16 May Local Governments May Launch a Trade War
Here is an interesting example of the way that local governments, with encouragement and guidance by the national governments, are leading the US and Canada into a mini-trade war.
Ordered by Congress to “buy American” when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.
Outrage spread in Canada, with the Toronto Star last week bemoaning “a plague of protectionist measures in the U.S.” and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts — the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.
Although the article suggests there is no WTO remedy, I’m not so sure. Both the U.S. and Canada are parties to the Agreement on Government Procurement, which has a national treatment requirement in Article III . It is hard to imagine that there will not be WTO litigation about this down the road.
Of course there is a local remedy. There is arbitration under the NAFTA agreement that can be brought if national treatment is not provided and also under the WTO in a proceeding. This is one more example of local politics being used for political gain and then leaving the international system to bring us back into compliance.
Best,
Ben
Response… When looking at the WTO Agreement on Government Procurement of NAFTA Chapter 10, it is important to look at the Annexes or Appendices that set out he covered entities. The application of the rules is restricted or limited by the parties. Canada has not listed any local governments in its appendices. As a result, an action by a local government would not be a breach of Canada’s international obligations. The United States, on the other hand, has listed a large number of States and local entities in its appendices to the WTO Agreement on Government Procurement. In Article 1024 of the NAFTA, the Parties agreed to consult with subcentral governments – but, no date, no subcentral governments appear to have been listed.
This means that the local government decisions in Canada may be legal under the government procurement provisions of international agreements.
That being said, there may be other legal avenues available in NAFTA Chapter 11 and under domestic law.