Canada's mayors said Saturday that they are withdrawing their threat to boycott suppliers from the United States in retaliation for Buy American provisions involving U.S.-funded stimulus projects.

The Federation of Canadian Municipalities said it won't enact a resolution passed in June that gave the U.S. 120 days to back down from the Buy American provisions, warning that Canadian municipalities would in return boycott U.S. suppliers.

"We are encouraged by the talks now underway between Canadian and U.S. officials and want to give them the time and space to reach a successful outcome," said Federation president Basil Stewart. "These talks can and should lead to a fair and mutually beneficial agreement."

The resolution was to take effect Sunday.

Federation vice president Berry Vrbanovic said he does not believe the suspension of the deadline will remove the pressure on the U.S., saying the mayors are leaving the door open to reconsider the deadline if a deal is not reached.

The Obama administration included the Buy American policy in the nearly $800 billion stimulus package adopted earlier this year, which requires projects funded with stimulus money to use only U.S.-made steel, iron and manufactured goods.

Buy American supporters in the U.S. want to make sure that the billions of U.S. taxpayer dollars being spent will revive the economy and create jobs at home.

But the provision has angered other nations who accuse the U.S. of preaching free trade while practicing stealth protectionism.

Canada and the U.S. share the largest trading relationship in the world. More than 70 percent of Canada's exports go to the United States.

Since the Buy American provisions were introduced, Canadian companies have said they have been facing increasing difficulties in winning government contracts in U.S states and cities.

The Canadian Manufacturers and Exporters association says about 200 companies have potentially been affected by the provisions

Earlier this week, news reports suggested a deal was imminent to exempt Canada from the clauses that exclude foreign suppliers from bidding on projects funded by U.S. federal stimulus money.

But officials on both sides of the border denied the reports.

Canadian Manufacturers and Exporters head Jayson Myers also said Saturday he saw no new signs that a deal was close, saying there are still "long and hard negotiations that need to take place."

Myers said one sticking point is that the U.S. appears to want Canadian provinces to sign a World Trade Organization procurement agreement that commits them to not discriminate against foreign suppliers. The provinces have only agreed they will sign a temporary deal with the U.S.

In fact, said Myers, the current provincial offer is a better deal for the Americans because the WTO pact would not commit Canadian municipalities, where much of infrastructure spending takes place.

Myers said he hears almost daily from Canadian suppliers who say they are being shut out of the U.S. market because of the Buy American provisions.

Analysts say that with the lion's share of the $290 billion infrastructure portion of the U.S. stimulus plan set to roll for 2010, the impact on Canadian manufacturers and suppliers will only get worse.

Some economists have suggested the impact could limit Canada's economic growth next year.