Speaking from the modish Rose Garden of the White House on April 3, 2025, U.S. President Donald Trump announced new “reciprocal” tariffs on almost all of the United States’ trading partners, including 34% on China, 27% on India, 24% on Japan and 20% on the European Union. Many small economies face varying rates, with the lowest tariff of at least 10%. Canada was spared additional tariffs, with no new levies being added to industry-specific measures, such as a 25% tariff on cars.
President Trump called it one of the most important days in American history. His “Liberation Day”, as he called it, ushers in the United States’ broad abandonment of the world trading order launched in 1948 with the coming into force of the General Agreement on Tariffs and Trade (GATT). The new order can be summarized by protectionism. In response to the president’s willful destruction, the question for Canada, among other countries, is how to limit the damage.
Effective as of April 4, 2025, the Government of Ontario introduced a new procurement policy aimed at restricting access to public sector contracts for American-based businesses. The Government’s new Procurement Restriction Policy (the “Policy”) applies to all public sector entities, including the designated Broader Public Sector (BPS) organizations. Its stated objective is to level the playing field for Ontario-based businesses by restricting American companies to bid on public procurement opportunities in Ontario. In the event that the tariffs are removed or revised, the Policy explains, the Government intends to reassess and make appropriate adjustments, if necessary, including rescinding the Policy. The Policy is issued under the authority of both the Management Board of Cabinet Act, and the Broader Public Sector Accountability Act, 2010.
Application & Scope
The Policy applies to all public sector entities, including the following (unless otherwise specified):
- All ministries;
- Entities subject to the Ontario Public Service (OPS) Procurement Directive;
- All provincial agencies (including any provincial agencies that come under the rubric ‘Other Included Entities’ under the OPS Procurement Directive);
- The Ontario Power Generation (OPG);
- The Independent Electricity System Operator (IESO); and
- All designated Broader Public Sector (BPS) organizations.
The new Policy emphasizes that all existing procurement directives continue to apply, including the rules that support the Building Ontario Businesses Initiative (BOBI). Where there is any conflict or inconsistency between any applicable procurement directive and the new Policy, the latter prevails to the extent of the conflict or inconsistency. The Policy does not prevail over any legislation.
The Policy applies broadly to all new procurements of goods and services (consulting and non-consulting) at any value and it applies irrespective of the specific method of procurement, whether invitational, open competitive or non-competitive.
Importantly, Vendor of Record arrangements or other arrangements available to public entities are excluded from the application of the Policy.
The Policy clarifies that what is meant by a ‘Unites States business’. The term broadly means a supplier, manufacturer or distributor of any business structure (for example, a sole proprietorship, partnership, corporation or other business structure) that is (a) headquartered or locates its main in the United States and (b) has fewer than 250 full-time employees in Canada at the time of the applicable procurement process.
Interestingly, an American business which is headquartered in the United States but has more than 250 full-time employees in Canada is exempted from the Policy and, as such, Ontario public sector entities could accept bids submitted from the United States by an American business. It can reasonably be assumed that the employee head count will result in shutting out the vast majority of American business from doing business with the Ontario public sector.
Administratively, a public sector entity in Ontario could rely on the representation (presumably made in writing) that a prospective bidder does not meet the definition of a Unites States business.
Requirements
Where a prospective bidder is an American business in accordance with the above-referenced definition, the business must be excluded from the procurement processes being conducted by public sector entities in Ontario.
Narrow exceptions exist in circumstances where (a) the American business is the only viable source for the goods/services, and (b) the procurement cannot be delayed. Meeting these combined criteria will require public entities to consult adequately internally to ensure that due consideration is given before proceeding with a prospective procurement.
Under the OPS Procurement Directive, at a minimum a government entity is required to obtain the approval to proceed from a deputy minister or CEO, as appropriate. Similarly, designated BPS organizations must also require comparable levels of approval.
Final Remarks
The Policy amounts to a radical departure from the long-established trading order, marking a discernable change in commercial relations between Canada and the United States, one that is strained and loaded with potential consequences for Canadians.
By shutting out the bulk of American businesses from public procurement opportunities in Ontario, Canadian and foreign non-American suppliers will enjoy an opportunity to fill the gap left by outgoing American suppliers. The Ontario public sector and Canada more broadly is now facing a striking opportunity to achieve a greater degree of independence from Canada’s most significant trading partner and establish new or enhanced commercial relations elsewhere, with members of the European Union, for example.
The challenges associated with severing ties with existing suppliers and establishing new supply chain relations cannot be underestimated and will take some time to sort out. As they do so, Ontario entities subject to the requirement of the new Policy will need to be mindful of the restrictions and allowances under which procurement may be conducted with American suppliers and comply with the stated approval requirements. In the end, whether the tariff war with the United States is resolved sooner rather than later, inevitably the memory of “Liberation Day” will linger and the public sector will need to reform and reconstitute its supply chain.
Denis Chamberland, counsel to Fogler, Rubinoff LLP, is a procurement and trade law specialist. He works with European companies aspiring to do do business with public sector entities in Canada and with Canadian companies aspiring to do business with the public sector in Europe. He commutes between Toronto and Paris, France.
