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'Buy American' meets formidable challenge
Last Updated(Beijing Time):2009-02-17 07:34

The mammoth 787-billion-US dollar stimulus package was finally passed by the US Congress last Friday, a crucial step forward in Washington's ambition to revive the faltering economy.

A electrical store holds a going-out-of-business sale in Los Angeles on February 2, 2009. [Agencies]

The asserted benefit of the bill, however, was overshadowed by the "Buy American" provisions it included, which barred the use of foreign iron, steel, and manufactured goods in public works projects funded by the plan. The clause easily invited deep concern outside and inside the United States, raising fears of a recurring of protectionism.

"Buy American" has become particularly sensitive in a time that the world is facing sagging economy and slumping trade, echoing the Great Depression in the 1930s when a wave of tit-for-tat protectionism choked global trade and prolonged the economic pain.

World Concerned About Protectionism

The United States has alleged that the implementation of the bill will strictly abide by its international trade obligations. Analysts pointed out that according to the international government procurement agreement, Canada, the European Union (EU), Japan and a few other countries might be exempted from the provisions. Even so, potential protectionism embedded in the provisions still touched the nerves of these nations and blocs.

Canada, with about 40 percent of its steel export going to its southern neighbor the US, has repeatedly expressed its deep concern.

The country's Prime Minister Stephen Harper said on February 3 that the clause could contravene the North American Free Trade Agreement (NAFTA) and backtrack on Washington's "international obligations" to break down global trade barriers.

Harper spoke out again last Friday, after the bill was approved by the Congress, that "there were some improvements as this went through the congressional process but obviously all of us remain concerned, and I think (US) President (Barack) Obama himself has said that he wants to ensure that the stimulus packages do not lead to protectionist measures in the United States or anywhere else."

On February 4, the US Senate voted to retain the "Buy American" provisions in the bill. At the same time, Washington's major trade partner Japan joined in to lobby against the clause.

Japanese Prime Minister Taro Aso described the provisions as "ridiculous" and a "breach of WTO (norms) of the current age," and chief cabinet secretary Takeo Kawamura said protectionism might lead the world economy to "atrophy".

The EU did not refrain from giving tough criticism, neither. John Bruton, European Commissions' ambassador in Washington, said last Thursday that "in the previous administration we had the experience of American unilateralism in the military sphere. The risk now is that we might be experiencing American unilateralism in the economic sphere."

The ambassador said such clause would counteract efforts to avoid protectionism, despite Washington's promise not to violate any international trade agreements.

China, that also adopted massive stimulus package to spur its economy, said "no" to a similar plan that bans foreign products in its domestic stimulus projects.

"We won't practice 'Buy China'," said Chinese Vice Commerce Minister Jiang Zengwei last Monday, "We'll treat domestic and foreign products equally as long as they are needed."

Despite international doubts, "Buy American" provisions in the stimulus bill managed to strike its way through the Congress. Final approval of the plan coincided with the G7 meeting in Rome last Friday, raising deeper worry from G7 participants about widespread protectionism.

US President Barack Obama greets attendees after addressing the Business Council in the East Room of the White House in Washington,DC. The US House of Representatives on Friday passed a 787-billion-dollar stimulus package that President Barack Obama has called "only the beginning" of his efforts to rescue the crippled economy. [Agencies]

In the meeting, finance ministers and central bank governors of the leading industrialized countries pledged to prevent the snowball from getting rolling by voicing unanimous opposition against trade barriers and advocating open trade and free market.

British Financial Minister Alistair Darling said protectionism "is very damaging and will hold up the recovery."

Meanwhile, German Financial Minister Peer Steinbrueck called for full efforts to "ensure history does not repeat itself," referring to the spread of protectionism during the Great Depression.

Amid such collective concern, new US finance minister Timothy Geithner tried to ease the worry at the G7 meeting by reaffirming Washington's determination to comply with international trade obligations and President Barack Obama's commitment to open trade.

Catcalls at Home

Apart from criticism from abroad, the provisions gained no easy passes at home. During the heated discussion of the bill in the Congress, Republican Senator John McCain, Obama's rival in the presidential election, had proposed to wipe off the protectionist measures, saying that "should we enact such a provision, it will only be a matter of time before we face an array of similar protectionism from other countries -- from 'Buy European' to 'Buy Japanese' and more."

Although his proposal was rejected, the Senate did make amendments by adding languages requiring the implementation of the bill to honor international trade commitments.

A study conducted by Gary Hufbauer and Jeffrey Schott, both economists at the Peterson Institute for International Economics, said "the negative job impact of foreign retaliation against 'Buy American' provisions could easily outweigh the positive effect of the measures on jobs in the US iron and steel sector and other industries."

Moreover, one day after the stimulus packaged was passed by the Congress, the US Consumer Electronics Association issued a statement warning "the 'Buy American' provisions in the stimulus bill will signal to our trading partners around the world that the US is returning to the bad old days of protectionism and economic nationalism."

"Rather than stimulate the American economy, these provisions will lead to retaliation from abroad and cost precious jobs in the United States," said Gary Shapiro, president of the association, who also dismissed the promise of keeping with the letter of WTO commitments as "a meaningless gesture."

Such mounting criticism has put President Obama in a tough position. In his election campaign, Obama emphasized his determination to protect and create domestic job opportunities, and even touched upon questions weather the US trade pacts were protective enough for the national industries.

However, amid strong pressure from the international society, the formidable challenge for Obama now is to strike a balance between ensuring domestic job opportunities and strictly respecting trade obligations.

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