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February 04, 2009

Harper Gets Hypocritical about Hypotheticals

The hysteria-fest coming out of Ottawa and Brussels over the Buy America/n provisions in the stimulus plan continues. But if Canadian PM Stephen Harper and the EU are getting so bent out of shape over our tiny domestic preferences, what's the state of theirs? As it turns out, we (at least according to the WTO exceptions if not actual practice) our products can't get the contracts benefits in their countries that they claim we will be denying them theirs here.

First, some background. As we keep pointing out, the U.S. excluded Buy America (i.e. requiring U.S.-made iron and steel in transit projects administered by the states but with federal funding) from its WTO commitments. What does this mean? Put simply, the way trade agreements are generally structured is to presume total "free trade" and "free markets," but then allow countries to say "except for" in a certain sensitive sectors. Governments with lots of trade lawyers will typically put in lots of so-called "exceptions," or "carve outs," from our trade-pact obligations to generally pursue totally "free markets." Poor nations with few trade lawyers may put in relatively few "exceptions" or "carve outs." (Often, however, the trade agreements are so complicated that the simple dichotomy doesn't hold: a few years back, the U.S. lost a WTO case brought by the Caribbean island of Antigua against our Internet gambling ban because the U.S. didn't realize it had failed to "exclude" or "carve out" gambling from our WTO commitments.)

So, translated out of trade law language, the iron and steel provisions of the Buy America Act, in effect since 1982, are perfectly compliant with the WTO. The WTO knows that we have these policies on the books, and is not complaining. (Okay, not too loudly.) More importantly, they're nothing new. I'll say it again: the stimulus package is not a change from current U.S. practice, and is perfectly consistent with our WTO commitments.

But as we show in a forthcoming memo, the EU and Canada do not take their own medicine. They wisely excluded considerably broader swaths of their procurement activity from WTO rules (and in the case of Canada, also from NAFTA) than did the United States, and thus have no obligation to provide U.S. firms products with access to preferential treatment under a wide array of their government contracts.

While the United States (only) safeguards its preferences for domestic iron and steel used in federally funded state transportation projects, Canada simply carves out steel, motor vehicles and coal altogether (for all provinces, for all sectors), and also carves out all construction contracts issued by the Department of Transport. The EU carved out of its WTO procurement obligations all EU members’ country contracts awarded by federal governments and subfederal governments in connection with activities in the fields of drinking water, energy, transport or telecommunications. (On the links, just click on Appendix I, Annexes I-II, and the general notes. Some bits will be easy to read, other bits less so.)

Translated out of trade lingo, under their WTO obligations, both Canada and EU reserve the right to give their nations' companies products much more generous preferences than Congress is even considering giving ours. While current U.S. laws (merely extended in the stimulus bill) give U.S. iron and steel a leg up over the foreign competition for transit projects, Canada and the EU 's WTO commitments allow them to give their firms products a leg up over American companies and products on EVERY aspect of transit funding, and many other government purchases besides.

And, we’re not criticizing them for it: why SHOULD decisions by democratically elected parliaments about how to best spend tax dollars on domestic infrastructure be subject to constraints imposed by international trade agreements? There is no “protectionism” at issue here. But, it is certainly hypocrisy -- and perhaps a bit of opportunism -- on the part of Ottawa and Brussels.

[UPDATE: In my effort to speak English rather than trade-law-ese, I got a bit sloppy with some terminology. The Buy America/n preferences refer to the products, not the companies. So, if a Canadian firm wants to make steel in the U.S., that steel could get preferential treatment. Yet another way these rules are not protectionist, but instead about job creation.]

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