Travels in Canada - Unwrapping Holiday Gifts from under the Congressional Tree

Dateline: Vancouver, BC - December 22, 2015 

This holiday season, Congress has been very generous albeit with a lump of coal.

After many years of frustrating stop-gap measures, the US Congress on December 4^th finally gave new life to long term US transportation spending in the form of Fixing America’s Surface Transportation (FAST) legislation – to the tune of $305 billion over five years. Of that total, $205 billion is dedicated to improving highways and $48 billion for transit projects. The money will be allocated to US federal transportation agencies that in turn will soon start topping off pre-set State transportation budgets. Shovels should be digging into the ground very soon.

The American Association of State Highway Transportation Officials (AASHTO) offers an excellent analysis of the various funding streams on their FAST portal, including the long list of US federal agencies that will be administrating the monies – and applying the infamous Buy America requirements. Bah humbug. The massive legislation retains US Congressional strong support for the domestic iron and steel industry in transit projects and includes a new complex provision to allow rolling stock manufacturers that procure iron and steel produced in the United States to include the cost of that iron and steel in the domestic content calculation when such iron or steel is used in rolling stock frames and car shells. The legislators’ intent was for this provision to apply to rolling stock frames or car shells, regardless of where they are produced, provided the iron or steel is produced in the United States. But, and there is so often a “but”, FAST also increases the domestic content requirement under Buy America from the current 60 percent to 65 percent in 2018, and to 70 percent in 2020. More bah humbug.

But wait. There is another shiny gift under the tree this year. As most readers will have read by now, the United States joined Canada and ten other trading partners to negotiate a massive Trans-Pacific Partnership (TPP) agreement. Not yet ratified of course, but in a delightful surprise to many of us, the twelve negotiators came to agreement on a Government Procurement Chapter. Unwrapping this good news reveals certain caveats, most notably that many US domestic preferential purchasing requirements at the sub-federal level remain intact from US TPP obligations. But Canadian companies would gain access to six major US regional power authorities heretofore closed to competition such as the Tennessee Valley Authority. These six projects include major US federal power authorities which operate hydroelectric power, fossil fuel plants, nuclear power plants, wind turbines, solar panels, and transmission systems, as well as provide flood control and navigation for the Tennessee and Columbia River Basins. According to the Government of Canada TPP website, collectively these power authorities build over $4 billion in construction projects per year, not exactly $305 billion but not chump change either.

The spirit of gift giving continued earlier this month when the US Trade Representative’s office announced the new 2016-2017 US dollar threshholds for US procurement obligations.

So what did we get?

• An approved and assured funding stream for over $300 billion in US transportation opportunities,
• A higher US “domestic content” requirement for rolling stock projects,
• The ability to use US iron and steel in the domestic content formula for rolling stock equipment produced outside the US, under certain conditions,
• The promise of business opportunities for six US power generating authorities.

Did we get everything on our list? Hardly. Did we get more than we anticipated? Probably. So as we decide whether to use this year’s gifts or relegate them to the back of the closet, remember first to read the instructions often buried among the shiny wrapping paper. As we all know, when it comes to Congress and holiday packages, the true gift is revealed only when it’s understood how all the pieces fit together.

Happy Holidays!

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This alert is the ninth installment of a series that focuses on cross border trade news.