Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Two Words -- "Steel Safeguard" -- Think Carefully

Today I read a Washington Post article entitled "'Buy American' Rider Sparks Trade Debate".  Go to the following link for the entire article - http://www.washingtonpost.com/wp-dyn/content/article/2009/01/28/AR2009012804002.htm

The article starts:

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.

I started to think about how misguided Congress is on the issue. Then I thought - I had better hold off writing this blog article until after I cleared U.S. Customs at Toronto Pearson airport.  I am not going to be popular ...

The U.S. Congress and the U.S. Senate have not thought this through.  The better solution to the perceived problem is a global safeguard.  If foreign steel surges into the U.S. economy and the imports cause serious injury to the domestic industry, the U.S will be able to impose steel safeguards for a number of years.  These are the exact circumstances that the negotiators of the WTO Safeguards Agreement had in mind.

If the U.S does not pursue obviously WTO illegal protectionist measures in the "Buy America" restrictions, it could allow the integrated North American steel industry to sell steel in connection with the infrastructure projects.  If the contractors use foreign steel that is offered a low prices, WTO legal corrective action may be taken.  The protection would be legal as it will respond to fairly traded goods that cause serious injury.  The legal protection could be in place for a number of years.  An appropriate amount of import tariffs could be put in place.  Economists could help the ITC determine what is the appropriate level of safeguard tariffs -- what would be an acceptable level of tariffs to give a preference to domestically produced steel and allow for reasonable prices for foreign steel should there be insufficient steel available from North American manufacturers.  Canadian and Mexican steel could be excluded from the safeguard measures under NAFTA.

The United States is setting a bad example for the world trading system by passing such blatantly protectionist measures.  What will the U.S do if other countries retaliate and pass similar prohibitions against U.S manufactured goods?  What will the U.S do if the domestic production cannot satisfy the U.S needs?  What will the U.S do if the U.S steel manufacturers acheive monopoly status and charge high prices for U.S steel.  What if foreign markets offer better prices for U.S steel than the U.S. market and there is no steel available for domestic projects?  What will happen if the labour unions see this as an opportunity and strikes prevent or slow U.S. steel production when steel is needs for the infrastructure projects?

I think the "Buy America" plans should be reconsidered.  If you would like to discuss anything in this posting, please do not hesitate to contact us.

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