Where Does Canada’s Construction Industry Fit into Biden’s “Made in America” Infrastructure Plan?
President Biden has announced a $2 trillion infrastructure plan, which would make significant investments in clean energy, roads, buildings, ports, airports, water infrastructure, railroads, and public transportation. Canadian suppliers, including in the construction industry, are wondering whether they will have access to opportunities under the infrastructure plan. In light of the recently strengthened “Made in America” restrictions and centralized exemption system, Canadian access is possibly becoming even more limited under the new administration than it was under President Trump.
Recognizing the integrated nature of the Canadian and American construction industries and Canada’s wealth of natural resources, the United States may still need to look to Canada for suppliers necessary to carry out its ambitious infrastructure initiative. Whether exemptions to Made in America procurement requirements are put in place for Canadian suppliers is yet to be seen, but what is certain is that they will not come without some reciprocal cost to Canada.
What are the Made in America Restrictions?
President Biden’s January 2021 executive order, ‘Ensuring the Future is Made in All of America by All of America’s Workers’, imposes Made in America restrictions by building on current US laws – the ‘Buy American Act’ and the ‘Buy America’ provisions.
The Buy American Act applies to all US federal government purchases of goods valued over US$10,000. When purchased by federal entities for public use, the law requires the goods meet the “component test” (which, until February 2021, required manufacturing take place in the US and at least 50 per cent of the cost of their components must come from the US). By contrast, the Buy America provisions apply to goods procured for infrastructure projects undertaken at the state, regional, or municipal level funded by certain federal entities. Requirements under the Buy America provisions vary depending on the type of good procured and the funding entity, but generally they require 100 per cent of iron, steel, and manufactured goods be sourced from the US, and more than 70 per cent of rolling stock. There are exceptions to requirements under these Made in America laws, and waivers can be granted for the public interest or if the cost of US products is unreasonable compared to equivalent foreign products.
In keeping with his campaign promises, President Biden is increasing the level of American-made content federal agencies must require when purchasing products and curbed existing exemptions to Made in America rules. Biden has asked members of his cabinet to assess whether their respective agencies comply with the strengthened rules. The executive order also required amendments to the Federal Acquisition Regulation (FAR), which guide the implementation of Buy American laws. The FAR has been amended to raise the domestic content requirement in the component test noted above to 55 per cent, impose separate, stricter domestic content requirements for iron and/or steel products, and increase price preference for businesses that offer domestic products and materials (from 6 per cent to 20 per cent for large businesses, and from 12 per cent to 30 per cent for small businesses).
Notable for Canada and its suppliers, the executive order also establishes a new Made in America oversight office under the Office of Management and Budget (OMB), tasked with ensuring compliance with applicable laws and overseeing exemption waivers. While streamlining the exemption review and waiver process through the OMB is said to provide more certainty in decision-making, centralizing scrutiny of waivers will undoubtedly make the granting of waivers less frequent. Despite the political messaging, the policy in action will make it more difficult for foreign suppliers, including Canadian suppliers, to access US projects. The appointment of Celeste Drake as the head of the Made in America office, a trade expert and long-time advocate for organized labour and domestic production, suggests US contractors looking for exemption waivers to use Canadian subcontractors may be facing an even steeper uphill battle.
What Does it Mean for the Canadian Construction Industry?
The infrastructure stimulus will provide opportunity for construction companies to engage in US infrastructure projects. However, Canadian participation as subcontractors will be highly restricted unless Canada can obtain exemptions to the Made in America restrictions.
With clear political capital being directed to bolster American business, it is difficult to see how the Biden Administration will allow for an exemption to the Made in America rules for Canadian suppliers (unless it recognizes that blocking Canadian suppliers will hurt US infrastructure projects). In 2009, Canada was able to obtain exemptions to similar requirements of the Obama administration’s $787 billion stimulus package by giving the United States access to provincial procurement.
The WTO Agreement on Government Procurement (GPA) prevents discriminatory treatment against Canada under the Buy American requirements for US construction projects covered by the agreement (the USMCA procurement rules do not apply between Canada and the US). However, for procurements by certain federal departments and some states which are not subject to the GPA, or for procurements that do not meet the GPA’s applicable monetary threshold for coverage, Canada cannot rely on such protection from Made in America restrictions. Additionally, procurement for infrastructure projects at the state and municipal level associated with the Buy America provisions is not covered by the GPA. In these circumstances, there are no international trade rules to prevent Canadian construction companies from being discriminated against when seeking to participate in US infrastructure projects. This is especially problematic for Canadian construction companies wanting to participate in the construction of US roads, bridges, and dams, as well as certain US federal types of infrastructure, like airports and loading docks at ports.
It may be possible for the US to allow for Canadian subcontractor exemptions, allowing for Canadian access if the Biden administration can be convinced that preventing this access harms its Made in America domestic policy objectives. Ideally, US contractors could have access to Canadian subcontractors for American infrastructure projects without requesting waivers through the Made in America office. However, the question remains what concessions the Biden administration would ask for in return.
Where Do We Go From Here?
Access to the largest stimulus package in American history represents an important business opportunity for the Canadian construction industry. To gain such access, Canada may need to leverage the integrated cross border infrastructure market and be prepared to make concessions regarding Canadian infrastructure projects.
Author’s Note: Very special thanks to Shannon Kristjanson and Novera Khan for their invaluable assistance.
About the Author
Clifford Sosnow is co-Chair of the International Trade and Investment Group at Canadian law firm Fasken. He is an internationally recognized trade, investment and anti-bribery law advisor, strategist and advocate.