6 February 2009

U.S. pledge leaves Canada exposed

The following is excerpted from the 6 February 2009 edition of "globeandmail.com".

A pledge by the United States to honour its trade commitments would still leave Canada dangerously exposed to Buy American restrictions in the massive economic-stimulus package.

An amended Buy American clause included in the stimulus bill being debated by the U.S. Senate is a step in the right direction, but it's a long way from the blanket exemption for Canadian products sought by Ottawa, according to trade experts and key exporters.

The Senate had been expected to vote on the bill last night but stopped work on it without completing its negotiations.

...President Barack Obama, speaking to Democrats at a retreat, predicted that if the bill does not go forward quickly, "an economy that is already in crisis will be faced with catastrophe."

Warning against continued "gamesmanship" in debate on the bill, he said that no one would get everything they wanted, but that the legislation should move forward because it is in the interests of the American people.

He did not directly address the Buy American restrictions that have worried Canada.

"It leaves a wide hole for favouring U.S.-made steel and other goods over Canadian products," Toronto trade lawyer Lawrence Herman argued. "[There's] absolutely no guarantee that, in specific cases, the preference won't apply to the detriment of Canadian exports."

Canadian steel fabricators, who make everything from bridge trusses to building frames, warned that the altered language would protect only direct U.S.-government spending when the bulk of federally funded infrastructure is done by states and cities.

"The stimulus bills dramatically expand the scope of the projects that are subject to Buy American restrictions," Michael Gilmor, president of the Canadian Institute of Steel Construction, complained in a letter yesterday to Trade Minister Stockwell Day.

The bill clarifies that the Buy American restrictions must be "applied in a manner consistent with United States obligations under international agreements." Unlike the House version, the Senate bill applies, not just to iron and steel, but to all manufactured products.

Gary Hufbauer, a senior fellow at the Peterson Institute of International Economics in Washington, pointed out that "true blue" U.S. products could still enjoy a huge competitive advantage as state and local governments begin doling hundreds of billions of dollars worth of federal stimulus cash in the coming months.

"It is new protectionism," Mr. Hufbauer said. He pointed out that even the watered-down version violates a commitment the United States made last November along with Canada and other Group of 20 countries not to impose new protectionist measures.

Faced with the choice of a domestic or foreign supplier, governments may opt for the all-American bid to avoid problems, forcing foreign suppliers to seek arbitration either through the North American free-trade agreement or World Trade Organization rules, Mr. Hufbauer pointed out. That process could take a year or more, or long after the stimulus cash has been spent.

Speaking in Toronto, Mr. Day called the amended language a "great step forward." But he acknowledged he's not sure it addresses all of Canada's concerns...

If the Senate Buy American language survives, the best-case scenario for Canada is that Washington fully honour its NAFTA and WTO procurement commitments, which require it to treat foreign and domestic suppliers equally. In theory, that means that products from NAFTA partners Canada and Mexico, as well as the signatories of a WTO procurement agreement, would be excluded from the provision.