In June, I had the opportunity to attend a very informative conference on the Obama Recovery Plan and on the impact the ‘Buy American’ clause will have on Canadian companies’ access to American public markets.
Organized by the MDEIE, the conference included speeches by a number of American experts on the four key parts of the plan: energy and the environment, infrastructure and transportation, security and defence, and health and information technology.
The various presentations showed that the Recovery Plan will lead to substantial spending in many sectors but that due to the ‘Buy American’ clause, Canadian manufacturers could very well be shut out from many of the resulting projects. However, it bears mentioning that this clause only affects projects financed by Recovery Plan funds, which account for a fairly small part of the entire federal budget.
The major principles of the ‘Buy American’ clause as it pertains to the Recovery Plan are as follows:
- When a project is financed directly by the federal government, the ‘Buy American’ clauseapplies only if the total project cost is less than US$7.4 million. For projects financed by a state, county or municipality using federal funds, the clauseapplies regardless of the project cost. Most projects financed by the Recovery Act are not managed directly by the federal government.
- The clause states that if a project is partially or totally financed by Recovery Plan funds, all the manufactured goods used in the project, including steel and iron, must be manufactured in the United States. Construction equipment is excluded because the clause only pertains to products that are part of the structure being built or left on the site once construction is finished. A product is considered to be manufactured in the U.S. if the American content exceeds 50% of the total value of the end product. Manufacturers of low-cost components sold to Original Equipment Manufacturers (OEM) will not necessarily be affected unless their customers need to replace the components in question with U.S. equivalents in order to reduce the proportion of foreign content.
- There are potential exemptions in all types of projects. If a Canadian company can prove that it qualifies for an exemption, it can be included on the list of eligible project suppliers. Since it is up to the order giver to prove the need for an exemption to the government authorities, Canadian companies would do well to ensure he makes the case on their behalf. There are three possibilities:
- The product is not available in sufficient quantities in the U.S.;
- Buying an American product will increase the project cost by more than 25%;
- The ‘Buy American’ clause is not in the public interest.
One of the main consequences of the ‘Buy American’ clause for Quebec SMEs is that some U.S. customers may become wary of using Canadian suppliers for fear of losing access to lucrative Recovery Plan contracts. Before negotiating with a potential customer, you should know why he can purchase your products and, if necessary, help him take the steps to obtain an exemption that would allow him to include your products in his offer.
More information on this topic is can be found on the following sites: Recovery.gov, MDEIE, www.sell2usgov.ca, FedBizOpps.gov, Wikipedia (type “recovery plan” in the Search field), and in the information document published by the Canadian Manufacturers and Exporters.