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‘Buy American’ provisions of Jobs Act raise concern of harm
to firms on both sides of border

by Ilene Grossman ~ December 2011 ~ Stateline Midwest »
Provisions in President Obama’s proposed jobs plan that would require certain projects to use only American-sourced materials have sparked fear over potential damage to the United States’ largest trading partnership — with its cross-border neighbor Canada.

These “Buy American” provisions would require companies bidding on infrastructure projects funded through American Jobs Act legislation to use iron, steel and components with 100 percent domestic content. But with cross-border supply chains providing a major part of economic activity between the U.S. and Canada, “Buy American” could hurt companies in both countries.
Leaders of the Midwestern Legislative Conference Midwest-Canada Relations Committee expressed these concerns in a letter sent to Obama, U.S. Trade Representative Ron Kirk and members of the U.S. Congress from the Midwest. The letter focuses specifically on cross-border integrated supply chains: groups of companies that buy component parts or raw materials from one another to make a finished product. Such chains are common in the auto industry (see illustration), but are also part of the manufacturing process for other goods.
“Many of our businesses truly are partners, manufacturing products together,” says Kansas Sen. Ray Merrick, co-chair of the committee. “Today more than 40 percent of daily cross-border trade is within the manufacturing sectors of our two countries.”
Wayne Elhard, a member of the Legislative Assembly of Saskatchewan, adds, “The supply chain is so integrated that any disruption in the flow of products across the border can have an immediate and significant impact on existing jobs.”
Canadian as well as U.S. companies could be hurt by the Buy American provisions. Canadian firms that cannot participate in these infrastructure projects would not need to purchase as many parts and raw materials from their U.S. suppliers. U.S. companies, meanwhile, would be forced to drop reliable suppliers in order to bid on a project funded by the Jobs Act. Sourcing their materials solely from U.S. suppliers could raise the price of their bids and, as a result, the cost of projects.
Mike Lynch, a vice president at Illinois Tool Works, a diversified manufacturer of engineered products and specialty systems, points out that companies sometimes aren’t even able to purchase component materials for their products in the U.S. Lynch gives the example of safety-critical threaded metal bolts, most of which are produced using a particular kind of steel. The closest supplier for that steel is in Canada.
“We [Canada and the United States] need to focus on our real competitors, not in North America but around the world,” Elhard says.
The Jobs Act failed to pass the U.S. Senate, but the administration is promising to push various provisions separately. Congress is likely to consider measures before next year’s election that include a Buy American requirement.
While the legislation stated that the Buy American provision would be applied in a way that is consistent with international trade agreements, this applies only to spending by the federal government and to states that have signed on to the Government Procurement Agreement. Much of the Jobs Act spending would be by sub-state (mostly city and county) units of government that are not bound by international treaties.
The Midwest-Canada Relations Committee has been steadfast in its opposition to Buy American provisions, which first emerged — and were ultimately included — in the American Recovery and Reinvestment Act.

 

Brief written by Ilene Grossman, who serves as staff liaison to the Midwestern Legislative Conference Midwest-Canada Relations Committee.