Monday, February 9, 2009

"Buy American" battle not over, leaders warn

'Buy American' battle not over, leaders warn

From Friday's Globe and Mail

February 5, 2009 at 8:54 PM EST

OTTAWA — The leaders of Canada and Mexico are expressing worry that the battle over “Buy American” is only beginning.

Prime Minister Stephen Harper and President Felipe Calderon spoke by phone this week, pledging to resist what they characterized as an impulse to enact protectionist economic policies around the globe.

On the evening of Feb. 4, Mr. Harper and Mr. Calderon exchanged “views on the global economic situation, stressed the importance of resisting protectionist efforts emerging in many parts of the world and agreed to work together closely in preparation for the G20 meeting in London,” according to a summary released by Mr. Harper's office Thursday.

The two leaders spoke as U.S. President Barack Obama assured his allies that he isn't interested in sparking a trade war, and as U.S. Senators watered down provisions in Mr. Obama's economic stimulus program that would have excluded imports from tens of billions of dollars in planned spending on roads and other infrastructure.

Senators continued to shape that package last night, as debate over legislation that would inject more than $800-billion (U.S.) into the world's biggest economy extended into the night.

The apparent victory by Canada, the European Union and other trading partners over the backers of the “Buy American” effort isn't calming the nerves of politicians and executives in countries that rely on exports to generate their wealth.

Adding to the nervousness Thursday was the International Monetary Fund, which warned G20 nations that they appear to be caving in to protectionist urges as they spend tens of billions of dollars fighting the global recession.

In a briefing note for officials preparing the ground for that London G20 meeting, which is scheduled for April, the IMF notes that “signs are emerging that several countries have raised tariffs and non-tariff barriers to imports and provided subsidies to their export sectors.”

The IMF added: “Going forward, if such actions gain greater momentum, economic prospects and recovery from the crisis would be undermined.”

Leaders from the G20, which includes countries such as the United States, Canada and Brazil, pledged in November to take no actions that would raise barriers to trade for a year. The promise acknowledged the general understanding that the oppressive tariffs the U.S. implemented on imports exacerbated the Great Depression.

Jayson Myers, president of Ottawa-based Canadian Manufacturers and Exporters, concurs with the IMF's observation, saying Brazil, Argentina and some European countries all are considering favouring domestic producers in their various economic rescue plans.

Also, governments are tightening their applications of import rules as a means to protect local companies, Mr. Myers said.

“It is an ongoing problem that is gaining legs because of the economic crisis,” Mr. Myers said in an interview. “Countries are going to be looking for ways to provide an advantage to local industry.”

The view that protectionist sentiment is sweeping the globe isn't universal.

In last month's federal budget, for example, Finance Minister Jim Flaherty announced that the federal government would eliminate duties on $2-billion worth of imported machinery and equipment.

Peter Hall, chief economist at Export Development Canada, said he has not seen any serious increase in the use of trade barriers.

Fewer restrictions have allowed the value of trade to surge to 65 per cent of world gross domestic product from about 40 per cent in the 1980s. Politicians get that, even if they don't always say so in public, Mr. Hall said.

“It's not unusual to see rhetoric like this when the economy is as stressed as it is,” Mr. Hall said. “When it is understood that jobs depend on this system working, then legislators understand that tampering with the system is very damaging.”

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