CETA’s Minimum Thresholds Problematic for Toronto

Today, PM Harper, Old Testament God-style, let us know that the Canada-EU trade agreement was complete.  No real public consultation, and still no details, yet this bolt of lightning from the Twitterverse:

“The #CETA trade negotiations are the most transparent and collaborative that Canada has ever conducted. http://ow.ly/pWzgc #cdnpoli

A few weeks ago, we downloaded summary info on supply and services contracts awarded by Toronto’s procurement office since January 2012.  We just wanted to understand the “minimum thresholds” reportedly included in CETA negotiations for municipalities: $340,000 for Goods and Services and $8.5 million for Construction.  What we observed on the list were quite a few opportunities potentially lost to Canadian firms under these guidelines.  Rob Ford’s Executive Committee met at Toronto City Council on February 13, 2012  to encourage the Federation of Canadian Municipalities to act on Toronto’s behalf in CETA negotiations with the feds and those thresholds were endorsed.

On the EU Commission website today, the EU leaders reassure their people that Canadian municipalities are willing participants of their own screwing (i.e. it’s consensual):

“Public procurement – CETA covers new ground as it is the first time that all sub-federal levels of government in Canada have committed themselves to bilaterally opening their procurement markets. An EU-Canada Joint Study (2008), found that the overall value of contracts awarded by the federal government was estimated at C$ 15 to 19 billion per year. The value of contracts at other levels of government is considered to largely exceed these numbers. For example, in 2011 procurements by Canadian municipalities was estimated at C$ 112 billion (approx. €82 billion) or almost 7% of Canadian GDP. Canada will also create a single electronic procurement website that combines information on all tenders and access to public procurement at all levels of government. This will make it much easier for European suppliers to compete in the Canadian procurement market.”

Above the thresholds, municipalities have to fully open the competitive bidding process to EU firms.  Below the thresholds, cities have the ability to do “strategic procurement” (i.e. include considerations that would benefit the locality etc).

$8.5 M in Construction:

Going by last year’s numbers, at $8.5 million as a threshold for Construction, Toronto still has the leeway to favour local considerations for roughly 73% of the expenditures it makes in this area.  Hiring local construction just makes a lot of sense logistically.  However, last year’s construction contracts under $8.5 M (at $321 M worth of contracts) don’t necessarily predict the future.  With the upcoming Scarborough Subway project, construction for the Pan Am Games and the issue of burying or replacing the Gardiner (it cost $11 M just to repair it last year), Europeans are totally game for those big juicy billion-dollar jobs.

$340,600 in Goods and Services:

Another big problem is that $340K threshold for Goods and Services.  If there was 73% control still remaining in Construction, there is only 13% left for Goods and Services, under CETA.  Our City Manager, Joe Pennachetti did warn:

“Canada currently imports much more from the EU than it exports in both goods and services, and Canadian exports are weighted towards raw materials. If the relaxation of trade restrictions amplifies these patterns, then resource producers stand to gain while it could become more difficult for companies in advanced goods and service sectors to compete with European counterparts domestically… The degree to which Canadian companies will be able to take advantage of these markets is not certain and should not be taken for granted.”

With only 13% of Goods and Services contracts under $340K, there are not many opportunities for Toronto to award contracts to firms that can prioritize the local economy.   Especially hilarious is the fact that the City paid $345,600 to Rafat General Contractor (a GTA company) to remove snow, in two contracts last year in this category.  It just makes me think Europeans might bring amphibious snowplows from Brussels that can cross the Atlantic in time to clear roads for us to get to work the next morning at a cheaper price!  Ha!

There may have been the inherent logic that for a measly $345K, no European firm in their right minds would bother going through the expense of bidding to perform a logisitically nightmarish service anyway–so by having agreed to this threshold, Canadians were just being agreeable.  However, the larger truth is, for bigger contracts, European multi-nationals will think it worth it to aggressively bid and they will likely win because their efficiency is in what Pennachetti called, “advanced goods and services”–but I’d add that their advantage is not only in our market, but their own too.  So, our freshly minted innovators and start-ups, incubated by the City’s own Economic Development and Culture Division, will likely lose domestically and in the EU with no economies of scale or efficiency of a multi-national.  Comparative Advantage will kick in; Canada will gravitate towards its raw materials strengths and some serious brain drain will happen in Advanced Goods and Services (or worse, unemployment).  On the bright side, Canada is set to be Europe’s gas station and Home Depot.


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