By Arun Kumar, Washington, February 4, 2009 (IANS)

A new US study has asked the US Congress to delete "Buy American" provisions from an over $800 billion economic stimulus bill lest it may encourage key suppliers like China, India, and Brazil to retaliate. Based on economic and legal analysis, study authors Gary Hufbauer and Jeffrey Schott, senior fellows at the Peterson Institute for International Economics, concluded that the Buy American provisions would violate US trade obligations and damage the US reputation, with very little impact on US jobs.

Calling the provision as "Bad for Jobs, Worse for Reputation", the study warned "The negative job impact of foreign retaliation against Buy American provisions could easily outweigh the positive effect of the measures on jobs in the US iron and steel sector and other industries." "What should be done?" the authors asked and suggested: "The best result would be to simply delete the Buy American provision in the House-Senate conference."

Next best would be to keep the House version, applying the Buy American restriction only to iron and steel, but stating explicitly - in either the statutory text or in the legislative history - that the public interest waiver is intended to be used to avoid violations of US trade obligations. Under this option, Canada and Mexico would be exempted due to the North American Free Trade Agreement's (NAFTA) broad obligations regarding federal procurement, as also signatories to World Trade Organisation's Agreement on Government Procurement (GPA).

But the restrictions would bar the use of imported iron and steel from key suppliers such as China, India, and Brazil, it said. Consequently "it would likely encourage those countries to adopt comparable policies that discriminate against US suppliers for their own public procurement and complicate US efforts to work cooperatively to resolve the global financial crisis," the study warned.

The third option is a presidential statement - preferably before legislation is finalised - that the US will respect its international obligations when it applies the Buy American provisions.

The study estimates that the additional US steel production fostered by the Buy American provisions will amount to around 0.5 million tonnes. This in turn translates into a gain in steel industry employment equal to roughly 1,000 jobs in the giant US economy with a labour force of roughly 140 million people.

On balance the Buy American provisions could well cost jobs if other countries emulate US policies or retaliate against them. Most importantly, it said, the Buy American provisions contradict the G-20 commitment not to implement new protectionist measures - a commitment that was designed to forestall a rush of "beggar-thy-neighbour" policies.