Bombardier job cuts raise questions on impact of Buy America Act

While Ontario Premier Doug Ford and the federal Liberal government were busy this week blaming each other for the financial woes of Bombardier, the company itself pointed its finger at another culprit.

In a news release confirming it would be terminating 550 employees from its Thunder Bay, Ont., plant, the aerospace company claimed one of the challenging issues it faced was the U.S. Buy America Act.

The U.S. Federal Transit Administration provides American cities with financial assistance for public transit systems, including buses, subways, and commuter rail. But in order to get that funding, 65 per cent of the steel, iron, and manufactured goods used in the projects must be produced in the United States. And that will raise to 70 per cent in 2020.

Because Bombardier has contracts with U.S. cities, and because of the Buy America requirement, the company said it had "no choice" but to move manufacturing to the U.S. and establish "an American manufacturing footprint and supply chain."

The result, according to Bombardier, is having to cut jobs at its Canadian plant.

"The problem is, [Bombardier tries] to make it sound the reason behind the cuts is that the Americans have become more protectionist, and that's why they're losing money," said Ramy Elitzur, a financial analysis professor with the University of Toronto's Rotman School of Management.

Elitzur said while U.S. protectionist measures may have had a marginal impact on Bombardier's bottom line, the more complete picture is that the company has not been very efficient, effective or agile in terms of strategy.

'A little bit convenient'

Tyler Chamberlin, assistant professor at the University of Ottawa's Telfer School of Management, also questioned how much Buy America was impacting business at Bombardier.

"It strikes me as a little bit convenient to have that sort of answer at this time, that it's about Buy American rules," he said. "I'm certainly not aware of any deals that have been missed by Bombardier and handed to some American manufacturer." 

As for a larger impact on Canadian industry, Chamberlin said he just isn't seeing it.

"Our GDP and our export numbers aren't suffering in big ways. Can you find a case or two? Maybe you might be able to. But they're not so sizable that it's actually holding back the Canadian economy or holding back Canadian exports."

But other observers say the U.S. legislation is certainly having a significant impact on some industries in Canada. Buy America does not just apply to those in the business of selling buses or railway cars, but other U.S. government procurements including highway contracts and other infrastructure projects.

"Buy American had broader impacts than Bombardier. But its impact on Canadian exports of railway rolling stock is virtually prohibitive," said international trade expert Peter Clark.

"They tell us that effectively, they can't build up a good export base to the United States."

Clark agreed that companies like Bombardier that want to bid on some U.S. contracts will have to set up shop in the U.S., and that means fewer jobs in Canada.

"And the American states are pretty quick to offer incentives to move your plants to the U.S.," he said.

Dennis Darby, CEO and president of the Canadian Manufacturers and Exporters, of which Bombardier is a member, said Buy America is a real factor in public procurement.

"If they have a U.S. contract and the U.S. says you have to build a certain percentage in the U.S., the jobs have to go there."

Darby said it forces companies like Bombardier and New Flyer, a Winnipeg-based bus manufacturer, to do a large part of the assembly in the U.S. 

"Even though it's a Canadian company headquartered in Winnipeg almost all of the final assembly is done in the U.S," he said. "So that is a problem."

'No reciprocity'

Following Bombardier's announcement, Canada's premiers, gathered in Saskatoon for their annual conference, called on the federal government to take a more active role in negotiating an exemption from Buy America.

Darby said part of the problem is that there are no real effective reciprocal measures that Canada can employ.

"We have no reciprocity on this with any teeth. Both Quebec and Ontario can ask for up to 20 per cent of the value of rolling stock to be Canadian-made. But that's all there is right now."

Darby said Canada should have its own reciprocal Buy Canada measures, or there should be a Buy North American agreement.

"This is one of those areas where there is not a level playing field for companies like a Bombardier or others that are in the transit business or anyone who is doing public procurement because the U.S. rules are much, much stronger."