Canadian newspapers are headlining a recent decision by the US Congress to "buy American" [Obama's 'Buy American' plan blasted].
Both versions of the U.S. economic stimulus package block the use of foreign-made iron, steel, textiles and manufactured products according to the report in the Toronto Star. Canadians think that is an illegal example of protectionism but the US Vice-President disagrees, according to the report in The Toronto Star.
Liberal foreign affairs critic Bob Rae said bluntly the position taken by the U.S. Congress is illegal.Canada and the USA have signed a free trade agreement (NAFTA) that is legally binding in both countries (and Mexico). The USA has failed to live up to its commitments before but it has lost when the issues went to arbitration. Unfortunately, the legal proceedings take many years and during that time US protectionism benefits American countries at the expense of Canadian and Mexican companies. Meanwhile, America benefits by selling its goods and services in Canada and the Mexico.
"A country cannot bring in a measure that restricts international commerce and international activity in this way," he said.
However, late yesterday, Obama's administration signalled a different view. In an interview with CNBC, U.S. Vice-President Joe Biden defended the "Buy America" steel provision.
"I don't view that as some of the pure free traders view it, as a harbinger of protectionism," Biden said.
As officials at Canada's embassy in Washington scramble to lobby U.S. senators to water down the language in the bill, Canada's trade and industry ministers suggested the measures could be challenged under the North American Free Trade Agreement or at the World Trade Organization.Canadian policians were worried about Obama's commitment to international trade. So far it looks as though those fears were justified.
"We are reminding the Americans that they have legal obligations under NAFTA, under WTO," said International Trade Minister Stockwell Day. "History shows clearly that you can't fall back into protectionist measures. That happened in the 1930s and what could have been a bad one- or two-year recession turned into, as we know, the Great Depression. So we want to curtail that."
But a NAFTA challenge will be neither easy nor a quick way to resolve anything.
It was a very short honeymoon for Barack Obama. It will be interesting to see how he handles this problem. He has promised to work toward restoring America's stature in the international community. Setting up protectionist trade barriers in violation of international treaties isn't going to advance that cause.