In March, the Province of Ontario introduced a new Procurement Restriction Policy, a direct response to protectionist measures emerging from the United States amid ongoing tariff tensions. The policy, which applies to Ontario ministries, agencies, and designated broader public sector (BPS) organizations—but not municipalities—aims to exclude U.S. businesses from participating on Ontario public procurements.
Who’s Affected?
Under the policy, Ontario public sector entities must exclude U.S. businesses from their procurement processes, with limited exceptions.
A “U.S. business” is broadly defined to include any supplier, manufacturer, or distributor that:
- Has its headquarters or main office in the United States, and
- Has fewer than 250 full-time employees in Canada at the time of procurement.
The policy further stipulates that, if a bidder or vendor is a subsidiary of another corporation, part 1 of the definition above is met if that bidder or vendor is controlled by a corporation that has its headquarters or main office located in the U.S.
That means if a bidder is a US-controlled Canadian subsidiary with fewer than 250 full-time employees, it will fall under this definition.
Trade Agreement Tensions
This raises a critical legal question: Does this policy align with Ontario’s obligations under the Canadian Free Trade Agreement (CFTA)?
The issue of who qualifies as a “Canadian supplier” under Canada’s domestic trade agreement has previously reached the Supreme Court of Canada.
In the landmark Northrop Grumman case (2008-2009), a U.S.-based company challenged a federal government RFP under the Agreement on Internal Trade (AIT), the CFTA’s predecessor.
The issue was whether Northrop Grumman, a US-based company, had standing to bring a challenge under the AIT. The Canadian government argued that they did not because they were not a “Canadian supplier” under the AIT.
Northrop Grumman lost this case because they didn’t have an office in Canada. The Supreme Court upheld the Federal Court of Appeal decision which held that a US-based supplier with no office in Canada cannot bring a challenge under Canada’s domestic trade agreement because they are not a “Canadian supplier” as defined in the agreement. However, a U.S. subsidiary with a place of business in Canada qualifies as a “Canadian supplier” under the trade agreement, regardless of foreign ownership or control. At paragraph 60 of the Federal Court of Appeal decision the Court wrote:
[60] … the definition of “Canadian supplier” [in the AIT] does not contain any nationality requirement in the sense of requiring any degree of ownership or control of the entity by Canadians. …
…[61] The essential element of the definition of “Canadian supplier” is, in my view, a geographical requirement in respect of the business activities of the entity in question, namely, a place of business in Canada.
Given this legal precedent, Ontario’s new policy could face legal scrutiny from Canadian-incorporated subsidiaries of U.S. companies. If challenged, the policy may be seen as inconsistent with the CFTA, potentially opening the door for litigation or further policy revision.
What’s Next?
While the Ontario government’s policy reflects a broader geopolitical pushback that appears to be supported by most Ontarians, procurement professionals across the province should tread carefully when it comes to a policy of exclusion that extends to Canadian suppliers. As trade agreements and retaliatory policies collide, we may see more opportunity for legal challenges.
Public sector entities should seek legal guidance when applying the policy to ensure compliance not only with Ontario directives but also with Canada’s domestic and international trade obligations.