The U.S.-Canada Relationship in the Era of "Buy American", Remarks by John Murphy

Address to AmCham Canada by
John Murphy
Vice President, International Affairs, U.S. Chamber of Commerce
September 30, 2009
Toronto, Canada

As Prepared for Delivery

Introduction

Thank you very much and good morning everyone. Bob and Marty, let me begin by thanking you for being such gracious hosts. I appreciate the opportunity you've given me today.

Since its founding earlier this decade, AmCham Canada has carved out a very useful role in the bilateral commercial relationship. Your expanding reach from sea to sea and your clear voice in both Ottawa and Washington are to be commended.

I recall several years ago how the AmCham's tax committee played an important role in driving support for a protocol to modernize the Canada-U.S. bilateral tax treaty, with thought leadership and shoe leather in the halls of Congress. That successful effort has paid off in real dollars and cents for Canadian and American companies.

My boss, Tom Donohue, President and CEO of the U.S. Chamber of Commerce, sends his regards. He greatly enjoyed his visit in May, when you hosted him.

Turning Inward?

Today, Canadian and American workers and businesses are facing one of the harshest economic storms in nearly a century. These winds have blown away millions of jobs and have left thousands of shop doors closed.

In the eye of this storm, the first instinct is often to turn inward and to protect the remaining businesses and jobs. But that's an approach that simply won't work. In a new, more competitive global economy, we North Americans need to expand our engagement with the wider world—not shrink it.

That world is changing. Today, nearly half the global economy is centered in the Asia-Pacific region. Fierce new competitors and markets of great opportunity—from China to India to Brazil—are rapidly emerging.

But in my view, the United States, at least, is not stepping up on the worldwide stage as boldly, as vigorously, or as smartly as we must. And that has huge implications for Canada.

Because of our unique relationship and for other reasons, our two countries have a special obligation to lead, and to lead by example. Together, we must find ways to compete and excel in a changing global economy.

The U.S. Chamber is committed to doing so. That's why we work so closely with the AmCham network around the globe. That's why we are proud to welcome a number of the best Canadian companies as our member.

And that's why the U.S. Chamber helps lead the U.S. Section of the North American Competitiveness Council, working in partnership with the Canadian Council of Chief Executives, which leads the Canadian Section.

It only makes sense that we work together to boost competitiveness and prosperity on both sides of the border.

From softwood lumber to country of origin labeling to procurement practices, we don't always see eye-to-eye. Most of the time, we are inclined to view that as normal. In fact, it's a testament to the strong ties of friendship between Canadians and Americans that we can speak plainly to each other.

But there is real reason to be concerned, and possibly even to be angry, about the challenge posed to the U.S.-Canada relationship by this new era of "Buy American."

Last week in Pittsburgh, Canada, the United States and 18 other major countries pledged anew to fight protectionism and strengthen the global trading system. We can start by acknowledging that these commitments are being honored in the breach.

Protectionism can come in many forms—in the guise of economic stimulus, in the form of in-country barriers, or plain old tariffs—but it is protectionism nonetheless.

The Case for Open Trade

Does this impulse to turn inward make sense for the United States? Trade is a larger share of the Canadian economy than it is for the United States.

And yet, 57 million American workers are already employed by firms that benefit from exports. One in five American factory jobs depends on exports, and one in every three acres planted on U.S. farms is for hungry consumers abroad.

Last year, the United States was once again the world's largest exporter, with nearly $2 trillion in exports. And our manufacturing output has risen more than 80% since the U.S.-Canada Free Trade Agreement entered into force.

The U.S.-Canada relationship is at the heart of the benefits Americans derive from trade. Bilateral commerce surpassed $600 billion last year — that's a staggering $1.5 billion a day in goods. About 300,000 people safely cross our borders every day.

The New Isolationism and Its Costs

Nonetheless, there are those in the United States who want to turn inward and erect new barriers to our markets.

Some do so out of fear, some out of ignorance, and some out of pure self-interest. These voices reside in both political parties, in labor unions and, yes, in the business community. This new isolationism threatens to eat away at America's tradition of openness, freedom, and leadership in the world.

"Buy American" may be the best illustration of how such policies can sound good—but, in fact, hurt the very workers and industries they are supposed to protect. I'd like to explore this particular protectionist threat in some depth because it is significant implications for the Canada- U.S. relationship.

Of course, American companies would like to see American consumers buy their products. But ninety-five percent of the world's consumers don't live in the United States. They live somewhere else. We want them to "Buy American," too, at least some of the time. And the way to do that is through an open trading system where consumers—not the government—decide what they are going to buy.

In February, "Buy American" rules were inserted into the economic stimulus package, known as the Recovery Act. The Chamber helped get them modified so they did not violate our international trade agreements. Canada's voice was an important one at that moment as well.

This amendment resolved many difficulties at the federal level. However, tens of billions of dollars in Recovery Act spending is being channeled to states and municipalities, many of which are not constrained by those international agreements.

Outside of road building, U.S. states and municipalities have never been forced to comply with "Buy American" rules in the past. Nonetheless, the Office of Management and Budget has required states and municipalities to comply fully with the Recovery Act's "Buy American" mandates.

This is unprecedented. Recall the context here of economic crisis and a stimulus package that is intended to spend money and create jobs quickly. This isn't just nativist and jingoistic. It's self-defeating. It is retarding economic recovery.

The "Buy American" requirement for U.S.-made steel in transportation infrastructure projects has not been a huge shock to the system because similar rules have been around for 30 years.

But to give you a cast study, just look at the $130 billion North American water and wastewater sector, where we've got a real mess on our hands. Canadian firms are now being excluded from U.S. municipal contracts. Next month, retaliation by Canadian municipalities could result in billions of dollars in lost business for U.S. companies.

Also, the "Buy American" rules are being interpreted in a way that bars some U.S.-based manufacturers from bidding on projects. That's because many U.S. manufacturers rely on global production chains that integrate components from U.S. and foreign sources.

American manufacturers are finding it difficult to comply with "Buy American" rules because it is often impossible to avoid sourcing at least a portion of their content from other countries.

The Recovery Act included $7 billion in funding for municipal water and wastewater projects. The House Transportation and Infrastructure Committee reports that each $1 billion in infrastructure investment creates about 35,000 jobs and an additional $6 billion in economic activity.

Do the math. To borrow a phrase from the White House, this modest portion of the Recovery Act funds could "save or create" more than 200,000 American jobs — if they weren't tied up in "Buy American" red tape. And more than $40 billion in economic growth to boot — just in this sector.

But when the housing and school construction funding starts to move, you can be sure we'll be hearing more about the cost of "Buy American" rules in those sectors.

In August, after meeting with Prime Minister Harper, President Obama said: "We have not seen some sweeping steps toward protectionism. This has in no way endangered the billions of dollars of trade taking place between" Canada and the United States.

The Chamber's Study

While this may be in general, it is not of "Buy American."

This month, the U.S. Chamber issued a study, entitled Trade Action - or Inaction: The Cost for American Workers and Companies.

The study found that while "Buy American" rules in the Recovery Act will create a limited number of U.S. jobs, the gains will quickly evaporate if other countries implement "buy national" policies in their own stimulus programs.

If foreign governments lock U.S. companies out of just one percent of this total spending, the net U.S. job loss could surpass 170,000. That's a big number. But what would happen if retaliation spiraled beyond "just one percent" to five percent? To ten percent?

Beyond the cold statistics, these problems have a human face as well. On the Chamber's website, we have profiles of small businesses such as Aquarius Technologies of Wisconsin, and Aqua-Aerobic Systems of Illinois, that are definitely facing a crisis of lost sales and potentially large layoffs due to "Buy American" rules.

Tom Pokorsky, president of Wisconsin-based Aquarius Technologies, has said: "Buy American has stopped U.S. wastewater work this year. I'm surviving by selling to Canada."

It's Not Too Late

It's not too late. The White House Office of Management and Budget — OMB — has the authority to fix this mess. The U.S. Chamber and many other voices in the American business community have submitted comments to OMB urging it to use that authority to lift the unprecedented burden of "Buy American" mandates from states and municipalities.

At some point in the weeks ahead, OMB will issue its so called "final guidance" that may reflect that input. It could fix this problem.

To press for that outcome, the U.S. Chamber has conducted an intense public affairs and lobbying campaign. I personally have given hundreds of media interviews on this topic since January, and the news media has done a better and better job getting the story out about the cost of "Buy American."

We've provided technical and legal advice on how to fix the problem. And we're adding our lobbying muscle as well. The Canadian embassy and Canadian business groups have also done an excellent job making the case in Washington for relief from these counterproductive rules.

As you know, Canada has also proposed to the United States that our two nations negotiate a bilateral agreement that would guarantee mutual openness of our procurement markets at the federal, state and provincial, and municipal levels.

The U.S. Chamber of Commerce has expressed support for this proposal in comments to the Office of the U.S. Trade Representative, though the OMB action I described above is our urgent priority. Such a negotiated agreement could take years, and the U.S. federal system makes it challenging.

The U.S. federal government lacks the authority to negotiate such an agreement on behalf of states and municipalities without their consent, and winning that consent could take months or even years. This is precisely why the Canadian government is seeking this two-step approach — regulatory action now, and a negotiated agreement later.

A Call for Leadership

The solution to the protectionist threat is stronger trade leadership from the new U.S. administration. We believe the Obama administration will be stuck playing defense against protectionist proposals such as "Buy American" until it devises a forward-looking trade agenda of its own.

The president has said many of the right things about trade. He has appointed a good man as U.S. Trade Representative. But while he has taken on other controversial issues with enthusiasm, his administration seems to be hesitant and uncertain when it comes to trade.

Former President Bill Clinton showed that it is possible to be a politically successful Democratic president and be pro-trade. It took courage, and it paid off for the country, the American people, and the economy.

Ladies and gentlemen, we cannot let this become an era of protectionism. A trade war would further destabilize an already shaky world economy. And a constant drip-drip-drip of protectionist measures will slowly but surely erode world trade and its tremendous benefits. Instead, we must all be forceful advocates for an open and robust world trading system.

Canada and the United States are more than neighbors, more than allies, more than friends. At this time of economic hardship for both our nations, one important message I have for you here today is: Do not think we Americans have forgotten this. Not everyone in the United States, or even in Washington, has lost his head in a nativist fever.

Many of us have heard Ambassador Michael Wilson point out, again and again, that seven million American jobs depend entirely on trade with Canada.

I remain optimistic that we will fix this, and I would ask our Canadian friends to show some patience and forbearance — but not to sit quietly. Continue to make your voices heard.

Campaign for Free Enterprise

For our part, the U.S. Chamber of Commerce is speaking out. I wanted to come here to share these messages with you because Canada always plays a critical role reminding Americans of the importance of our international ties.

But of course, we recognize that the key audiences are in Washington. As I speak, other U.S. Chamber officials—our professional and voluntary business leaders—are delivering this same message in venues across the United States.

Next month, the U.S. Chamber will launch a historic initiative we're calling the Campaign for Free Enterprise. Its aim is to inform, remind, and educate Americans about the importance of economic freedom to jobs, our economy, and our way of life.

Defending open markets at home and abroad will be a critical plank in this campaign. We will drive home the fact that free enterprise, free markets, and free trade have done more than any system ever devised to create jobs, opportunities, and hope.

They've made North America more prosperous than any other part of the globe at any time in history. They can lead us to an even brighter future. These freedoms are worth keeping. They are worth fighting for.

Thank you very much.

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