Barack Obama's threat to free trade on steel

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Jan 2009

Fears that the world downturn will spark a trade war have been stoked by the inclusion of measures to protect the US steel industry in Barack Obama's $US819 billion ($1.25trillion) package to stimulate the US economy. The package, which Mr Obama hopes will jump-start the recession-hit US economy, contains about $US90 billion worth of infrastructure projects, with about $US64 billion subjectto mandatory US steel requirements.
In a further sign of world trade tensions, a war of words erupted at the World Economic Forum in Switzerland over claims by the newly appointed US Treasury Secretary, Timothy Geithner, that China was "manipulating" its currency by artificially holding down its value against the US dollar, supposedly swelling the US trade deficit.
China's Premier, Wen Jiabao, told the forum his message to the Obama administration was that it was imperative for China and the US to enhance their co-operation - a confrontational relationship would make them both losers.
Mr Wen claimed China was seeing the first signs of economic recovery. He suggested that "the harsh winter is gone and spring is around the corner", and China could help "restore confidence in global economic growth and curb the spread of the international financial crisis".
The Rudd Government is not commenting directly on the protectionist threat until the Obama stimulus package is finalised, but a spokesman for Kevin Rudd said Australia expected the US to be mindful of its international trade obligations, including under our bilateral free trade agreement.
Business organisations said it ran counter to the commitments made by the US to the meeting of G20 nations held in Washington in November.
"The US was one of the G20 making a commitment that it would not introduce protectionist measures, and that is what this amounts to. It is inconsistent with the spirit of that crisis session," the policy director of the Australian Chamber of Commerce and Industry, Greg Evans, said yesterday.
Trade analysts go further, saying the measure would be illegal under the commitments the US has made to the World Trade Organisation.
US steel will be compulsory for any airports, bridges, canals, dams, dikes, pipelines, railroads, multi-line mass transit systems, roads, tunnels, harbours and piersfinanced by the stimulus package.
The measure has been attacked by US business groups, with a letter to congressional leaders signed by 15 business groups urging the removal of allprotectionist measures from the package.
It specifically warns that the "Buy America" steel provision could result in US companies being shut out of economic stimulus programs in countries such as China, Germany, Britain, France, India and Australia.
But with Mr Obama strongly in support, the stimulus package passed the House of Representatives by 244 votes to 188. No Republican voted for the package, a blow to the President's hopes for bipartisan support, and 11 Democrats were opposed.
The bill will now go to the Senate, where a second version is also under discussion, and some senators, including Democrat Sherrod Brown of Ohio, want the Buy America provisions expanded to include other materials such as cement.
"As we are losing jobs in record numbers, we obviously need to devote these funds to direct creation of American jobs," Senator Brown said.
"To do that, we must ensure that federal funds are used to buy American products and to help promote manufacturing in our country."
A US embassy official pointed out that the separate bills in the two houses of US congress would eventually be brought together in a conference, over which the new Obama administration would have considerable influence.
"There is likely to be changes once the Senate version is resolved," he said.
The issue is the first test of Mr Obama's free-trade credentials. During the election campaign, he appealed for the votes of steelworkers, saying he had opposed key free trade agreements and calling for action against Chinese imports.
"The men and women you represent haven't been getting a seat at the table when trade agreements are being negotiated," he told steel unionists.
However, Mr Obama's chief trade negotiator and his key economic officials have all strong free-trade credentials.
Although Mr Obama's views will be considered by legislators, it is unthinkable that he would veto the stimulus package because of the Buy America provisions. However, opinion in the US is split.
A letter to congressional leaders by business groups, led by the US Chamber of Commerce, the National Foreign Trade Council and the American Business Conference, said the US would be in breach of procurement commitments to the World Trade Organisation if the Buy America steel provision were enacted.
"If the US expands or enacts new Buy American-type provisions that abrogate the US government procurement agreement or our other trade agreement commitments, the US and US firms will face retaliatory sanctions in other markets and jeopardise our ability to open other foreign government markets to US goods and services," the letter said.
The letter also noted last November's G20 declaration in which member nations pledged to "refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing (WTO) inconsistent measures to stimulate exports".

Source: The Australian