Sunday, March 1, 2009

Buy American Clause

The whole world is talking about the recent US stimulus package which totaled close to $800 billion to stimulate domestic production and create jobs. In the US, there are mixed feelings about the economic boost. While many citizens are terrified over the future of their social security, others are rejoicing over the funding that will aid thousands of struggling families. But abroad, most of the controversy is about a particular clause that the Senate incorporated into the deal, and the House unanimously supported. The ‘Buy American’ clause was added to the package as a provisional demand to incorporate only American-made steel and iron for any bailout projects that are funded by the stimulus. According to a CNN report, buy American provisions have been included in public procurement provisions for decades and have always been trade agreement compliant. Leading democratic senators for the clause insist this one is no different and shall be treated in no other manner.

Yet many in the international community feel the clause is too protectionist and violates standing trade agreements. China and partners in NAFTA feel especially threatened by the legislation and have even gone so far as to advise their intent to file complaints to the World Trade Organization for the US’s non-compliance with standing agreements. Supports in the US argue that the provision says nothing about breaching current trade commitments, and refers only to non-related stimulus funded projects. President Obama referred to the concept saying “it is not protectionism, it is common sense” and stated the he supported “Buy American” provisions as a model for boosting the domestic economy and focusing on providing jobs at home.

Critics of the clause are concerned that historically strong trading partners will view the policy as a "slap in the face" and feel hesitant to supporting US trade goods in return. Another cause for concern is the high costs of American-made materials in many cases. Those expressing dis-support for the policy claim that the clause will only waste American dollars where they could be spent elsewhere. In the long run, many worry the situation might actually be worse for the economy than the jobs it might temporarily create in the US.

With the passing of the clause last week, the WTO and others expressed uneasiness over the very real potential of trade-wars arising between Canada, the EU, and others. I agree with their concern and think that the goal of the clause could have been achieved without such a bold statement to the international community. An intention to use stimulus purchasing power to prioritize American-made goods is definitely a reasonable one. But before the language was softened, the clause very bluntly implied more than just an American priority. The current wording leaves room to "approve" otherwise cheaper foreign options, but by discluding the clause all together the exact same outcome could have been achieved without further tainting the "selfish American" image to the rest of the world - who is also facing economic hardship.

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