Can we spare $12 billion for a good cause? What about $3.6 billion? These figures have been suggested as the potential cost to the federal government to purchase goods and services under a Buy Canadian policy. In this time of economic uncertainty, we are being asked how far we are willing to go to favour local suppliers.
For Canadian decision-makers, the benefits would appear to outweigh the costs. Prime Minister Mark Carney’s government fulfilled a campaign promise in December, when it launched the plan. It aims to favour domestic suppliers to build industry and reduce supply-chain risk.
Ontario, Quebec and New Brunswick already have their own buy local strategies and other countries like the United Kingdom and Australia are thinking about “procurement localism” as well.
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But the strategy has its fair share of detractors. One critique frames it as “corporate welfare” while another compares it to “the strategy deployed by the Soviet Union.” A study by the Montreal Economic Institute argues that favouring Canadian suppliers could cost taxpayers as much as $12 billion.
That figure incorporates some challenging assumptions. The study uses the estimated cost of small-business preferences in California and applies that range to Canada’s entire public-procurement spending, which is roughly 13.4 per cent of our gross domestic product (GDP).
This does not make sense. A national bid preference is not the same as a small-business bid preference. The latter is far more exclusive than the former, which renders it more costly. Moreover, there is no Buy Canadian procurement strategy that can cover every public sector purchase. Far from it, the preference plan covers a fraction of our purchases — and that’s exactly the problem.
The Buy Canadian plan on paper
The Carney government had grand ambitions for its strategy when it was introduced last September. The government committed to prioritizing Canadian suppliers and their products “in all federal spending.”
That was evident hyperbole. Canada’s international-trade obligations prevent the government from purchases that always favour domestic suppliers or materials. We have signed a dozen major agreements in the last few decades that constrain how our public entities buy goods, services and construction work. This was our choice and we must live with the consequences.
Those consequences are problematic in two ways. First, Canada has committed not to discriminate on the grounds of origin. This means we cannot favour domestic suppliers in most purchases. Second, Canada has agreed not to require mandatory community returns from contracted suppliers.
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Canada can only “buy national” for purchases below monetary thresholds set out in our trade agreements. Anything valued higher is generally required to be open to bids from foreign suppliers. One solution would be for the Buy Canadian plan to target low-value purchases that do not require international competition. This is what Ontario is doing.
The other option is to favour Canadian suppliers for purchases that are within the exceptions of free trade. They include potentially sensitive acquisitions that relate to national security or well-being. This is the approach the Carney government has taken.
The federal government’s “buy national” supplier and content policy gives Canadian businesses a modest price or point advantage without shutting down all competition. The approach is limited to “strategic” procurements — in areas such as defence, health, transportation and communications technology — worth $25 million or more. This complies with the aforementioned exceptions. But the policy’s wording could still trigger international blowback. In a recent World Trade Organization (WTO) meeting, our allies raised concerns over this framework.
The policy also states that the threshold for priority to Canadian suppliers and content is to be lowered to $5 million on June 15, 2026.
Buy Canadian by the numbers
Isolating for the supplier-bid preference, figure 1 shows the number of potential contracts affected by this policy using either the current threshold ($25 million) and the impending lower threshold of $5 million.
Under the current threshold, only six contracts were not already awarded to Canadian suppliers. This drops to two contracts when we further isolate for purchases with multiple bids, that is, only two contracts could have been affected by Buy Canadian in this context. By contrast, in a given year, there may be as many as 56,000 contracts reported for public disclosure.
The story is similar even if we assume the lower threshold of $5 million. Only nine contracts would have been applicable under these conditions. These contracts represent a total of $249 million in original value. Even if we assume that a Canadian supplier received the contract with a 25-per-cent bid preference, the additional cost would be at most $62 million.
In contrast, the government’s spring economic update (p. 72) says Buy Canadian has already been applied to planned purchases and contracts “valued at around $3.6 billion.” There is a difference, however, between including Buy Canadian language and actually changing the outcome of where a contract lands. In many of these cases, a nominally Canadian vendor is chosen anyway.
In fairness, there are some important caveats. First, the government’s definition of a “Canadian business” is now more comprehensive than a supplier’s address. The business must have a real presence in Canada without routine subcontracting, that is, pushing work to another party.
This is important because some ostensibly Canadian suppliers are not as Canadian as we think. Public data does not provide enough details about suppliers to discern where their goods or services originate. Moreover, it is unclear if public servants will have the training and tools to meaningfully apply this new definition.
Second, it is plausible that preferring Canadian bids will lead to more competition as more local suppliers step forward.
Regardless, Buy Canadian is not a strategy that will cost taxpayers billions of dollars as suggested by its opponents. We will be lucky if it is a fraction of that. There is little the federal government can do in the short term until we rework our international-trade commitments. Until then, Buy Canadian will generate limited returns for Canadians.
That said, improvement is still possible.
The federal government is heavily limited by its trade agreements, but its Crown corporations have more room to operate. A policy should be created to guide government-owned corporations to Buy Canadian for purchases outside the scope of trade.
We must also continue to improve the definition of a Canadian supplier. It is still too vague and needs greater clarity on what amount of subcontracting is appropriate and when.
Finally, following the advocacy of groups like the Canadian Shield Institute and Canadian Council of Innovators, we should further define a Canadian supplier by its corporate control, intellectual property and research and development investment.
Whatever we are spending now, it stands to reason we could spare a bit more for our economic sovereignty as we strive to meet the challenges of a new world order.
