WASHINGTON (Reuters) - The United States and Canada have reached a tentative deal on "Buy American" provisions that strained U.S. ties with its northern neighbor and largest trade partner, a U.S. trade official told Reuters.
The two countries are expected to formally announce the agreement on Friday. It must be cleared with stakeholders on both sides before it is signed.
Congress included a "Buy American" mandate in last year's $787 billion economic stimulus act that required public works projects to use only U.S.-made products such as steel.
The measure was touted as a way to ensure funds spent under the stimulus package would create jobs in the United States.
But critics -- including many of the largest U.S. business groups -- say it threatens jobs at U.S. companies that rely on global supply chains to manufacture goods, boosts stimulus costs and creates project delays.
At President Barack Obama's request, U.S. legislators exempted countries, including Canada, that have opened their own government procurement markets to the United States from the "Buy American" provision.
But that did not spare Canadian provinces and cities, which are not party to a government procurement pact with the United States, even though Canada's federal government is.
After Canadian companies were shut out of initial U.S. stimulus contracts, Canadian cities threatened last June to retaliate by banning U.S. companies from their projects.
The U.S. official, who asked not be identified, said the deal would give U.S. exporters permanent access to Canadian provincial and territorial government procurement markets.
In exchange, the United States will provide Canadian companies access to the 37 U.S. states already covered by the World Trade Organization government procurement agreement.
The deal also provides for additional reciprocal access on a temporary basis.
American companies will have access through September 2011 to a range of construction contracts in a number of Canadian provinces and cites not otherwise covered by the WTO pact.
In turn, the United States will provide Canadian suppliers with access to state and local public works projects in a range of programs funded by the 2009 American Recovery and Reinvestment Act.
Canadian manufacturers have been anxious for a deal before all of those public works contracts were locked up and before the U.S. Congress finishes work on a new jobs bill that is also expected to include a "Buy American" provision.
The agreement allows U.S. negotiators, led by Trade Representative Ron Kirk, to claim credit for cracking open a previously closed market.
Reporting by Doug Palmer; Editing by Chris Wilson and Vicki Allen