Bridges Weekly Trade News DigestVolume 13Number 5 • 12th February 2009

US Senate Passes Stimulus Bill with Tempered ‘Buy American’ Requirements

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The United States Senate passed a stimulus bill on Tuesday that includes controversial ‘Buy American’ purchasing requirements for iron, steel and manufactured products, but also carries a clause guaranteeing that the domestic-sourcing provisions do not violate the US’ international trade obligations.
The US$ 838 billion package, which passed in a 67-31 vote, is intended to jump-start the flagging US economy by providing an influx of funds for everything from school construction to unemployment benefits to an expanded tax credit for first-time home buyers.
But at least one section of the bill – the ‘Buy American’ requirements – has caught the attention of US trading partners, who have been closely tracking congressional debates on the matter.
The House version of the stimulus bill, passed on 28 January, includes domestic sourcing requirements for iron and steel (see Bridges Weekly, 4 February 2009, The Senate version passed yesterday goes one step further, extending the measure to all manufactured goods.
Negotiations among policymakers from the Senate, House, and the White House began immediately after senators finished voting yesterday. Their task is now to reconcile differences between the House and Senate versions of the bill, while ensuring that the compromise they strike will receive the signature of US President Barack Obama, who has said he wants the final version of the bill on his desk by 16 February, the Presidents’ Day holiday in the US.
Thus, it remains to be seen how – or even whether – the controversial Buy American provisions will appear in that final compromise legislation.
Obama signalled in several interviews last week that he had reservations about including the ‘Buy American’ measures in the stimulus bill.
“That is a potential source of trade wars that we can’t afford at a time when trade is sinking all across the globe,” Obama told ABCNews.
‘Buy American’ had its opponents in the Senate as well. Republican Senator John McCain last week proposed an amendment that would strike all of the ‘Buy American’ provisions from the stimulus bill.
“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 said before the vote on his amendment.
A majority of Senators disagreed with McCain – defeating the measure in a 65-31 vote.
But lawmakers did succeed in adding new language clarifying that the domestic-sourcing provisions in the stimulus bill “shall be applied in a manner consistent with United States obligations under international agreements.” The amendment was sponsored by Senate Democrats Byron Dorgan, Max Baucus, and Sherrod Brown.
“This will help ensure we are doing all we can to promote US businesses and create jobs, which is the purpose of the economic recovery bill,” Senator Sherrod Brown, Democrat of Ohio, said last week after the Senate approved the amendment by voice vote.
But European manufacturers said the new language did not do enough to keep trade flows open.
“Unfortunately the Senate’s vote does not go further and overturn the Buy American clause,” said Gordon Moffat, Director General of EUROFER, the European Confederation of Iron and Steel Industries.
“It is a protectionist measure. It sends the wrong message to the world exactly at the time that everyone should be working to keep markets open,” Moffat said.
The House version of the stimulus bill, which includes ‘Buy American’ requirements for iron and steel, contains no such exceptions for international trade agreements. The legislation does, however, allow the head of a department or agency to waive the domestic-sourcing requirement if he or she determines that it is in the ‘public interest’ to do so. Some observers say that this exception, if carefully implemented, could be the means through which the government avoids violating any international treaty.
Strong reactions from abroad
US trading partners have signalled strong opposition to the ‘Buy American’ measures, which many have labelled protectionist – a dirty word in the international community these days, as many world leaders have been urging countries to resist the temptation to close their borders to trade amidst the economic turmoil (see related story, this issue). 
“We must recognise that any protectionist measure is not a one-way street and protectionism is not good for the world,” Indian trade minister Kamal Nath said last week in response to a question about the ‘Buy American’ provisions, the Telegraph of India reported.
“‘Buy American’ is definitely wrong,” Japanese Prime Minister Taro Aso said last week in front of the Japanese parliament. “It’s clearly against the spirit of the World Trade Organization to say you must use American steel to make bridges.”
Canada, the US’ largest trading partner, also reacted strongly to the stimulus measures.
“We don’t need to talk about threats, but [Americans] need to understand, and this will be the message I pass to the president, that we’re a force to be reckoned with,” Michael Ignatieff, the leader of Canadian Liberal Party, told Global Television soon after the vote on the House version of stimulus bill.
“We’re the United States’ largest energy supplier — not just oil, but also hydro — and they’ve got to understand that if they want energy security, they shouldn’t start putting up barriers to our goods and services. And that quid pro quo has to be clearly understood by the incoming administration,” Ignatieff said.
Conservative Canadian Prime Minister Stephen Harper took a softer line, saying that he thought that Obama disagreed with Congress’ support of the ‘Buy American’ measures.
Trade Adjustment Assistance gets an extension, but not an expansion
Perhaps less visible on the international scene was a move by the US Senate to include the extension of government support for trade-related layoffs into the massive stimulus bill.
The Trade Adjustment Assistance, or TAA, programme, which offers training and income support for workers who lose their jobs because of factory shifts overseas or increased competition from imports, will get an additional two years’ worth of funding under the Senate version of the bill. But the lawmakers failed to include an amendment that would have boosted funding and broadened the coverage of the programme.
The amendment, crafted by Senators Max Baucus and Chuck Grassley would have increased funding for training courses, and extended coverage to include workers in the services sector, as well as workers who lose their jobs because of plant relocations to countries with which the US does not have a free trade agreement. The amendment also would have improved workers’ access to wage insurance and allowed US$ 230 million per year to go to communities affected by trade.
But hopes for TAA expansion were squashed last week, when Arizona Senator Jon Kyl said he would not support the expansion of TAA unless lawmakers established a plan to pass the US’ pending bilateral free trade agreement with Colombia. The FTA has been awaiting Senate approval for over two years; so far, though, its passage has been blocked by some Democrats who oppose the deal on the grounds that Colombia has not gone far enough to improve labour standards in the country.
Because the stimulus package as a whole was subject to a ‘unanimous consent agreement’, meaning that all senators would have to agree to consider the amendment for it to be included in the vote, Kyl’s opposition to the TAA expansion was enough to keep it out of the stimulus package altogether.
In the longer term, though, some economists say that the kinds of reforms included in the failed TAA amendment are just what US economic policy needs. Concerns about freer trade are more a result of holes in US’ domestic social support systems, they argue, than of increased cross-border commerce. They suggest that the prospect of jobs moving overseas seems especially threatening in the US because employers provide so much of the social safety net – large contributions to healthcare, life insurance, and retirement benefits.
These critics insist that the US should focus on investing more in human capital and guaranteeing social benefits independently of employers – reforms like those included in TAA – instead of fighting free trade.
ICTSD reporting. “FACTBOX – House of US Congress weigh stimulus bill,” REUTERS, 9 February 2009; “Senate Approves Stimulus and Begins Intense Talks,” THE NEW YORK TIMES, 11 February 2009; “Aso calls ‘Buy American’ provision ‘definitely wrong’,” BLOOMBERG, 4 February 2009; “Nath flays US trade moves,” THE TELEGRAPH (INDIA), 6 February 2009; “Transcript: Charlie Gibson interviews Barack Obama,” ABCNEWS, 3 February 2009; “Congress key to protectionism, experts say,” CANWEST, 31 January 2009. 

3 responses to “US Senate Passes Stimulus Bill with Tempered ‘Buy American’ Requirements”

  1. Jim Harmon

    I can understand the reluctance to protectionist policies. Under normal circumstances this is a very bad idea. The problem is that we are not under normal circumstances. I am one among millions of Americans who have lost his job to its relocation outside the US borders, I really do NOT want to see my tax money going to subsidize further outsourcing.

  2. vidyanand acharya

    Who is responsible for present economic crisis of USA? The policies which USA adopted to rule the Global economic order has become fatal for its own economy. The proponent of “No Barriers in Trade” is arguing for trade barriers i.e Buy Americans. If American peoples are in deep distress today, their’s leaders should and must adopt policies which can fit to their local economy.

  3. ICTSD • Criticism grows as ‘Buy American’ rules written into law

    [...] Grows as ‘Buy American’ Rules Written into LawUS Senate Passes Stimulus Bill with Tempered ‘Buy American’ Requirements‘Buy American’ Provision in Stimulus Bill Rankles US Trading PartnersUS Stimulus [...]

  4. Anonymous

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