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'Buy American' Rider Sparks Trade Debate
Proviso Limits Steel, Iron From Abroad

By Anthony Faiola
Washington Post Staff Writer
Thursday, January 29, 2009

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.

Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

The provisions also confront President Obama with his first test on trade policy. He must weigh the potential consequences of U.S. protectionism against the appealing slogan of "Buy American" and the jobs argument.

The administration has not addressed the issue publicly, and sources close to the issue said it appears that a response is still being formulated.

"We're reviewing the Buy American plan proposal, and we are committed to a plan that will save or create at least 3 million jobs including jobs in manufacturing," White House spokeswoman Jen Psaki said.

The proposals are meant to regenerate heavy manufacturing jobs in the United States by forcing government contractors to use domestic materials and equipment, even if they are more expensive. Yet U.S. industrial giants including Caterpillar, General Electric and the domestic aerospace industry are emerging as strong opponents.

The measures, they argue, could violate trade deals the United States has signed in recent years, including an agreement on expanding access to government procurements reached through the World Trade Organization. But most damaging, critics say, would be the "protectionist message" attached to imposing such barriers on foreign companies.

Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.

"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.

"Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism," Lane said. "It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."

There are early signs that nations are putting up trade barriers to protect domestic companies as the global downturn worsens. Despite promises offered during a major economic summit in November to refrain from taking such measures, countries from France to Indonesia have done so.

That, some argue, may be reason enough for the United States to follow suit. But in recent decades, the United States has stood out as the global champion of free trade; some analysts fear a move by Congress to restrict foreign companies from stimulus spending would mark an important shift away from that philosophy.

Supporters say expanded Buy American provisions could help ensure that the treasure trove of government contracts for new highways, schools, bridges and energy grids creates jobs at home instead of abroad. They note that much of the tax rebate checks that went out last year to stimulate the economy went to Chinese-made televisions and Korean-made refrigerators.

Until the global economy turned critical in the second half of last year, the domestic steel industry, for instance, was operating at near capacity and steel prices were climbing sky-high. Now, U.S. unemployment is soaring.

Factories in some top steel-producing states -- including Indiana, Ohio, Pennsylvania and Alabama -- are running at 45 percent capacity, with 40 percent of their workforce on furlough, or about 25,000 people, according to United Steelworkers union. Ensuring that U.S. steel and iron do not have to compete with, say, Chinese steel, for stimulus projects, industry officials say, could help get those workers back on the assembly line.

"What we're already seeing is that demand is going down, but imports of Chinese finished steel is going up because they are subsidizing it," said Thomas Gibson, president of the industry-funded American Iron and Steel Institute. "What we're saying is that this is a stimulus package to promote American jobs. We ought to maximize every dollar in that bill toward that end. If you were building a bridge in West Virginia, you wouldn't bring in German workers to do it. Materials should be no different."

Congress enacted the Buy American Act in 1933, establishing preferences for U.S.-made products in government contracts. In 1982, those preferences were made more strict for transportation and highway projects, although waivers have been granted.

The plans being considered by Congress, however, would greatly amplify and expand existing preferences for U.S. companies. The provision passed last night was introduced by Rep. Peter J. Visclosky (D-Ind.) and had won unanimous bipartisan support in committee. Among the few exceptions, use of U.S. steel or iron would need to drive up the cost of a project by 25 percent in order to allow a foreign substitute -- far more rigorous than current regulations. The House bill also contained a stipulation that the uniforms and other textiles used by the Transportation Security Administration be 100 percent American-made.

In the Senate, Byron L. Dorgan (D-N.D.), is proposing a far broader measure that would exclude most foreign-made manufactured goods, again, with a few exceptions. In an interview Visclosky said he would be inclined to accept the broader Senate proposal as the two houses seek to compromise on the final language of the bill.

It's not protectionism, Dorgan said. Citing the massive U.S. trade deficit, he added, "and it's pretty hard for anyone to look at our trade situation and suggest that we are being unfair."

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