Updated on Aug. 4, 2009.
CORRECTION: The original version of this report incorrectly identified the replaced materials at Camp Pendleton. They were six pipe fittings estimated to cost about $180 total. It also misidentified the project, which is a $1.3 million new car wash addition that is not being built with stimulus funds. The project is subject to the 2005 version of the Buy American Act.
Far south of the U.S.-Canadian border, at Camp Pendleton Marine Corps Base near San Diego, a private contractor building a car wash addition opted to replace a handful of sewer line pipe fittings when questions arose over where they were made, the Navy reports. The fittings were labeled "Canada patent pending," leading to doubts about whether the material was compliant with "Buy American" provisions for federal contracts that date back to the Great Depression.
North of the border, where nerves are sensitive to any whiff of protectionism, the story of replaced parts quickly grew. Canadian media reported that the fittings were an entire section of piping and that it was part of a huge stimulus-funded construction project. Vesso Sobot, CEO of the pipe fitting manufacturer IPEX Inc., decried the decision as "American protectionism run amok." In other words, it seemed to Canadians like exactly the debacle they expected would unfold from strengthened "buy American" provisions in the stimulus bill, which are causing new tensions in the U.S.-Canadian trade relationship.
IPEX has since conceded that the Navy's version of events is correct. But it's only minor comfort for Canadians who, until recently, had waited anxiously for President Obama to fulfill his Feb. 19 pledge to preserve the "extraordinarily important trade relationships that exist between the United States and Canada." Obama's reassurances came in the wake of the American Recovery and Reinvestment Act, which contains language directing states and local governments to buy only American-made steel, iron and manufactured goods for stimulus-funded infrastructure projects.
Far south of the U.S.-Canadian border, at Camp Pendleton Marine Corps Base near San Diego, locals recently hailed the start of construction on a new stimulus-funded hospital, which they say will create jobs and provide health care to servicemen and women.
But north of the border, a contracting snafu during the hospital's construction has come to epitomize the folly many Canadians and trade experts see in "buy American" provisions, which are causing new tensions in the U.S.-Canadian trade relationship.
When one contractor decided last month to junk thousands of dollars in functioning sewage pipes labeled "made in Canada" for pricier, American-made counterparts, Canadians worried they were being shunned by their largest trading partner. Critics pointed to the Pendleton case as an example of policies they say undermine the spirit of the North American Free Trade Agreement.
They were also quick to note that the offending pipes were made using resin produced in the U.S., which is endemic of the cross-border flow of products and components that defines the North American economy.
Until recently, Canada had waited anxiously for Obama to fulfill his Feb. 19 promise to preserve the "extraordinarily important trade relationships that exist between the United States and Canada." Obama's reassurances came in the wake of the American Recovery and Reinvestment Act, which contains language directing states and local governments to buy only American-made steel, iron and manufactured goods for stimulus-funded infrastructure projects.
But on June 6, Canadian mayors chose to stop waiting and light a fire under their federal government. At a weekend meeting in Whistler, B.C., local leaders from the Federation of Canadian Municipalities gave an ultimatum to Prime Minister Stephen Harper and International Trade Minister Stockwell Day: Secure an amended free-trade agreement between the U.S. and Canada within 120 days, or American firms will lose access to provincial and local procurement the same way Canadian firms have been blocked from bidding on American stimulus projects.
Halton Hills Councillor Clark Somerville, the principal author of the resolution, said the Pendleton incident was frequently cited in discussions outside of the main conference hall leading up to the final vote. Even after the rumor's debunking, Somerville said it still represents the most glaring example of what "could and was going to happen."
Although the federation allowed four months for a deal to be struck, time is already ticking down before this summer's anticipated stimulus spending spree. The window for revising what is known as the OMB Interim Final Guidance -- a set of guidelines that will govern how stimulus money flowing to states and municipalities is spent during the summer -- is closing fast. Comments are due by June 22.
If a free-trade agreement cannot be reached before summer, billions could be lost on both sides of the border because the bulk of both countries' stimulus packages is earmarked for "shovel-ready" infrastructure projects slated to begin soon.
The Government Accountability Office estimates that states and local governments will spend about $280 billion of the $330 billion in remaining stimulus money this year. Canada's own stimulus package is $32 billion.
The U.S. Chamber of Commerce has expressed apprehension about stimulus protectionism. In a May 22 letter to Obama, Chamber President Thomas Donohue called the buy-American provisions "particularly damaging to the U.S. business relationship with Canada, America's largest trading partner and arguably closest friend."
In his letter, Donohue warned that retaliation by Canadian firms could cause U.S. water and wastewater equipment manufacturers alone to lose $3 billion. He also cited a news report that as many as 600 steelworkers in Pennsylvania would soon be laid off because their company, Duferco Farrell, sells steel that is partly produced abroad and no longer meets the standards established under the recovery act. Word that new buy-American language would also be inserted into the climate change bill has only added to the concerns of the Chamber and others.
Looking forward, the direct effects of buy-American policies on the global economy are likely to be small, but the precedent they set looms large, said Martin Wolf, chief economics commentator for the Financial Times. "The U.S.-Canada trading relationship is incredibly intimate," he said, adding, "If these two countries can't maintain stable free-trading relationships, it does make you just a bit worried about maintaining them across the rest of the world."
But Auggie Tantillo, head of the American Manufacturing Trade Action Coalition, sees things differently. "It seems a little bit ironic to pass a $787 billion stimulus package and send the lion's share of that funding offshore through the purchase of foreign-made products," he said. "If the Canadian government wants to stimulate its economy, then they're welcome to borrow money from the Chinese, take on additional debt and pour it back into our economy the same way we are."
Rep. Daniel Lipinski, D-Ill., who helped craft one of the first letters advocating buy-American provisions in the recovery act, agrees with Tantillo.
"I think it's important that the United States looks out for the best interests of the United States, just as other countries look out for the best interests of their citizens," he said.
Lipinski does not expect the use of buy-American language to taper off in future legislation. Instead, Lipinski said he is currently working with Sen. Russell Feingold, D-Wis., to introduce a bill this summer that would strengthen the current buy-American provisions, and he said he would prefer that such language stay on the books even after the economy has recovered.