Birgit Matthiesen started her career as a Canadian customs inspector at the Canada-U.S. border. She later worked for many years at the Canadian Embassy in Washington. These days, as Director of Canada-U.S. Cross Border Business Affairs at the law firm of Arent Fox LLP in Washington, DC, her goal is to ensure that leaders in both countries understand what’s at stake and the importance of keeping the focus on the vibrant marketplace North Americans have created. She sat down with EDC, to talk about the sometimes confusing policies known as Buy America, Buy American — which date back decades — and America First, which is a phrase used by U.S. President Donald Trump.
Question 1: Why is it so confusing when we talk about Buy America, Buy American and America First?
Birgit Matthiesen: It’s easy to confuse Buy America and Buy American because they sound so similar. I don’t think it’s any more exotic than that, frankly. America First is the phrase that’s been coined by President Trump. Just the meaning and the implications of it, for most people, is a clear message of protectionism that the U.S. is seeming to embrace.
Question 2: Is one more of a threat than the other in terms of long-term trade with the U.S. for Canada?
No, one isn’t more problematic than the other. Buy America has been around for many years and will continue to be around — and it’s a concern, especially if it becomes part of U.S. legislation. Buy American is also still here and highly concerning. America First is equally problematic because it will demonstrate itself in policy other than Buy America requirements — as in U.S. corporate tax reform. They are equally worrisome and potentially a barrier to Canadian companies doing business in the United States, but in different ways.
Question 3: What triggers do people need to be aware of that gives them a sense that something is coming out of Washington that could cause ripples in trade?
I sincerely do not know how Canadian companies can stay abreast of these changes. I worry about that an awful lot, actually. Some large companies will have offices in the U.S., but not every company in Canada has those resources. Some stay very close to Ottawa and learn from the Canadian Trade Commissioner’s office and others about what’s happening, but that may not be enough. That’s why companies turn to U.S. trade experts, especially those with a deep understanding of the dynamics of the Canada-U.S. business environment. [Companies] need someone to connect the dots for them and to look “beyond the horizon” so news from Washington does not come a surprise.
Question 4: How do you stay on top of the issues?
Our offices are literally across the street from the White House! We stay abreast of these issues because every rule change we think needs to be watched comes across on my computer. We work with all the U.S. Trade associations in Washington, who also have government relations offices. We have in-house monthly meetings of experts about the kinds of legislation being introduced and the chances of it being passed. We interpret it through the eyes of a company in Canada trying to do business in the U.S. For our clients, we’ll give them an early heads up and an analysis of what this might mean. And sometimes it’s good news. I’m living and breathing this, but the average Canadian business person probably isn’t.
Question 5: Are there good sources of information for Canadian companies to watch out for those triggers?
I think the Canadian media does a pretty good job of telling people what is happening. What’s missing is maybe why it’s happening and what it means for the specific companies. And often the news is a fait accompli.
Question 6: What sectors are more impacted than others and what would those specific triggers be for those sectors?
Not every U.S. federal procurement project and U.S. federal agency is constrained by U.S. Buy America requirements. In terms of spending, the larger infrastructure spending is in federal transit, federal highways, clean water and wastewater projects.
These federal agencies, in the last few years, have made it a priority to look at every widget, every manufactured product that is used in their projects, and asking for a legal certification right down to the initial manufacturer or initial sources. In the last year or so, we’ve seen a lot of Canadian companies getting requests to sign a Buy America compliance certificate and that’s definitely your first trigger.
Also, many agency requests for proposals (RFPs) will have a statement that the project is regulated under Buy America. I’m seeing that a lot. If you’re a Canadian company that’s selling directly into that project, it’s going to be more transparent because you’re replying to an RFP.
Question 7: Is there any advice you can provide in the short-term and longer-term when it comes to dealing with uncertainty in trade?
Just get the best advice you can. If you want to expand, or you have a new product that is the latest, greatest, to clean water-treatment plants in the U.S., it’s no longer just a marketing endeavour. It’s now also a U.S. legal compliance endeavour. So they need to get good advice from people who understand the Canadian business environment and the cross-border trade environment. It’ll be different for a U.S. company because they will likely already be compliant. It’s an added, but very important step in the marketing process of a product. That will allow companies in Canada to understand what they can and cannot say in their marketing and whether they can stipulate legally that they are Buy America-compliant.
Question 8: Is it causing problems for companies at the border yet?
No, not that I’ve heard, because the enforcement and compliance is at the U.S. construction sites.
Question 9: Are services covered in any of these?
The short answer is that in some agency procurement contracts, services are included. That would include engineering, design, installing equipment. Engineering is the most common one, but it could be repair or training, IT as well, in some cases.
Question 10: Are there any issues getting their people to and from the U.S.?
I am a Canadian and used to be a Canadian customs inspector so I have a pretty good understanding of the Canada-U.S. border. I would say two things: NAFTA is now 22 years old. The chapter on cross-border movement of company personnel in the current agreement is completely out of date.Because Canada, the U.S. and Mexico haven’t renewed that chapter, many companies in Canada who send personnel across the border have been experiencing a much greater degree of scrutiny and denial of entry into the U.S. That harms both the company in Canada as well their U.S. customer. If we’re going to renegotiate, renew, rewrite NAFTA, the cross-border movement of business executives would be the first thing I’d look at. Repair people and warranty people, for example, have been experiencing great headaches at the Canada-U.S. border — in both directions.
Question 11: Any strategies to deal with that?
A Canadian business person or company representative seeking entry into the U.S. should look at the NAFTA chapter to see what list of professions are exempted from a work visa for the U.S. and therefore, who should be able to come into the U.S. without a work visa. It’s a very specific list. Generally speaking, the people who have the biggest problems [at the border] are those who are coming in with a warranty on a Canadian product sold in the U.S. They should have a copy of that warranty, and a letter from the head office identifying that person and specifically explaining why that person is coming into the U.S., for how long, and to do what work. That has helped.
Question 12: In your opinion, how big is the threat that America First will force states, cities to use only local talent regardless of price tag?
I think, U.S. concerns by both the government and citizens have reached an economic anxiety level that we have not seen since 1929 or 1930 — and those economic anxieties will form public policy driving American economic interests over foreign interests. That’s not something new. What is changing now, in the U.S., is a drawing away from the global world back within the boundaries of the United States and that’s what’s changed the most. The example here is the U.S. withdrawal from the Trans-Pacific Partnership. It’s looking inward and no longer outward and this will have a ripple effect on many U.S. trading partners.
Question 13: I recently read about an exemption — that if an RFP goes out and the price to use an American company is 25 per cent higher than that of, say, a Canadian company’s bid, that the states aren’t required to use Buy America and Buy American. Is that so?
Yes, for each of the agencies that currently have Buy America and Buy American in force, there have been three exemptions that these agencies and contractors can use to apply for a waiver. The state agency (or the receiver of the federal funding), not the company, has to apply for the waiver. Very generally speaking, there are three:
- That the Buy America requirement for a particular project would be inconsistent with U.S. public interest;
- The materials required aren’t produced in the U.S. in sufficient quantities and of satisfactory quality;
- The use of required domestic material over foreign material would increase the cost of the overall project by more than 25 per cent.
The domestic content calculation varies from agency to agency, just to make life truly complicated. Some will include labour costs, and other won’t, for example.
Question 14: Generally speaking, who’s affected and who isn’t?
Companies in Canada who have a product that will be used, ultimately, in a U.S. infrastructure project, regulated by federal Buy America and Buy American and AIS requirements, will be impacted.
Question 15: Is Canada treated the same way as other countries?
The short answer is yes. There’s no specific carve-out for products from Canada. There were, under the American Recovery and Reinvestment Act of 2009, certain limited products from Canada, but those projects are done. So the simple answer is that all foreign material is treated equally under U.S. federal procurement legislation. That being said, the U.S. and Canada are parties of the World Trade Organization (WTO) Government Procurement Agreement (GPA), which includes important procurement provisions at the sub-federal level.
Question 16: Are there any exemptions that a Canadian company could be considered for?
The WTO and NAFTA protections apply. Canada and the U.S. are members and parties of the WTO government procurement agreement. Under NAFTA, the U.S. requires that Canadian goods and suppliers be exempt from the Buy American requirements if procurement is being done directly by a listed U.S. federal department or agency and if the value of procurement exceeds NAFTA thresholds. For 2015, those thresholds were $204,000 and $7,864,000 for construction services. Chapter 10 of the NAFTA thresholds for same year are (1) Procurement of goods and services: $79,507; and (2) Procurement of construction services: $10,335,931.
Just one thing to note: We’ve been talking about U.S. Buy America and Buy American federal requirements. There are state requirements, not in every state, but there are many. And there are other domestic use requirements — by that, I mean local hiring practices. These are subjects of another article that you might want to include down the line. This is just one big, huge chunk, but there are others procurement barriers as well.
My first call with a client from Canada would involve questions such as: What’s your product, what’s it made of, how do you make it, where do you make it, where’s it going to go, what’s your distribution channel? Then I can help determine if there’s a federal agency with Buy America(n) and then we do the math and the domestic product calculation. If you’re in textiles, you may not need to worry about iron and steel Buy America; you’ve got other issues. As complicated as this might sound, a savvy sophisticated company in Canada that takes the time and invests the resources in rolling up their sleeves will be far better positioned in the U.S. marketplace than their competitors. So it’s a well worth-it investment by the company.
In my experience, Canadian companies and executives are extremely sophisticated. They want to know what they can do and how to comply. Once they understand what they can and cannot do, they have a competitive advantage in almost every corner of the U.S. business sector. It’s getting over the fear factor. Their competition is often not as savvy.