Chapter 10, which covers only federal government entities and a selection of federal enterprises,22NAFTA Secretariat, Chapter Ten: Government Procurement . the WTO GPA extends the coverage to sub-central entities, including all provinces and territories (except Nunavut) in Canada and 37 U.S. states.33World Trade Organization, Agreement on Government Procurement: Coverage Schedules .
Although Mexico has not signed the WTO GPA, Mexico did sign the TPP, which has the same obligations as the WTO GPA. What is more, in side letters to the TPP, Canada, Mexico and the United States all agreed to have TPP rules apply to government procurement under NAFTA.44Global Affairs Canada, Trans-Pacific Partnership (TPP)—Side Instruments Involving Canada . Therefore, it would make sense for NAFTA 2.0 to incorporate the TPP government procurement commitments directly in the main text.
There is also potential for Canada to negotiate further access to government procurement in the United States through bilateral negotiations. In 2010, Canada and the United States signed the Canada–U.S. Agreement on Government Procurement. The agreement granted Canada certain exemptions to the Buy American provisions that were included in the 2009 American Recovery and Reinvestment Act in exchange for the inclusion of Canadian provinces in the WTO GPA.55The Canadian Trade Commissioner Service, Canada–U.S. Agreement on Government Procurement . Another key component of this bilateral agreement was a commitment by both parties to “explore the scope for a long-term government procurement agreement” that would extend market access beyond the commitments made in the WTO GPA.66Ibid.
The renegotiation of NAFTA would be a good opportunity to revisit this promise. In an upgraded Canada–U.S. Agreement on Government Procurement, Canada’s goal should be to obtain a permanent waiver on the Buy America requirements that prevent Canada from taking part in projects funded by the U.S. Department of Transportation’s various agencies. The waiver would also prevent future domestic content restrictions from applying to Canada.77The U.S. Department of Transportation agencies include the Federal Highway Administration, Federal Transportation Administration, Federal Aviation Administration, Federal Airport Authority, AMTRAK, and the Federal Railroad Administration. Each of these agencies has a separate set of Buy America requirements. (See “The Difference Between Buy America and Buy American.”)88For more information on the various Buy America provisions applying to federally funded transportation projects, see Platzer and Mallett, Effects of Buy America on Transportation Infrastructure and U.S. Manufacturing .
In 2015, the U.S. passed the Fixing America’s Surface Transportation (FAST) Act , which authorizes over $300 billion in funding for transportation projects through 2020.99U.S. Department of Transportation, Fixing America’s Surface Transportation Act. However, existing Buy America provisions would limit Canada’s ability to participate in these projects. Given the extensive supply chain links between Canada and the United States in the iron, steel, and transportation equipment manufacturing sectors, Canadian firms should be given access to these projects. From a U.S. perspective, allowing Canadian firms to take part in transportation projects could reduce their costs and completion time and lead to more efficient use of public funds.1010According to a report from the U.S. Congressional Research Service, Buy America may increase the cost and completion time of transportation projects. See Platzer and Mallett, Effects of Buy America on Transportation Infrastructure and U.S. Manufacturing .
Within a revised agreement on government procurement, Canada and the U.S. could also work together to open procurement markets further at the state level.1111Global Affairs Canada, Canada–European Union Comprehensive Economic and Trade Agreement . In the Revised WTO GPA, all Canadian provinces and territories (except Nunavut) are covered, whereas only 37 of the 52 American states have agreed to these obligations. What is more, the comprehensiveness of the coverage varies from one state to another. A revised Canada–U.S. Agreement on Government procurement would be the right framework for Canada to negotiate increased access to government procurement markets for the remaining states not included in the Revised WTO GPA.
An additional goal for a revised Canada-U.S. Agreement would be to open government procurement markets at the municipal level, as negotiated in CETA. As such, CETA provides the most favorable access to government procurement markets that both Canada and the EU have agreed to in a free trade agreement.1212Under CETA, Canada opened its government procurement markets at the municipal level, also covering school boards. For the list of local entities covered in CETA, see Government of Canada, Text of the Comprehensive Economic and Trade Agreement—Annex 19-A .