Britannia Radio

TELEGRAPH 30.1.09
US-EU trade war looms as Barack Obama bill urges 'Buy American'
The prospect of a trade war between the US and Europe is looming
after "Buy American" provisions were added to President Barack
Obama's $820 billion (£573 billion) stimulus package.

By Alex Spillius in Washington

The EU trade commissioner vowed to fight back after the bill passed
in the House of Representatives late on Wednesday included a ban on
most purchases of foreign steel and iron used in infrastructure
projects.

The Senate's version of the legislation, which will be debated early
next week, goes even further, requiring that any projects related to
the stimulus use only American-made equipment and goods.

The inclusion of protectionist measures has quickly raised hackles in
Europe.

Catherine Ashton, the EU trade commissioner, said: "We are looking at
the situation. The one thing we can be absolutely certain about, is
if a bill is passed which prohibits the sale or purchase of European
goods on American territory, that is something we will not stand idly
by and ignore."

Despite the parlous state of the US economy, some major American
firms, including General Electric, are also opposed to the Buy
American stipulations, fearing reprisals from overseas and further
damage to the global economy.

Bill Lane, government affairs director for Caterpillar, which has
just laid off nearly a fifth of its 112,000 work force and is the
tenth largest US investor in Britain, warned it was a dangerous step.

He said: "We are the first to recognise that if the US embraces Buy
American then the whole notion of buying national will mestastasize
and limit our ability to take part in overseas projects.
"We are students of history. A major reason a very deep recession
turned into the Great Depression was the fact that countries turned
inward."

Countries in Europe and Asia are planning major injections of cash
into infrastructure to boost their economies, and US firms don't want
to be left out of potentially lucrative contracts.
"We would be a primary beneficiary of any type of infrastructure
project in the US, but at the same time we are one of the country's
largest exporters," he added.

Some industrial giants also question whether the Buy American laws
would contravene US obligations reached in various World Trade
Organisation agreements.

They also point to the 1930s as a lesson in the perils of
protectionism. Congress passed the Buy American Act in 1933, allowing
the government to favour US products for government contracts.
Restrictions were eased in 1982, but the plans currently working
their way through Congress would bring the new law close to its
forebear of 75 years ago.

Foreign steel would only be allowed if using US steel drove up the
cost of a project by more than 25 per cent, while the bill passed on
Wednesday required that the Transportation and Security
Administration use American-made uniforms.

Supporters of Buy American argue that tighter measures are required
to protect American jobs and point out that the US steel industry is
losing out to Chinese imports subsidised by Beijing.
"As we are losing jobs in record numbers, we obviously need to devote
these funds to direct creation of American jobs," said Sherrod Brown,
a senator from Ohio, part of the struggling industrial heartland.

Unemployment in his state has risen to 7.6 per cent, up from 5.8 per
cent in December 2007.
"To do that, we must ensure that federal funds are used to buy
American products and to help promote manufacturing in our country.
Ultimately I want taxpayers to know where their dollars are being
spent. Are they being spent on American products or products coming
from Germany or Mexico?"

Mr Obama has sent mixed signals on free trade throughout his campaign
and the early days of his presidency. He has argued that the North
American Free Trade should be recalibrated in favour of American
workers, but has stressed the need for a co-operative international
approach to the economic crisis.

Though fellow Democrats in the house and senate drafted their
versions of the stimulus bill, the new president and his advisers had
major input and influence over the contents.

The bill failed to win a single Republican vote in the house, despite
a major charm offensive by Mr Obama, which included a visit to
Congress and an invitation to Congressional leaders to drinks at the
White House.
It passed thanks to the Democrats' healthy majority, but the senate
bill could see a tougher fight. Each rendering of the bill will be
merged at a process known as conference, before being returned to
both chambers for a new vote. The president has asked that a final
bill be presented to him by February 13