Free Trade Fiasco?

The possibility of a trade war with the USA is heating up. The Democrats' first major piece of legislation in the 111th Congress concerns almost a trillion dollars worth of “stimulus”. It is H.R. 1. It includes a highly protectionist "Buy American" provision for iron and steel. Reports are that the Senate could make this bill even worse, going beyond iron and steel to all manufactured goods.

Most experts agree that there are extremely serious issues for the USA under NAFTA and WTO - presumably involving such inconvenient details as national treatment, Most Favoured Nations (“MFN”), and government procurement provisions. However, it seems that Congress believes that the USA can simply flout international law. That might be good politics for practical and political purposes in the short term, but such thinking led to the “Great” depression.

Canada is rightly protesting the “Buy American” provisions in the massive stimulus bill now before Congress. However, there are persistent reports in reliable media such as here and here that Canada is seeking a special deal. That could be very problematic, even though the short term politics might seem attractive to the current Canadian Government.

First, such a deal may incur the wrath of others such as the Europeans, Japanese, and the BRIC block (Brazil, India, China, and Russia) with all of which Canada also enjoys important trade relations and whose good will Canada will need in the future as it rightly attempts to wean itself away from dependency on US trade.

Such a deal might also be illegal as such because of WTO MFN and other provisions.

Some are suggesting a "Buy North American" provision, that would include Mexico and presumably solve any NAFTA issues. However, that would not likely go over well in the rest of the world.

Moreover, what would be the most likely secret price of such a deal? Would it include a promise not to curtail oil and gas supplies to the USA, or not to fight about water, to stay longer in Afghanistan, or - and this where this gets quite relevant to this blog - to enact a DMCA North version of American copyright law satisfactory to the American entertainment industry? It is common knowledge that the Democrats have always been close to Hollywood and the music industry, and Obama's appointments to date indicate no “change” in this respect.

President Obama must veto the bill if it is as bad and as illegal as the experts say. Otherwise, his halo will be irreparably damaged, along with the whole international trade system. Canada and her allies should stand united on this front.

UPDATE:

February 4, 2009

President Obama has been saying reassuring things about this that are being reported at the moment mostly in non-American media. However, stuff can happen quickly and unpredictably in the American Congress. And whether Congress will listen to the new President at this stage and whether the new President would ultimately veto such a landmark bill if Congress does not listen, remain to be seen. Some influential Democrats, such as House Transportation and Infrastructure Committee Chairman James Oberstar (D-MN) are today, according to Inside US Trade, reportedly threatening to oppose the package unless their desired protectionist provisions are included.

When it comes to American legislation, it's safe to assume, in the words of that great American pundit Yogi Berra, that "It ain't over 'till it's over."

Moreover, in the US Congress, it's never really "over."

PS:

ICTSD has a very good analysis - the best I've seen to date - here.

HK