ONTARIO’S recent announcements of the $28.5 billion transit expansion plan for the GTA are welcome, and direly needed for one of the most, if not the most, congested urban agglomeration in North America. However, nowhere are we talking about leveraging these forthcoming investments to ensure maximum benefits for the province, its local manufacturing, innovation and jobs.
Ontario will lose out if it does not use the flexibility it has under international trade rules to protect its interests. The rise of protectionism, economic nationalism and unilateralism around the world is evident. In this highly contested global environment, Ontario should adopt a more assertive approach to optimize local economic impact.
The U.S. is imposing a ‘Buy America’ requirement (the level of U.S. content will increase to 70 per cent by 2020) on public transit projects that are receiving federal funding. China requires the establishment of joint-ventures to be able to bid on domestic rolling stock tenders. Further, between 70 and 90 per cent of the rolling stock must be manufactured domestically.
The EU’s (European Union) approach is less visible, but as effective. Through qualification requirements, specifications, as well as demanding and rigorous product certification processes, most EU members offering a large rail transportation market make sure that only firms with a strong local footprint succeed.
Against this backdrop, it has been disheartening to see Canadian provinces running in the opposite direction. The disappointment is all the more so since Canada does possess a rail equipment ecosystem that includes research and development, and manufacturing.
In May 2017, Montreal’s transit system awarded a contract for 24 bi-level commuter trains to CRRC, a Chinese rail car manufactuer. The Quebec government and Exo (the Montreal transit operator which was then known as AMT) lowered the local content requirement from 25 per cent to 15 per cent, allowing CRRC to bid, whereas reportedly Bombardier offered substantial Canadian content, way above 15 or 25 per cent.
In February 2018, the $6.3 billion rapid transit project in Montreal was awarded with no local content requirement, despite substantial provincial and federal funding. The rapid transit trains from Alstom will be built in India.
In November 2018, Via Rail awarded to Siemens a once-in-a-generation, $1-billion contract for trains to run between Quebec City and Windsor, with no local content. The trains will be built in Sacramento, Calif.
With Canada strikingly going against the tide, the U.S., China and India will be able to benefit substantially from Canadian procurement with job creation in their respective countries, all the while providing no breathing room whatsoever to Canada from having to invest or localize in their markets to gain access.
Strict qualification criteria should be enforced to avoid suppliers with no relevant experience overpromising. This is done elsewhere and there is no reason for Canada to be more lax. In Canada, rolling stock suppliers should only qualify if they can demonstrate a track record in winterizing trains to be able to operate reliably in Canada all year round.
Canada should emphatically clamp down on this free riding and use the huge flexibility it has within World Trade Organization rules to the fullest extent to reciprocate what Canadian firms are subject to other jurisdictions.
The Ontario and Quebec governments should ensure that, for every procurement coming up, including the impending Metrolinx Regional Express Rail or GO Expansion, at least 25 per cent local content is required if the equipment is coming from Europe, and even more local content if the equipment is coming from other parts of the world.
It is a matter of recognizing and valuing investments that Canadian firms made in Canada. Otherwise, the hollowing out of Canadian manufacturing and innovation will continue.
Aziz Guergachi is a professor at Ryerson University’s Ted Rogers School of Management.