Published February 5, 2009

Obama tries to put out trade war fire

He offers to modify 'Buy American' clause after Europe threatens to retaliate

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(WASHINGTON) Fears of a global trade war receded somewhat yesterday as US President Barack Obama promised to soften the 'Buy American' stance indicated in an US$800 billion stimulus plan.

His about-turn on Tuesday came after sharp criticism by America's trading partners - notably the European Union, which threatened to retaliate.

Not mincing his words, John Bruton, the EU Ambassador to Washington, said on Monday that 'history has shown us' where the closing of markets leads - a clear reference to the Depression of the 1930s, triggered by US protectionist laws.

Under the 'Buy American' clause passed by the US House of Representatives, American iron and steel must be used in construction projects that form part of the recovery plan.

This protectionist bias had sparked alarm in Europe, Canada and other parts of the world.

In an interview with Fox News Channel on Tuesday night, President Obama tried to calm the storm by indicating that he might modify the 'Buy American' language in the bill.

'I agree that we can't send a protectionist message,' said Mr Obama. 'I want to see what kind of language we can work on this issue. I think it would be a mistake, though, 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.'

Adding further fuel to the protectionism fire, a leading US senator urged Microsoft to save the jobs of US staff over those of foreign workers as it prepares to make 5,000 people redundant over the next 18 months.

Senator Charles Grassley wrote to Microsoft chief executive Steve Ballmer, asking the company to ensure that US citizens get priority over foreigners in the matter of job allocation.

'Our immigration policy is not intended to harm the American workforce . . . Microsoft has a moral obligation to protect these American workers by putting them first during these difficult economic times,' his letter read.

Such signals have annoyed Europe and come at a time when the US Senate is debating an economic plan which bars the use of any stimulus funds to buy steel, iron or other manufactured goods for infrastructure construction projects from abroad.

The governments of both the European Union and Canada sent letters to Congress on Monday urging that the provision be dropped. The European Commission's powerful trade department said that the 'Buy American' clause was 'the worst possible signal' that could be sent to world trade. A spokesman said: 'We are particularly concerned about the signal that these measures could send to the world at a time when all countries are facing difficulties. Where America leads, many others tend to follow.'

The European Commission has said it will examine whether this move violates a World Trade Organization (WTO) treaty signed by the US, EU and Japan. Signatories must open government contracts to foreign companies.

Echoing opposition from Europe, Australia and China, Japan's Prime Minister Taro Aso said the provision was 'wrong'.

'It's clearly against the spirit of the World Trade Organization to say you must use American steel to make bridges,' he told the Japanese Parliament yesterday.

US House Majority Leader Steny Hoyer, a Maryland Democrat, said yesterday that lawmakers would respond to those concerns.

'I'm sure the matter will be the subject of discussion' between the House and Senate as they work on final legislation, Mr Hoyer said.

In a separate interview on Tuesday on the ABC television network, President Obama said any parts of the bill that could spark retaliation from US allies should be removed.

'I think we need to make sure that any provisions that are in there are not going to trigger a trade war,' he said, referring to the 'Buy American' components. Mr Obama said on Fox that he still wanted to have the final bill on his desk ready for signature by the middle of this month. -- Reuters, AFP, Bloomberg