Stimulating Trade Wars


Investor’s Business Daily
Issues & Insights Section
May 18, 2009

Free Trade: If you thought “buy American” provisions were a thing of the past, think again. Canadians are bellowing and U.S. companies trying to employ Americans are shutting down. Someone didn’t think this through.

President Obama received much praise for his efforts to water down “buy American” provisions and went out of his way to assure our trading partners and allies that what remained would be enforced in a manner consistent with our international trade obligations.

Concern in Canada and elsewhere subsided a bit after a clause supported by the administration was inserted in the stimulus bill stating that the legislation would not supersede existing U.S. trade obligations such as Nafta. During his Feb. 19 trip to Ottawa, Obama told the Canadians he would work to avoid protectionism.

But there’s a fly in the ointment, actually several flies. One is that Congress has not given up attaching protectionist legislation to other bills. Another is that much of the money allocated to infrastructure projects such as roads, bridges and the like is being spent at the city and state level where Nafta rules do not override “buy American” provisions or sentiment.

The Washington Post cites examples such as the town of Peru, Ind., which told a Canadian supplier it was rejecting sewage pumps that were made near Toronto. John Hayward, president of Hayward Gordon, the Canadian pump-maker, says many U.S. towns have told him they can no longer buy his products because of stimulus provisions.

Work done on a construction project at Camp Pendleton was literally pulled out of the ground when someone noticed Canadian pipe fittings had been used. The fittings were made by a Toronto-based company that had been doing business in the U.S. for 60 years. The company had supplied plastic pipe to be used in a new health care facility at the Marine Base north of San Diego.

“Many Canadians believe the issue” of U.S. protectionism “was settled when (Obama) came into Canada back in February and made assurances that all is well. But it’s not,” says Veso Sobot, spokesperson for IPEX Inc., the company that sold the pipe. “We’ve never seen such a wave of protectionism as at this moment.”

Other Canadian companies doing business with state and local governments in the U.S. report being forced to sign affidavits that all their materials were made in the U.S., or they will not be allowed to do business here.

The Toronto Star last week complained of “a plague of protectionist measures in the U.S.” Already a number of Ontario communities with a combined population of around a half million have retaliated by barring U.S. companies from their municipal contracts.

Companies on both sides of the border appear to be drowning in these “watered-down” buy-American provisions. Duferco Farrell Corp., a Swiss-Russian partnership that took over a closed steel plant near Pittsburgh, is on the verge of shutting down because its global supply chain does not jibe with current definitions of “made in USA.”

The plant employs 600 people, but has had to furlough 80% of its work force. A steel pipe maker literally down the street recently canceled an order for Duferco’s steel coils because part of the production process is outside the U.S. That firm is shifting its orders to firms with 100% U.S. production to meet the new stimulus regulations.

Proposals aimed at increasing taxes by over $200 billion over the next decade on U.S. companies doing business abroad do not help free trade. Congress has not helped matters by in recent weeks attaching buy-American provisions to a $14 billion clean-water fund and a $6 billion program to fund eco-friendly school construction projects.

Congress and the administration need to revisit the creeping protectionism prompted by the stimulus bill. Otherwise, the free trade that’s a key part of any economic recovery is, well, just a pipe dream.

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