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Take that! Tit-for-tat trade protectionism Nafta-style


TORONTO President Obama has left little doubt that he stands against the forces of protectionism. Time and again, he has urged nations grappling with ailing economies to refrain from the temptation to erect trade barriers, warning that beggar-thy-neighbor policies would ricochet back to the instigator and sink everyone.

When Congress added a "Buy American" provision to the $787-billion economic stimulus package, Obama was quick to declare that such action would not violate trade pacts. Canada, the country's biggest trading partner, was relieved.

But the human desire to put the prosperity of one's own country ahead of others—especially when huge tax dollars are being spent to resurrect a domestic economy—may be just too strong for a U.S. president to extinguish. Anecdotal evidence is building that the provisions that require the use of U.S.-made products is spreading and preventing some Canadian suppliers from participating in U.S. infrastructure projects.

In May, IPEX Inc. of Toronto was horrified to learn that some plastic piping it supplied for a new health care center at the Camp Pendleton Marine Base in California had been ripped from the ground. The pipe, stamped with the words "Made in Canada," was replaced with U.S.-made product.

"We've never seen such a wave of protectionism as at this moment," an IPEX spokesman said at a news conference. He said that project administrators in other states also were asking that IPEX's pipe be certified "Made in America." Since they aren't, the lost sales are racking up.

"Many Canadians believed the issue (of U.S. protectionism) was settled when (Obama) came to Canada back in February and gave assurances that all was well. But it's not," the spokesman said. "This will lead to lost Canadian jobs if it's not dealt with quickly."

Another Toronto-based industrial equipment company, Hayward Gordon Ltd., contends it must now certify its pumps and other equipment are made in the United States. It said it recently lost out on a municipal water treatment contract in Maryland and may lose another in Indiana. Hayward, which sells about one-third of its products to the United States, said it may be forced to shift some of its production to New York state.

If it does, it would be following in the footsteps of at least one other Canadian company that set up shop further south. Real Time Systems Inc., a Toronto-based industrial automation consultant, opened an office in Chicago earlier this year after determining that more and more government contracts contained language disqualifying foreign bidders.

The retaliation has already begun. The town council of Halton Hills, Ontario, a Toronto-area municipality with a population of 58,000, passed a resolution in May that allows biased buying practices against any country that discriminates against Canada, and other municipalities are said to be considering similar action if their industries are found to be shut out of the U.S. market.

The Canadian Institute of Steel Construction said its members are already losing orders. Ed Whalen, its president, said that U.S. wholesale steel vendors are opting not to hold Canadian-made steel because of concerns it won't qualify for infrastructure projects. "They're saying they don't want the hassle," Whalen told Canada's Globe and Mail newspaper. "There's so much ambiguity."

It's an action rife with irony. Canadian-fabricated steel products, including beams for bridges or constructing buildings, often are made with raw steel imported from the United States. Once further manufactured, the products are deemed Canadian. But if Canadian manufacturers can't sell the end-product back into the United States, there will be considerably less demand from north of the border for the U.S.-produced raw steel.

More than $90 billion has been earmarked for spending on roads, bridges and other infrastructure as part of Obama's stimulus package. While Obama has emphasized that the spending must comply with North American Free Trade Agreement (Nafta) rules, Canadian manufacturers claim that those on the ground actually making procurement decisions are playing it safe by showing preference to companies that hang the stars and stripes. Meanwhile, a great deal of the infrastructure money is being spent at the city and state level, where Nafta provisions do not override the "Buy American" clause in federal legislation.

Some of the controversial language in the stimulus bill also is being adopted in other U.S. spending bills, and that has the Canadian Manufacturers and Exporters (CME) group worried. It said that at least seven pieces of legislation now before Congress—including bills funding the purchase of hybrid vehicles and the renovation of government buildings—contain overtly protectionist language.

Of particular concern is the Water Quality Investment Act, which would finance $15 billion of water and sewage projects over the next five years. It bars the use of all foreign-made iron, steel and other manufactured goods on such projects. The CME contends this alone threatens the livelihood of about 250 Canadian companies.

Canadian International Trade Minister Stockwell Day said he's concerned about all this and is spending time in Washington to try to calm the protectionist impulse that often comes attached with stimulus spending.

Day has been conveying the fact that the Canadian and U.S. steel industries are so integrated that a stamp of "Made in North America" would often be more accurate than breaking it down into its sovereign components. As for the broader challenge that faces all kinds of manufacturers in Canada, Day may have to settle for mitigating the impulses of protectionism rather than eliminating them. DARCY KEITH

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