2-7-18 5:06 PM EST | Email Article
By Paul Vieira 

OTTAWA -- Trade tensions between the U.S. and Canadian federal governments are spilling over to the state level.

The Canadian province of Ontario, the nation's biggest in population and economic terms, on Wednesday said it would restrict firms from New York from bidding on its government contracts in retaliation for the so-called Buy American measures state lawmakers have approved.

The timing of fresh retaliatory, protectionist policies from a high level of the Canadian government is the latest sign of growing trade friction between Ottawa and Washington, as the Trump administration implements its America First agenda and Canada fights to preserve the North American Free Trade Agreement.

One of the big sticking points among the Nafta countries is a U.S. proposal on government procurement that Canada and Mexico contend would severely limit their ability to bid on government tenders.

The Ontario government-procurement market is valued at more than six billion Canadian dollars (US$4.8 billion). According to the most recent Ontario government data, the province sold roughly C$11.57 billion of goods to New York state in 2016, while purchasing C$14.28 billion from the state.

Senior officials from the U.S., Canada and Mexico signaled progress at the latest round of talks last month in Montreal toward an updated, modified version of Nafta. Nevertheless, tension was on full display at the round's closing event, with U.S. Trade Representative Robert Lighthizer singling out Canada for criticism.

A particular sore point was Canada's sweeping complaint against the U.S. trade regime at the World Trade Organization over the use of tariffs, especially as they pertain to Canadian lumber.

Ontario, which shares part of its southern border with New York state and is led by Liberal Premier Kathleen Wynne, said it had no choice but to respond in kind to New York state's Buy American move, which takes effect April 1.

Protectionism at the state level will "damage cross border partnerships that create jobs," the province said. "The premier has consistently said that she will respond to any Buy American laws that cause unfair harm to Ontario workers and businesses."

Buy American provisions, as championed by New York Gov. Andrew Cuomo, compel government-funded infrastructure projects of more than $1 million in value to use U.S.-made materials and construction supplies, such as steel and iron. A representative for Gov. Cuomo's office didn't immediately respond to a request for comment on Ontario's decision.

Ontario warned the measures it is contemplating -- expected to be introduced in the provincial legislature on or around Feb. 20 -- would apply to other states that copy New York's Buy American model. Texas, for instance, is considering provisions that would kick in in May 2018, and compel the purchase of U.S.-made iron and steel in certain projects.

The Ontario government unveiled its approach while Ms. Wynne is on a U.S. tour, including a stop in Washington on Tuesday that included meetings with members of Congress and the U.S.'s top Nafta negotiator, John Melle.

John Boscariol, Toronto-based trade lawyer at McCarthy Tetrault, said the tit-for-tat move by Ontario reflects the new global landscape on trade law.

"Retaliation by the Ontario government against New York, Texas or other states...will no doubt impact the tense Nafa negotiations," he said. "But when a state government in the United States takes these actions, which are permissible under Nafta, we can't expect the provinces to sit on their hands and take the hits."

Lawrence Herman, a Toronto trade consultant and former Canadian diplomat, said Ontario's move could actually help the Nafta countries focus on a revamped deal that "curtail these types of actions and keep markets open on both sides of the border."

Write to Paul Vieira at paul.vieira@wsj.com


(END) Dow Jones Newswires

February 07, 2018 17:06 ET (22:06 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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