On February 17, 2009, U.S. President Barack Obama signed into law an economic stimulus package worth nearly $800 billion.

His Administration hopes it will help to lift the U.S. economy out of recession.

Hidden in the stimulus bill is a 'Buy American' provision that says "None of the funds appropriated or otherwise made available by this act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States."

Exceptions can be made in the public interest if there is insufficient U.S. iron and steel available at the time of construction or if the cost of U.S. iron or steel would increase the cost of a project by more than 25 per cent.

Barack Obama said in Mexico last week that the Buy American rules inserted by Congress won't endanger free trade with Canada.

"This in no way endangers the billions of dollars of trade taking place between our two countries," Obama said, noting that Prime Minister Harper raises the issue "every time I see him."

He soft-peddled the fact that application of the Buy American provision apparently goes beyond just iron and steel with the interpretation that (all) products purchased with stimulus funds must be manufactured in the U.S.

"It's important to keep it in perspective," Obama said during his news conference at the close of a two-day meeting with Harper and Mexican President Felipe Calderon in Guadalajara, Mexico.

Critics in Canada have expressed concerns that the policy is closing markets to Canadian companies.

Obama says the controversial clause conforms to all World Trade Organization (WTO) and NAFTA regulations because it only deals with what's called sub-national governments (i.e. States and municipalities) and they are not included in international trade agreements.

A week ago, Harper warned Canadians that attempts to discourage protectionist trade policies in the United States might not be a straightforward task.

Speaking at a news conference in Kitchener, the Prime Minister said that Ottawa is confident that an agreement on the issue can be reached but he cautioned that agreement won't simply be a matter of getting a pledge from Obama on the issue.

"The Buy American provisions are not strictly a White House matter" he said.

Paraphrasing Obama, he said stimulus procurements will be made by lower levels of government and NAFTA and WTO rules do not apply in the same way to lower level governments as they do to national governments.

Canadian Business (Magazine) Online quotes Jeffrey Immelt, Chairman and CEO of General Electric (GE) as saying the Buy American provision is terrible.

"Protectionism is not a philosophy" he says "It's a cry for help. It's a sign of weakness.

"That's not the face that America should want to project to the world.

"The face we should project is one that says 'We can compete with anybody, anywhere, anytime'." He said.

General Electric, one of the world's largest companies, with interests in financial services, manufacturing and technology, along with heavy equipment maker Caterpillar Inc. and other US-based companies, have publicly opposed the Buy American provision for fear it will spark retaliation from other countries.

GE earns half its revenue outside the United States.

In June, Canadian municipal leaders met in Whistler, B.C. to discuss possible nationwide retaliatory measures against U.S. suppliers over the provisions while the provinces have indicated they are willing to discuss opening up their procurement markets to foreign bidders as a condition of getting the Buy American provisions repealed.

The Canadian Manufacturing Association (CMA) has asked the Prime Minister, to approach U.S. President Barack Obama "again and as soon as possible" to seek an exemption for Canada from the stimulus provisions.

In its letter, the CMA told the Prime Minister that Canadian firms are already losing contracts and shedding jobs in the midst of this recession because of the Buy American provision.

This week, Ontario premier Dalton McGuinty at a meeting of the Association of Municipalities of Ontario (AMO) wondered out loud how it is that Canadian businesses can't bid on U.S. stimulus projects but Americans can bid on Canadian projects.

That's not fair." he said.

McGuinty also said the "Buy American" provision, could make the economic situation in Ontario worse than it is today as the province continues to shed jobs.

In my view, trade wars and retaliation are not the answer to this challenge.

I think General Electric's CEO has it right when he says the Buy American provision is a cry for help and a sign of weakness.

How refreshing it would be if our leaders could recognize the opportunity in that cry and find a way to compete for American dollars without pleading with the U.S. President for help.

AUTHOR: W.E. (Bill) Belliveau is a Shediac resident, a Moncton business consultant and has played prominent roles in many business organizations. His column appears every Saturday.

August 22nd, 2009

SOURCE: Times & Transcript