Washington: The US Senate late on Wednesday rejected an effort to strip its mammoth economic stimulus bill of a “Buy American” clause that has angered US allies and sparked warnings of a coming trade war.
Lawmakers voted 65-31 to defeat an amendment by Republican Senator John McCain which would have cancelled the controversial provision’s restrictions on how the roughly $900 billion stimulus package could be spent.
“Should we enact such a provision, it will only be a matter of time before we face an array of similar protectionism from other countries - from ‘Buy European´ to ‘Buy Japanese´ and more,” McCain warned before the vote.
McCain warned that leaving in the provision would shame US President Barack Obama on his first foreign trip -- a February 19 visit to Canada, the largest US trading partner.
Obama has sharply criticized the restriction, and Democratic aides say privately that the best chance for scrapping it will come when Senate and House of Representatives leaders hold talks to reconcile their rival stimulus bills.
Core supporters of the measure, chiefly Democrats from hard-hit states, say it will ensure that stimulus dollars don’t head overseas.
But McCain warned the clause - which forbids spending on a project unless all of the iron, steel, and manufactured goods involved are made in the United States - violated US obligations under international trade pacts and would only serve to spark trade wars and deepen the global recession.
The Arizona senator, whom President Barack Obama defeated in November to capture the White House, recalled that US lawmakers had imposed tariffs on imports in the face of early economic trouble in the 1930s.
“In doing so, they sparked an international trade war as countries around the world retaliated, raising their own duties and restricting trade, and they helped turn a severe recession into the greatest depression in modern history,” said McCain.
“We cannot fall prey to the failed policies of the past. We should not sit idly by while some seek to pursue a path of economic isolation,” he said. “It didn’t work in the 1930s, and it certainly won’t work today.”
The EU and Canada have fiercely attacked the “Buy American” clause, warning it could start a global round of tit-for-tat trade reprisals and set a bad example for other countries mulling their own stimulus projects.
A narrower version of the clause, which has proved popular in US states suffering gravely from the economic downturn, was included in a House of Representatives version of the stimulus passed last week.
Obama, asked about the Buy American provisions in television interviews on Tuesday, said the United States had to be careful not to include any provisions in the stimulus plan that could “trigger a trade war.”
“I think it would be a mistake ... at a time when worldwide trade is declining, for us to start sending a message that somehow we’re just looking after ourselves and not concerned with world trade,” Obama said on the Fox network.
The Senate package would allow only US-made iron, steel and manufactured goods to be used in public works projects funded by the bill. That is broader than the House stimulus bill passed last week, which just required the use of US-made iron and steel in public works projects.
Senator Byron Dorgan, a North Dakota Democrat who crafted the Senate’s original Buy American provision, worked with Senate Finance Committee Chairman Max Baucus, a Montana Democrat, to come up with the new language.
“I share President Obama’s goal, which is to create as many U.S. jobs as possible, consistent with our international trade agreements,” Dorgan said in a statement.
White House spokesman Robert Gibbs said Obama supported Buy American provisions already in U.S. law that give preferences to domestic manufacturers in public works projects, but wanted to avoid an expansion that violates trade commitments.
“Obviously, the president has heard concerns, but believes that a balance can be struck that ensures the laws of our country are upheld, but we can also do that in a way that’s consistent with the WTO and trade agreements,” Gibbs said.
Lawmakers from steel-producing states insisted on Wednesday that the “Buy American” plan approved in the House remain part of the huge U.S. economic stimulus bill.
“If it’s not in, I’m not supporting this package and I’ll bring a lot of votes with me,” House of Representatives Transportation Committee Chairman James Oberstar, a Minnesota Democrat, said after a Congressional Steel Caucus hearing.
Steel company executives, who saw demand plummet in the last half of 2008 as the recession deepened, argued vigorously at the hearing for the provision, which they said opinion polls showed had widespread public support.
Dan DiMicco, chief executive of Nucor Corp dismissed as “complete garbage” a study done by the Peterson Institute for International Economics that concluded the Buy American provision would create as few as 1,000 new jobs and possibly cost the United States many more if trading partners closed their public works projects to US exports.
That study, noting the political difficulty of completely removing the provision, recommended it be scaled back to the original House version and lawmakers add language exempting NAFTA partners Canada and Mexico and members of the WTO procurement pact, such as the European Union and Japan.
That would still restrict steel imports from countries that are not members of the government procurement agreement - such as China, Russia, India and Brazil - encouraging them to discriminate against U.S. exporters, the study said.
A coalition of more than 125 business groups and associations released a letter on Wednesday urging Senate leaders to eliminate the Buy American provisions, which they predicted would “backfire on the United States.”