Strategic shifts: How Canadian procurement policy is responding to U.S. tariffs

Overview

Ongoing trade tensions have initiated important discussions on Canadian purchasing decisions. Procuring entities at the local, provincial, and national levels have taken steps to assess their existing procurement policies and procedures in response U.S. tariff measures. More recently on April 4, 2025, the Province of Ontario published the Procurement Restriction Policy to restrict U.S. businesses from accessing public sector procurements in Ontario.

In this article, we discuss the Ontario framework, together with select procurement measures proposed or introduced by other Canadian provinces, territories, and municipalities at the time of writing.  We have highlighted measures introduced by the City of Toronto, the City of Brampton, the City of Greater Sudbury, the Province of British Columbia, the Province of Saskatchewan, the Province of Manitoba, and the Yukon Territory. While the Government of Canada has introduced a series of retaliatory measures, no federal policies or legislation have been introduced limiting access to procurement opportunities.

Background

Government entities—including agencies, commissions, school boards, universities, hospitals, and other covered groups—are subject to the procurement chapters of domestic and certain international trade agreements. The Canadian Free Trade Agreement (CFTA) is the domestic trade agreement that governs trade and government procurement in Canada and applies to Canada, its provinces, territories municipalities, and other covered groups.

Moreover, the Canada-United States–Mexico Agreement (CUSMA) contains a government procurement chapter, but this chapter does not apply to Canada.^[1] However, Canada and the United States are both parties to the World Trade Organization Agreement on Government Procurement, which remains in effect.

The starting principle of any procurement process is that it will be conducted in an open, transparent, and non-discriminatory manner. However, the CFTA allows Canadian public purchasers, including provinces and municipalities to include a preference for Canadian value-added (e.g., environmental impact, familiarity with local health and safety regulations, etc.) or to limit their tendering to Canadian goods, services, or suppliers, provided that the intended purpose is not to avoid competition or to discriminate against other Provinces or domestic suppliers.^[2] Each covered entity can establish its own procurement policy or framework, so long as it aligns with its obligations under the CFTA. Accordingly, procuring entities must strike a balance between fair competition, achieving value for money, and the benefits of any preferential criteria for Canadian businesses.

In response to U.S. tariff threats and executive orders, Canada has introduced a series of retaliatory measures, as detailed in our tariff update series. Among these measures, we have seen “Buy Canadian” campaigns aimed at influencing purchasing decisions at the consumer level^[3] and response measures introduced at the public procurement level.

One of the difficulties in instituting a procurement ban against a major trade partner is determining what constitutes a “Canadian supplier” and a “non-Canadian supplier.” This task is further complicated by geography, varying corporate structures, and interdependent commercial operations.

If we consider trade agreement terminology, Article 520 of the CFTA defines “Canadian supplier” as being “a supplier that has a place of business in Canada.” A “place of business” is defined as “an establishment where a supplier conducts activities on a permanent basis that is clearly identified by name and accessible during normal business hours.” Case law maintains that a “permanent establishment” requirement will be met by a Canadian supplier (in the traditional sense), a Canadian incorporated corporation that is wholly owned by non-residents, and a Canadian situs branch operation of a non-resident corporation where a place of business is established.^[4] This interpretation is helpful in establishing a baseline understanding of this terminology. However, the specific wording of new policy measures and directives will be important in determining which suppliers are considered to be “Canadian” and how this terminology will be applied to determine public procurement eligibility.

Below, we provide i) a high-level overview of the procurement measures proposed or implemented to date by Ontario and other Canadian provinces, territories, and municipalities, and ii) consider the approaches taken to define what constitutes a “Canadian supplier.”

Ontario’s procurement response to U.S. tariffs

On March 4, 2025, Premier Doug Ford announced a widespread ban on all U.S. based companies participating in government procurement opportunities in the Province of Ontario.^[5]

On April 4, 2025, the Province of Ontario released its Procurement Restriction Policy to restrict U.S. businesses from accessing public sector procurements in Ontario (the “ON Policy”).^[6] This measure is retroactive to March 5, 2025, and will remain in force until such time U.S. tariff measures are lifted. As a new policy, it remains to be seen how it will be applied. 

The ON Policy applies to all new procurements issued or published after March 4, 2025, by any government entity (i.e., ministries, provincial agencies, Ontario Power Generation, and Independent Electricity System Operator) and all designated broader public sector organizations, as that term is defined in the Broader Public Sector Accountability Act, 2010, (e.g., hospitals, school boards, universities, children’s aid societies, publicly funded organizations, etc.).^[7] The ON Policy covers procurements of goods and services (including consulting and non-consulting services) at any value and through any procurement method (e.g., invitational, competitive, and non-competitive).  Construction services are not expressly mentioned in this policy, however under the Broader Public Sector Procurement Directive, the term “goods and services” includes “construction services.”^[8]

Under the ON Policy, a “U.S. business” is defined as follows:

a supplier, manufacturer or distributor of any business structure (includes a sole proprietorship, partnership, corporation or other business structure) that:

1. has its headquarters or main office located in the U.S.; and
2. has fewer than 250 full-time employees in Canada at the time of the applicable procurement process.^[9]

A Canadian subsidiary of a U.S. supplier will still be classified as a “U.S. business” if it meets the above criteria.^[10] However, according to the Frequently Asked Questions guide published by Supply Ontario, subcontractors are not covered by the ON Policy.^[11] It is unclear how the ON Policy will apply to bid team arrangements comprised of different prime contractor and subcontractor configurations. Although procuring entities can rely on a business’ representation that it does not meet this ineligibility criteria, the application of this ON Policy will largely depend on the wording of the solicitation documents.

The ON Policy provides some exceptions for U.S. businesses. Procurements from U.S. business may be permitted if (1) the U.S. business is the only viable source for the good/service, and (2) the procurement cannot be delayed (e.g., risks to public health and safety, etc.). Where both criteria are met, a business case must be submitted and approved by the Deputy Minister or equivalent authority for the exception to be applied. The Guide for Public Sector Buyers provides a list of example scenarios and factors where such exceptions could be met:

• The supplier has unique skills or technology that no other supplier possesses.
• The supplier holds exclusive rights or patents, making them the sole provider.
• The supplier is the only one available in a specific area or at the time of the procurement.
• Laws or regulations strictly require using that specific supplier.
• Confidentiality obligations.
• If the procurement essential for business continuity or to deliver key programs.
• If there are critical health or safety concerns that this procurement addresses.
• How critical is it to obtain this good/service from a U.S business at this time.^[12]

The ON Policy appears to expand on the Building Ontario Businesses Initiative Act, 2022, which mandated that public sector entities give Ontario businesses preference when conducting procurements for goods and services under the monetary thresholds (i.e., $30K for goods and $121K for services). This statute was designed to allocate preference to Ontario businesses, rather than expressly excluding non-Ontario businesses.

An entity will be considered an “Ontario business” under this statute if it meets the following criteria:

1. the business is a supplier, manufacturer, or distributor of any business structure that conducts its activities on a permanent basis in Ontario; and
2. either: (i) has its headquarters or main office in Ontario, or (ii) has at least 250 full-time employees in Ontario at the time of the applicable procurement process.

The ON Policy goes a step further by casting a wider net to all procurement processes, irrespective of monetary value. More significantly, the ON Policy serves to ban U.S. businesses from participating in the procurement process, rather than allocating preferences in favour of local industry.

The ON Policy does not apply to municipalities.^[13] However, prior to this announcement, several Ontario municipalities had already introduced amendments to their procurement by-laws to respond to U.S. tariff measures and allocate preferences for Canadian suppliers. Some of these procurement responses are summarized below.

Responses by Ontario municipalities

Toronto

On March 26 and 27, 2025, Toronto City Council adopted a series of amendments to the Procurement By-law in response to U.S. tariff measures.^[14] The amendments focus on two major areas: (1) affording preferences to “Canadian Suppliers” below the applicable trade treaty thresholds; and (2) limiting the eligibility of “USA Based Suppliers” to bid competitively on Toronto’s procurements.^[15] The measures are in effect during any period when retaliatory tariffs are imposed by the Government of Canada.

The proposed amendments include a number of new definitions. In particular:

“Canadian Supplier” means a supplier, manufacturer or distributor of any business structure that conducts its activities on a permanent basis in Canada [and the] business either: (A) has its headquarters or principal place of business in any province or territory of Canada; (B) has at least 70% of its employees in Canada at the time of the bid submission of the applicable procurement process; or (C) is a Canadian Business Subsidiary.”

“Canadian Business Subsidiary” means a corporation operating in Canada, that acts as a supplier, manufacturer or distributor of goods and services and is controlled by a parent corporation outside of Canada, and where: (A) the business subsidiary has permanent offices or production facilities, and (B) a minimum of 70% of the deliverables will be provided by employees based in Canada.

“USA Based Supplier” means a supplier, manufacturer or distributor of any business structure that conducts its activities on a permanent basis in the United States of America (“USA”). The business either: A. has its headquarters or principal place of business in any state or territory of the USA; or B. has at least 70% of its employees in the USA at the time of the bid submission of applicable procurement process. C. USA Based Supplier does not include a Non-American Business Subsidiary.

“Non-American Business Subsidiary” means a business subsidiary controlled by a parent corporation operating on a permanent basis in the United States of America (“USA”), that acts as a supplier, manufacturer or distributor of goods, where: A. the business subsidiary has permanent offices or production facilities outside of the USA; and B. a minimum of 70% of the deliverables will be provided by employees based outside of the USA.^[16]

The proposed terminology reflects the nuances and difficulties in defining a “Canadian supplier” in light of existing business relationships operating in Canada and the US. It remains to be seen how these new definitions will be applied and verified in the context of a particular solicitation.

Toronto’s proposed amendments also specify that for all new competitive procurements, Canadian Suppliers will be the only suppliers eligible to bid on Toronto’s solicitations that are under the monetary thresholds (i.e., $353,300 for goods and services and $8,800,000 for construction for 2025). For procurements over these thresholds, Toronto will include language that favours Canadian Suppliers and other trade partners suppliers, including from the European Union and the United Kingdom.

USA Based Suppliers may be deemed ineligible to bid on competitive solicitations if it is deemed to be in the best interest of Toronto to exclude bids from USA Based Suppliers. The changes also provide that non-competitive procurements may be undertaken with a USA Based Supplier only if it would be in the best interest of Toronto. Both provisions are discretionary and will be based on the opinion of the City Manager (or their delegate), the Chief Procurement Office, and the City Solicitor. 

Brampton

The City of Brampton was one of the first municipalities to announce its “Made in Canada” procurement policy in response to U.S. tariffs and launched its campaign website “BramptonforCanada.ca” encouraging municipalities to adopt similar measures.^[17]

On April 9, 2025, Brampton City Council enacted and passed amendments to its Purchasing By-law to afford “Made in Canada” preferences.^[18] In particular, the amendments provide that “American Vendors” are excluded from Brampton procurements except in the following circumstances:

• Where at least 60% of the total contract value is attributable to goods, services, or construction that are produced or manufactured in, or provided by workforce located in Canada or other locations other than the USA. The Vendor or Bidder must provide supporting documentation about the value and origin of goods/services if requested by the City.
• Where an Emergency Purchase is required under section 8.5 of the By-law and where there is no reasonable alternative or substitute to an American Vendor.
• In a “no cost procurement” where the City will not bear any costs (e.g., revenue generating opportunities or costs passed through to a third party).
• In the circumstances where there is lack of qualified bidders, there is a single vendor with no reasonable alternative or substitute, changes order with an existing vendor, it is necessary due to unforeseen events or in circumstances which are exceptionally advantageous to the City, such as a bankruptcy or receivership, compatibility with existing goods, or specialized goods that must be maintained by the manufacturer, and warranty work.
• Where operational necessity requires it in circumstances.^[19]

The amendments also introduce the following definitions:

“American Vendor” means any Vendor or Bidder based in the USA, as indicated by their jurisdiction of incorporation or location of their primary office, and includes Subsidiaries of an American Vendor.

“Subsidiary” and “Subsidiaries” have the same meanings as those set out in the Corporations Act, R.S.O. 1990, c. C.38. For greater certainty, Subsidiaries shall be deemed to be an American Vendor, even if not incorporated or located in the USA.

The new terminology appears to exclude Canadian subsidiaries of American Vendors.

Greater Sudbury

On March 18, 2025, the Finance and Administration Committee passed a motion to amendment the City of Greater Sudbury’s Purchasing By-laws to prioritize Canadian and non-U.S. entities for higher value procurements.^[20] The proposed amendments also include requirements that the work being procured will be performed “by a workforce of which at least 90% is Canadian or non-U.S. based and has an office or production facility in Canada.”^[21] The proposed amendments will be presented at a committee meeting on April 22, 2025. 

Highlights of other proposed procurement measures

Federal Government

On March 4, 2025, Canada released the list of federal exceptions that have since been removed under the CFTA in order to strengthen interprovincial trade.^[22] However, we note that this measure was first announced on July 23, 2024, which predates the current trade tensions.^[23]

As of the date of writing, the federal government has not instituted any formal or interim measures to amend Canadian procurement frameworks. However, Prime Minister Mark Carney has issued statements regarding governmental trade and has pledged to remove all trade barriers between provinces by July 1, 2025.^[24]

British Columbia

On March 13, 2025, British Columbia announced Bill 7 – 2025 entitled Economic Stabilization Tariff Response Act.^[25] If passed, this statute would enable the Province to respond more quickly to threats of tariffs and make temporary changes to regulations. The bill introduces measures relating to removing or amending barriers to interprovincial trade and the authority to issue directives in relation to the procurement of goods or services by the government or government procurement entities. As of the date of writing, this bill is in its first reading and no guidelines having been released to date regarding the scope of any procurement directives or defined terms to distinguish between Canadian and U.S. suppliers.

Manitoba

On March 6, 2025, the Government of Manitoba introduced Bill 42 entitled The Buy Canadian Act.^[26] This Bill proposes to amend The Government Purchases Act by requiring the government to develop a “buy Canadian policy” in which preferential treatment may be given to Canadian suppliers when purchasing goods. As of the date of writing, this bill has already passed the second reading and is currently in the report stage. To date, there is no definition for “Canadian supplier” and it is unclear whether the amendment extends to construction or other services.

Saskatchewan

On March 5, 2025, Premier Scott Moe announced a series of response measures relating to capital projects and procurement.^[27] The government has since introduced a list of guiding principles to prioritize Canadian suppliers and the reduction of contract awards to U.S. businesses.^[28] This publication outlines various key details, including how the changes will apply to current procurement processes and standing offers, sets out a list of limited exceptions for U.S. businesses, and refers generally to proposed evaluation criteria with weighting related to the amount of U.S. based content. There are no further details on this latter criterion and the impact such scoring will have on U.S. bidders.

Of note, the proposed measures include the following defined terms:

Canadian business is:

• Fully Canadian headquartered, majority owned and operated; or
• If international headquarters, then have 50 or more employees (FTEs) in Canada; or
• If international headquarters but fewer than 50 total international employees, then have 51% of global workforce in Canada.

U.S. business is:

• Is not a Canadian business as defined above and is headquartered in the United States. This working definition recognizes international businesses with significant workforce in Canada.

The measure also defines a “U.S. Product” as “(1) any product, material, or supply that is Made in USA or Product of USA; and (2) was not physically in Canada as of March 5, 2025”. Similarly, a “U.S. Service” is defined as “a service provided by a natural person in the U.S”. If a service is provided by more than one natural person, then “the service will be considered a U.S. service if a minimum of 70 per cent of the total tender price for the service is provided by natural person based in the United States.”

There are limited exceptions to U.S. purchases. Procuring entities are required to complete a “U.S. Procurement Exception Form” and the rationale should include: (1) efforts to source in Canada or outside of the US; (2) urgency of the required supply or service; (3) quality and cost comparison to other options; and/or (4) any other risks of not making the purchase.^[29]The proposed measures consider both the entity providing the goods and/or services and the source of the goods and/or services.

These measures are applicable to new procurements however, more significantly, unlike the measures proposed by other Provinces referenced in this article, these measures may also apply to solicitations currently underway but the contracts have not yet been awarded. In these instances, solicitations will be reviewed to validate that the products and services are not sourced from the U.S. and clarification requests may be sent to suppliers. It remains to be seen how this measure will be implemented, and what its effect will be on solicitations that are already underway.

Yukon

On March 4, 2025, Premier Ranj Pillai announced a series of measures in response to U.S. tariffs, including limiting U.S. business’ access to government procurement.^[30] The Department of Highways and Public Works has been tasked with updating its existing procurement policies to give preference to local and non-U.S. businesses and minimize purchases from U.S. companies. These proposed changes have not been released to date and there are no further details regarding how such terms will be defined.

Looking ahead

There are several hurdles ahead of implementing a comprehensive U.S. ban framework, including establishing clear definitions (e.g., what constitutes a “U.S. supplier” versus a “Canadian supplier”), determining when these measures would be applied (e.g., future procurements, existing processes, or current agreements), and identifying what procurements are covered (e.g., provision of goods versus services and the exclusion or inclusion of construction). A procurement ban against a trade partner is unprecedented in Canada; therefore, the risk for bid challenges in certain cases could be high and the outcomes are uncertain for both bidders and procuring entities.

For assistance in determining how these changes will impact your organization, please contact the authors.