OTTAWA (Reuters) - Canada has reached a tentative deal with the United States to end a dispute over "Buy American" provisions in U.S. legislation that had strained bilateral ties, the two trading partners announced Friday.
Under the agreement, which is designed to settle months of wrangling over what Canada saw as U.S. protectionism, both nations will open up parts of their internal markets to the other's companies.
Washington said it was happy with the deal because U.S. companies will finally gain access to long-closed and potentially lucrative public works contracts in Canada's 10 provinces and three territories.
In return, Canadian companies will be able to compete for projects in the 37 U.S. states already covered by the World Trade Organization government procurement agreement.
They will also be able to bid for what remains of $18 billion worth of state and local public works projects under seven programs funded by last year's $787 billion U.S. Economic Stimulus Act.
The U.S. Congress had included a "Buy American" mandate in the measure, requiring public works projects to use only U.S.-made products. The move angered critics in both the United States and Canada, which said it would cost jobs.
"Secure and predictable access underpins our trading relationship and is grounded in trade rules and a shared commitment to work together to resolve differences when they arise," Canadian Trade Minister Peter Van Loan and U.S. Trade Representative Ron Kirk said in a joint statement.
The deal must still be approved by both countries.
Any suggestion of U.S. protectionism worries Canada, which sends 75 percent of all its exports to the United States.
Although Canada has a federal government procurement pact with the United States, the provinces and territories do not have their own separate deals.
This had shut them out of U.S. projects affected by the "Buy American" provisions. As part of the deal, U.S. companies will be allowed into the Canadian provincial market.
"For years, U.S. firms have sought market access to Canadian provincial procurement ... which Canada resisted. USTR took this opportunity to get Canada to open its provincial procurement markets," Kirk said in a statement.
"The value of new job-supporting contracts open to U.S. firms will be tens of billions of dollars."
U.S. business groups had unsuccessfully pressed for access to the provincial and territorial market when the North American Free Trade Agreement was negotiated and also when Canada signed the WTO government procurement agreement.
"Canada is our largest market and we are really pleased that we will now have access to their sub-federal procurement," said Frank Vargo of the Washington-based National Association of Manufacturers.
U.S. Republicans also welcomed the deal, but said U.S. stimulus projects remain hampered by confusing Buy American rules facing state and local procurement agencies.
"Until the Obama Administration exempts sub-federal entities (from Buy American), it will struggle with defending a 'stimulus' program that has produced precious few results," said Representative Kevin Brady in a statement.
Canadian manufacturers had been anxious for a deal before the U.S. Congress finishes work on a new jobs bill that is also expected to include a "Buy American" provision.
The Federation of Canadian Municipalities, which last year threatened to retaliate by banning U.S. companies from their projects, welcomed the deal.
"Canadians are fighting hard to recover from the recession, but they need to be on a level playing field with their neighbors south of the border. Today's announcement gives them hope," said federation president Basil Stewart.
Van Loan told reporters that the two nations had agreed to set up a fast-track consultation process in case future U.S. funding measures had a "Buy American" clause.
Canada's official opposition Liberal Party said the deal was "a pathetic attempt to try to create some level of symbolic victory" and was signed so late that Canadian companies have already missed out on most of the eligible U.S. contracts.
With additional reporting by Doug Palmer in Washington; editing by Peter Galloway and Eric Walsh