‘Buying American' Puts Strain on U.S. Trade With Canada

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By Annys Shin
Washington Post Staff Writer
Tuesday, August 11, 2009

At a meeting earlier this year, the city council members of Marystown, Newfoundland, voted not to reimburse a resident whose tire hit a pot hole. They agreed to send letters congratulating the new members of a fire department committee. And they pledged to buy Canadian-made products, thereby thrusting themselves into an international trade war being waged not by presidents or legislatures but by mayors and county supervisors on both sides of the U.S.-Canadian border.

Protectionist sentiments were already on the rise in both countries as the recession deepened. But the "Buy American" provisions in the $787 billion stimulus package approved by Congress this spring have increased tensions as U.S. cities and states have barred Canadian businesses from bidding on projects funded with money from the bill.

Efforts to forge a compromise at the national level have gone nowhere, mainly because of U.S. indifference. On Monday, after fielding complaints from Canadian Prime Minister Stephen Harper in person, President Obama played down the dispute, saying "we have not seen some sweeping steps toward protectionism."

The "Buy American" provision, which requires the use of U.S.-made iron and steel for certain infrastructure projects financed by the stimulus bill, has proved to be especially problematic for certain highly integrated industries that use materials and components made in both countries.

The restrictions apply even to Canadian firms owned by U.S. companies, such as Trojan Technologies, a leading maker of water-treatment products based in London, Ontario. Trojan is a wholly owned subsidiary of Washington, D.C.-based Danaher Corp. In some cases, "Buy American" has even shut out U.S. firms from stimulus projects.

Aquarius Technologies, a Port Washington, Wis., firm that develops wastewater treatment equipment, spent two years figuring out how to move production of a key filter component from Eastern Europe to North America. The firm ended up getting a South Carolina textile company to produce yarn for filters that was then transported to Ontario to be woven before being shipped back to the United States. But because of the "Buy American" provisions, "at this point, without some changing, we can't use that product on any stimulus projects," said chief executive Thomas M. Pokorsky.

Unsatisfied by the efforts of national leaders around "Buy American" and other trade matters, local officials there have taken matters into their own hands. Marystown, a once-thriving shipbuilding center, where 24 percent of its 5,000 residents are now unemployed, was one of the first cities to insist on favoring domestic products. Then, in May, after an Ontario water treatment company was shut out from bidding on stimulus-funded projects south of the border, several towns in the province passed resolutions pledging to respond in kind within 120 days if the United States did not stop blocking Canadian businesses and products. In June, the same resolution earned the endorsement of a group representing 1,900 Canadian municipalities. (Fourteen towns have separately adopted more restrictive "Buy Canadian" resolutions.)

Within days, more than a dozen senior Canadian diplomats followed up by going door to door on Capitol Hill, seeking to line up support for their effort to win Canadian firms exception status from the Office of Management and Budget, the agency issuing guidelines for "Buy American." But in the United States, the protectionist sentiment that spawned the "Buy American" provisions in the stimulus has only gotten stronger as unemployment topped 9 percent for the first time in more than 25 years. More than 500 cities and counties, including Fairfax and Loudoun, have passed resolutions vowing to direct their stimulus dollars to U.S. firms -- even though the stimulus bill already requires that.

The resolutions have little legal force, said Eric Olson, a member of the Prince George's County Council, which passed a "Buy American" resolution earlier this summer. "It's more of a statement . . . that it is important to buy American to help support U.S. workers and industries." The proclamations of city aldermen and county supervisors are not usually the stuff of World Trade Organization complaints, but they can have larger consequences, according to Gary C. Hufbauer, a trade expert with the Peter G. Peterson Institute for International Economics.

"They represent a groundswell of sentiment," he said. And if unemployment does not retreat substantially in 2010 and 2011, he said, "it will be harder for folks at the top to resist the pressure" to adopt more protectionist policies.

"Buy American" was not specifically intended to ensnare Canadian companies. The provision applies only where it does not violate existing international trade agreements, including one to open state and local government contracts to international bidding. But in the mid-1990s, when this specific agreement was negotiated, Canadian provinces never signed onto the agreement before the deadline.

"We only have ourselves to blame," said J. Michael Robinson, a trade attorney with the law firm Fasken Martineau Dumoulin in Toronto.

Canada is getting ready to submit a proposal to the Office of the U.S. Trade Representative designed to close that particular gap in free trade. And a USTR spokesman said the United States was "open to negotiations." But it has not always been clear whether addressing the concerns of major trading partners is a priority for the Obama administration. In addition to ignoring Canadian complaints about "Buy American," the administration has also failed to resolve a dispute over Mexican truck access to U.S. highways.

Canadians say that if their concerns with "Buy American" are not addressed soon, it could be a bad omen for trade well beyond North America.

"We are operating in such an integrated supply chain, it's difficult to restrict one market without hurting another," said Jay Myers, chief executive of Canadian Manufacturers and Exporters, the nation's largest industry association. "If the U.S. and Canada can't avoid entering into a trade war, God only help the rest the world."


© 2009 The Washington Post Company

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