The National Post is reporting that a group of powerful US lawmakers are calling out Canada on the frivolous use of "National Security" as a thinly-veiled effort at protectionism. In an number of very large scale procurement contracts, regardless of the security classification of the information, the government has disqualified any vendor where the data may cross the Canadian frontiers.
I have seen this first-hand where government paranoia about the cloud simply leads bureaucrats to the risk-averse decision of keeping data exclusively in Canada under the banner of "data sovereignty." This is one of the reasons why Canada lags behind in the adoption of cloud computing and why Canadian governments spend hundreds of millions of dollars on operating and maintaining thousands of little data centres instead of taking advantage of the massive savings offered by cloud computing.
The Treasury Board of Canada has long-standing guidelines that require a risk assessment in every case that takes into account the sensitivity of the data and the risk of exposure, but Public Works appears to have adopted a one size fits all "no-can-do" attitude.
It will be interesting to see if this turns into a proceeding before the international trade tribunals.