The world is watching how Obama handles Buy American plan

Will he buckle to the unions and his party or will the new president step up and lead?

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by L. IAN MacDONALD
The Gazette, Wednesday, February 4, 2009

Ronald Reagan's first great leadership moment occurred when he fired striking U.S. air traffic controllers in 1981. The world was watching, beginning with the Soviets, and decided Reagan meant business.

Barack Obama's first leadership moment has arrived with the $880-billion economic recovery package now moving through Congress, with a red protectionist flag on it requiring that all iron and steel for the massive public-works stimulus program be made in the good ole' U.S. of A.

This isn't just about trade policy. It's about presidential leadership, and the whole world is watching. Is Obama going to be beholden to the trade unions and special interests, and set off a global trade war, or is he going to step up and lead, and find a way through this mess created by his own party?

It's the Democratic majority in the House of Representatives that laced the recovery package with pork and protectionism, and the Senate version could be even worse. But it's seen as the Obama package, and has his name all over it. At some point, either in the Senate or in the reconciliation process with the House bill, something has to give. Otherwise, the whole thing will end up on Obama's desk for approval or veto. Since he's not going to veto his own party's economic recovery bill as his first big gesture in office, his administration better find a way to fix it.

Welcome to the majors, Mr. President. Watch out for the high, hard ones.

It isn't just the Canadians who are watching this file closely, but the entire world community. Obama's response to this challenge might well determine whether the world moves quickly out of this recession, or gets bogged in it because of a trade war. One of the reasons the U.S. fell into the Great Depression of the 1930s was the notoriously protectionist Smoot-Hawley tariff, as Washington's response to the stock market crash of 1929.

World trade is about 20 per cent of global GDP and restrictions on trade would not only add to costs and hamper productivity, but potentially result in global output shrinking at the very moment it needs to grow.

Within the immediate framework of trade rules, there are two paradigms, the North American Free Trade Agreement, successor to the Canada-U.S. FTA, and the World Trade Organization, successor to the General Agreement on Tariffs and Trade. These are the two models of trade liberalization in the post-Second-World-War world, and the one area of international policy where Canada is truly regarded as a significant power. Because of our proximity to the U.S., because our living depends on it, successive generations of Canadian trade officials have been among the boldest and most creative on the international scene.

So the shot Canada fired across Washington's bow, with a blistering letter to congressional leaders on Monday, should not be taken lightly. For a diplomatic note, the letter is unusually blunt about the consequences of the Buy American provisions of the recovery package. Our ambassador Michael Wilson brings a certain moral authority to the conversation, since in an earlier life he negotiated the NAFTA as minister of international trade (during a long negotiating siege in Washington, he once sent out for fresh shirts.)

"A negative precedent set here in the United States can have repercussions around the globe," he warns, "and could provoke debilitating beggar-thy-neighbour policies."

He adds: "If Buy American becomes part of the stimulus legislation, the United States will lose the moral authority to pressure others not to introduce protectionist policies."

One way to solve Canada's problem would be by inserting one word to make it a Buy North American provision, allowing the U.S. to respect its NAFTA obligations and protect Canada's access to these public works projects. That would be a no-brainer for us, but wouldn't do anything for the rest of the world.

But the fact is the North American economy is integrated, and Obama's home state of Illinois, and his hometown of Chicago, are two of the best proofs of how both our countries have benefited from free trade.

Illinois is one of 35 states with Canada as its largest export market. We account for 27 per cent of its exports, or $13 billion in 2007. Transportation is a big part of it, with nearly $1 billion in cars heading north, and $700 million in trucks moving south. Don't ask where the parts come from, they could come from either side of the border.

A lot of this Canada-U.S. trade, $535 billion in 2007, moves through and is marshaled at Chicago's famed rail yards, the hub of the continent. Both CN and the CPR, two of the largest continental railways, are among the very best customers of the yards.

It was one thing for Obama to talk about re-opening the NAFTA when he was seeking union votes in the primaries in Ohio and Pennsylvania. Everybody understood what that was about.

But as Mario Cuomo used to say, you campaign in poetry and govern in prose.

 
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