American firms are doing well in Canada under NAFTA; small companies land Canadian government contracts - includes information on US Commercial Service services and resources

When the NAFTA agreement went into effect over two years ago, its advocates promised it would bring gains for U.S. exporters and the U.S. economy. With many now asking if this has happened, the U.S. Commercial Service in Canada recently took a look at one area of trade that can be tracked -- Canadian Government procurement -- to see how U.S. firms have done. This is what they found: American companies, particularly small- to medium-sized enterprises, are doing very well and landing contracts in a wide range of product and service areas. Most of the contracts are below US$100,000, and many are in hightech sectors. The companies winning these contracts come from 42 states and the District of Columbia. If the first two years are any indication, NAFTA is good for U.S. exports to Canada and should continue to draw new companies to this market.

CS Ottawa looked at Canadian Government purchasing decisions since late 1994 to size up U.S. companies' success in obtaining contracts under the new, more liberal North American Free Trade Agreement (NAFTA) rules. Concern had been expressed in some quarters that NAFTA had not delivered the benefits to U.S. companies that had been widely expected when the agreement was signed more than two years earlier. In at least one area of trade - Canadian Federal Government procurement CS Ottawa found this concern to be unwarranted.

Since NAFTA, U.S. companies have captured a steady share of the procurement business across a broad range of product and service areas. They have done this, in fact, during a period of drastic spending cuts by the Canadian Government. Many of the winners have been small- to medium-sized American firms, new to the Canadian market, whose specific technology and expertise are just what the Canadian Government is seeking.

What Exactly Did NAFTA Do?

NAFTA took the more liberal rules offered by the earlier U.S.-Canada Free Trade Agreement (the FTA) and extended them to cover services as well as goods. It also enlarged the scope of the agreement to cover more of Canada's federal entities, and the Crown Corporations (parastatals), too. The FTA had already opened much wider government procurement markets to American firms by significantly lowering the minimum dollar amount of contracts accessible to them, by laying out fair and transparent bidding procedures, and by offering national treatment to all companies competing for a contract award. NAFTA preserved the FTA's lower minimum contract amounts, and it offered new ones to U.S. firms in Canada.

SMEs Seize Market Share

The data on contracts awarded to U.S. companies by the Canadian Government over the last two years show a surge of new activity by small-to medium-sized U.S. firms (SMEs) at year-end 1994. This was just nine months after the implementation of the NAFTA agreement. Activity by U.S. SMEs continued strong in the first half of 1995 and thereafter, with continuing successes. This successful bidding activity occurred despite an up-and-down pattern of public procurement, overall, during the period.

The yo-yo pattern in Canada's public procurement started with a dramatic drop in contracting activity in the latter half of 1995 -- probably the lag effect of Canada's deficit reduction initiative ushered in by the Liberal Party the year before. Under this belt-tightening, there were fewer new government tenders, and existing tenders were implemented much more slowly by down-sized staffs of civil servants. In the first quarter of 1996, the number of contracts awarded rose again sharply, reflecting strong spending at the end of Canada's fiscal year (March 31). But the recovery was only partial, and it was short-lived: contracts awarded and total dollars did not return to the levels of the first six months of 1995. In the second and third quarters of 1996, they fell off sharply again.

Against these radical swings in procurement activity, however, U.S. companies continued to do well, and NAFTA continued to figure importantly in their participation in this market. The one constant in the statistics is the percentage of contracts awarded to U.S. firms which can be attributed to NAFTA provisions. These "NAFTA contracts" represented 15 percent of all the contracts awarded to U.S. firms in the last quarter of 1994. That was the quarter which saw the first big surge after NAFTA implementation. This percentage stayed at 15 to 16 percent of the total throughout 1995 and 1996. Moreover, new-to-market American firms drawn to Canada for the first time by the NAFTA regime appeared to be also going after non-NAFTA-related procurement opportunities. For example, the NAFTA rules do not apply to provincial government procurement in Canada, yet U.S. participation in those opportunities has been growing.

Diversity of Awards,

Not Size

One of the most interesting features of the U.S. presence in this procurement market is the modest size of the deals. The lion's share of contracts awarded to U.S. firms has been overwhelmingly in the US$500,000-and-below range. During some of the period covered, contracts below US$50,000 were the most numerous. This supports other evidence of increased SME contracting activity in Canada since NAFTA. In the two years for which data exist, there were no awards over US$50 million, and those over US$1 million were infrequent.

The breakdown of contracts for the United States by industry sector brings no surprises. More contracts were awarded to U.S. bidders for computer hardware and software than for any other sector in 1995. Contracts for telecommunications equipment were in second place, and overtook computer contracts in 1996. Instrumentation had a slight lead over both at the end of 1994, and ran a close third or fourth in 1995 and 1996. Other leading sectors were aviation and aerospace equipment, electrical and electronic equipment, defense-related procurement, engineering and professional consultancy services, engines, turbines, and related equipment, fabricated materials, transportation equipment, R&D, education and training, medical equipment, environmental technology, and energy-related equipment. Contracts were also awarded for chemicals, industrial equipment, construction materials, supply of publications and paper, security and firefighting equipment, marine equipment, office equipment and supplies, machinery and tools, textiles, air conditioning and refrigerating equipment, quality control and testing services, natural resources services, agro equipment, and furniture and home products. In short, American firms winning contracts in Canada have reflected the diversity and strength of U.S. industry at home.

The geographical reach of NAFTA extends from the Pacific to the Atlantic. California consistently leads the states in success at landing Canadian contracts. Massachusetts, the District of Columbia, New York, New Jersey, and Virginia vie with each other for runner-up. Washington state rose high on the list in mid-1995, reflecting the lead position that Microsoft Corporation has assumed in number of contracts won. Other states very active in Canadian public procurement are Ohio, Michigan, Minnesota, Illinois, Maryland, Florida, Pennsylvania, Texas, and Arizona. In addition, companies from Georgia, Missouri, Colorado, Connecticut, Kansas, Tennessee, Alabama, Oklahoma, New Hampshire, Indiana, Idaho, Vermont, Arkansas, Utah, North Carolina, South Carolina, Oregon, Kentucky, Nevada, Wyoming, Iowa, Hawaii, Wisconsin, Maine, Delaware, and Rhode Island have won contracts.

The NAFTA Welcome Mat

To the North

Most of the successful U.S. firms in NAFTA-related government procurement are small- to medium-sized; there are relatively few Fortune 500 firms on the list. This reflects the kinds of products that a Canadian Government operating under a tight budget is buying to keep running. But it also reflects growing export activity by the SMEs in the United States. Another year or two of data will almost certainly reinforce the picture of a procurement market, wide open under NAFTA, that welcomes U.S. companies of any size who offer the range of products and services that the Canadian Government needs to stay in business during an era of shrinking public resources.

[TABULAR DATA NOT REPRODUCIBLE IN ASCII]

Current Dollar Thresholds for Canadian Government Contracts

Open to U.S. Bidders Under NAFTA

* Contracts of US$25,000 or more offered by a federal entity such as a department or agency (e.g., Industry Canada) for goals.

* Contracts of US$50,000 or more offered by a federal department or agency for services.

* Contracts of US$6.5 million or more offered by a federal department or agency for construction services.

* Contracts of US$250,000 or more offered by Crown Corporations or other federal government enterprises and parastatals for goods and services.

* Contracts of US$8 million offered by Crown Corporations or government enterprises for construction services.

NAFTA Advisory Committee Offers Brochure:

`Alternative Dispute Resolution in international Contracts'

When business enter into contracts with foreign partners, they expect a productive and harmonious business relationship. They do not give much, if any, thought to what they will do if a dispute arises. However, neither party to the contract is likely to want to have any dispute that may arise handled by a foreign court. Therefore, parties entering an international contract may wish to consider alternative methods of resolving disputes without going to court. These methods, which are generally known as Alternative Dispute Resolution (ADR), offer a neutral mechanism for resolving disputes that may arise. Parties that want to use ADR to resolve future disputes should take appropriate measures to include an ADR clause in their contract.

To assist businesses in considering the use of ADR mechanisms and to build such mechanisms into international contracts, the NAFTA Advisory Committee on Private Commercial Disputes (Committee) has prepared a brochure, entitled "Alternative Dispute Resolution in International Contracts," which provides practical information on ADR. The brochure describes the most common ADR mechanisms -- arbitration and mediation. It also provides model clauses for arbitration and mediation, as well as a checklist of factors that should be considered when drafting an arbitration clause and other subjects that might be included in the arbitration clause. The brochure also includes information (names, addresses and telephone numbers) for the principal arbitration institutions in each of the three NAFTA countries and the multi-national arbitration institutions active in the NAFTA region, as well as criteria to consider when selecting an arbitration institution.

The Committee was established in October 1994 under NAFTA to consider the availability, use and effectiveness of arbitration and other procedures for the resolution of private international commercial disputes in the free trade area. It is made up of two government representatives and eight private sector members in each country. The U.S. Government representatives, who co-chair the Committee, are the U.S. Department of Commerce General Counsel and the U.S. Department of State Legal Adviser. The U.S. private sector members of the Committee at the time it prepared the report were: Jose I. Astigarraga, Miami, Florida; James H. Carter, New York, New York; Jose A. Cardenas, Phoenix, Arizona; John M. Dickenson, III, Santa Paula, California; Deborah Enix-Ross, New York, New York; Rona R. Mears, Dallas, Texas; David W. Rivkin, New York, New York; and Susan Kohn Ross, Los Angeles, California. The Committee alternates were: Gerald Aksen, New York, New York; Charles N. Brower, Washington, D.C.; Hector Chinchilla, Oakland, California; Michael F. Hoellering, New York, New York; Dana G. Nahlen, Plano, Texas; William K. Quarles, Van Nuys, California; Philip A. Robbins, Phoenix, Arizona; and Samuel F. Vale, Rio Grande City, Texas.

The brochure is available from the U.S. Department of Commerce: Telephone: (202) 482-0937 Fax: (202) 482-4076 Internet address of NAFTA Home Page: http://www.itaiep.doc.gov/nafta/nafta2.htm

For more information, please call Jean Heilman Grier, Senior Counsel for Trade Agreements, U.S. Department of Commerce at (202) 482-3215; or Jeffrey Kovar, Office of Legal Adviser, U.S. Department of State, at (202) 482-8360.

Commerce Secretary Daley to Visit

Latin America for First Trade Mission

Underscoring the Clinton Administration's commitment to hemispheric free trade and the importance of promoting U.S. commercial interests in Latin America, U.S. Commerce Secretary William M. Daley will lead his first business development mission to Brazil, Argentina and Chile May 11-19. The trip will include Secretary Daley's participation in the America's Business Forum in Belo Horizonte, Brazil.

"The economic reforms and trade liberalizing measures taken by the governments of Brazil, Argentina and Chile have resulted in unprecedented opportunities for U.S. business," Secretary Daley said. "We must seize these opportunities to boost sales of U.S. products and services in these dynamic markets and raise awareness of how U.S. businesses and workers can benefit from further trade liberalization and hemispheric commercial integration."

Secretary Daley's first trade mission will be divided into two distinct components. The first will consist of a business development mission to Rio de Janeiro and Sao Paolo, Brazil, followed by participation at the third annual America's Business Forum in Belo Horizonte. The second component will consist of a business development mission to Argentina and Chile.

"The fact that my first mission as Commerce Secretary will be to Latin America reflects the importance of this region to our economic future," said Secretary Daley. "Latin American markets are among the fastest growing markets in the world, averaging 5 percent growth or more through the ear 2000."

COPYRIGHT 1997 U.S. Government Printing Office
COPYRIGHT 2004 Gale Group