THE TTALK QUOTES

On Global Trade & Investment

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The Global Business Dialogue, Inc.

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No. 12 of 2015

MONDAY, FEBRUARY 9, 2015

Filed from Portland, Oregon

Click here for last Wednesday's quote from Senator Pat Roberts (R-KS) on Geographical Indications.

PRIDE AND THE PRINCE RUPERT PORT

"A waiver would have resolved this issue in a manner that would have allowed this project to move forward without delay. [But...]

"We have been clear: the application of protectionist Buy America provisions on Canadian soil is unacceptable and an affront to Canadian sovereignty."

Ed Fast
January 19, 2015

CONTEXT

The project at issue is the upgrading of a ferry terminal in Prince Rupert, British Columbia. The terminal, which does need upgrading, is a stop on the Alaska Marine Highway, and as The Economist very helpfully explained in an article last month, "The United States Alaska Marine Highway is not really a highway. It is a 3,500-mile chain of ports from Alaska's Aleutian Islands to Bellingham, in Washington state."

Most of the highway's ports are in Alaska, but not the one in Prince Rupert. Prince Rupert is in British Columbia. It is Canadian. True, the terminal is operated by the State of Alaska, and in 2013 Alaska leased the property for another 50 years, at a cost of $3.3 million. It is not the state's intention to pay for the upgrade solely with Alaskan money. U.S. federal funds would be involved as well. And with Federal Funds there is the requirement to use American steel etc. - the famous Buy America rules.

Those rules are a thorn in Canada's side, and having contractors adhere to them in British Columbia is what Ed Fast, Canada's trade minister, finds "unacceptable." It is a sentiment that the Canadian government is backing up with the force of law by invoking Canada's Foreign Extraterritorial Measures Act. On the books since 1985 but rarely invoked, the law would come down hard on any Canadian citizen who, in connection with the Prince Rupert project, acted in accordance with the Buy America provisions of U.S. law.

It is not surprising that Canada has taken the action she has. The sentiment is a strong one, especially since U.S. Buy America requirements have been squeezing more and more Canadians out of U.S. markets from the very first days of the Obama Administration, starting with the 2009 American Recovery and Reinvestment Act. Indeed, Minister Fast's remarks were relatively mild compared to those, for example, of British Columbia's premier, Christy Clark. Commenting on the issue last fall, Premier Clark said:

"This is our country, it is our land, it is our port, it is our laws and the Americans are building a facility here in Canada, in our province, where we aren't allowed to have a chance to fabricate the steel. That's just wrong."

The rights and wrongs here may be debatable. The $10-20 million that will be needed to pay for the upgrade of the ferry terminal at Prince Rupert will come from U.S. sources. So there is a basis for the U.S. insisting on the application of the relevant U.S. rules.

Governor Bill Walker of Alaska could ask for a waiver of those rules, but he has not done so. If he does-who knows?-the Federal Highway Administration just might grant it. If they did, that would solve the political problem between the U.S. with Canada, and it would have the added benefit of a much less expensive, more rational project. And there are some famous precedents. Neither of the two that have been in the news of late is exactly on point, but both are worth mentioning.

Morrison, Colorado. First, on a quite modest scale, there was the bridge in the small town of Morrison, Colorado, population 430. The total cost was about $144,000, and the U.S. Government was due to pay about $60,000. Then it turned out that there was a small amount of Canadian steel in the bridge. Would the town have to tear the whole thing down? That was an issue for a while. Finally, the Federal Highway Administration came through with a waiver.

Detroit-Windsor. Second, on a much higher scale, is the New International Trade Crossing bridge that will connect Windsor, Ontario, with Detroit, Michigan. That is a $2 billion-plus project. The Federal Highway Administration has already granted a Buy American waiver for it. Understandably so; the Canadian are paying for just about the whole thing, though some of that is with loans to be repaid from future toll receipts.

All of this explains why Canada's trade minister put the emphasis he did on the waiver option. Two things are much less clear. One is why Governor Walker has declined to ask for a waiver. The other is how this will all play out. The first reports following Minister Fast's announcement on the use of Canada's Foreign Extraterritorial Measures Act suggested that Alaska was going to put off any work on the Prince Rupert Terminal. More recent reports have suggested that Alaska is moving forward, setting up something of jurisdictional game of chicken between Juneau and Ottawa.

COMMENT

There are too many issues here for us to get to all of them. To mention just three:

Extraterritoriality. In the late 1970s, your editor watched the British government attempt to fight back against the extraterritorial application of U.S. law, particularly in antitrust cases. That resulted in Britain's Protection of Trading Interests Act 1980. When it is invoked, that law comes down hard on British subjects who attempt to follow the perceived "offending" U.S. law in the United Kingdom.

In 1984, Canada adopted its Foreign Extraterritorial Measures Act, which is now a prominent part of the U.S.-Canada procurement debate. We are not sure how many other such laws are out there. We suspect there are a few. We know that the extraterritorial application of U.S. law is a significant irritant in America's relationships with key trading partners.

The North American Market. One might have thought that such distinctions of nationality would be quaint anachronisms in today's world of globalization, especially here in North America, where NAFTA has been in force for 21 years and the Canada-U.S. Free Trade Agreement for 26.

But no, and it isn't just ferry terminals that need to be upgraded. So do legal relationships. We have heard some suggest - and we agree with the suggestion - that TPP, whatever its other merits, offers two big opportunities: the opportunity to forge a U.S.-Japan FTA and the opportunity to upgrade and update NAFTA. We mention these in the context of this relatively minor procurement issue, because it is a reminder that America isn't the only country with an agenda for trade talks.

Chickens Coming Home to Roost. Last week we highlighted some of the issues facing America's poultry producers and exporters. Here, however, we're talking about metaphorical chickens, the ones who, sooner or later, come home to roost. It seems incredible to us that Alaska and British Columbia could have negotiated a 50 year lease for the Prince Rupert facility in 2013 without considering the rules that would govern the upgrading of the facility. Certainly, it cannot be because they didn't think of it. It would appear that they simply chose to defer the difficult. That is always an understandable course of action, but it isn't always the best one.

SOURCES & LINKS:

A Ministerial Statement is the statement on the Prince Rupert situation that was issued by the Canadian Trade Minister on January 19, 2015. It was this statement that was the source for today's quote.

My way or the highway takes you to a January 24 article from The Economist on the upgrading of the terminal at Prince Rupert.

The New Buy American Environment by David Hamill and Birgit Matthiesen of Arent Fox is a useful primer on Buy American legislation, especially as it affect Canadian firms.

Buy America Ruling Reversed is a Globe and Mail article from last October about the bridge in Morrison, Colorado. The picture will give you a sense of how small a project this is.

The Foreign Extraterritorial Measures Act is the Wikipedia entry for this law. The parallel entry for the British law mentioned above is at The Protection of Trading Interests Act.

Waiver for The New Crossing is a Detroit News article from December 2012, announcing the Obama Administration has issued a Buy American waiver for the new bridge to be built between Detroit, Michigan, and Windsor, Ontario.

Rhetoric Trumps Reality is an article from The Vancouver Sun of January 22, which includes the quote above from Premier Christy Clark.

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