OTTAWA (Reuters) - The Canadian government voiced cautious optimism on Saturday about a solution to concerns about a "Buy American" provision but, if that fails, Prime Minister Stephen Harper was likely to raise the issue with U.S. President Barack Obama at their February 19 summit in Canada.
Canadian International Trade Minister Stockwell Day made the remarks after he met acting U.S. Trade Representative Peter Allgeier about a "Buy American" measure now moving through the U.S. Congress.
"The (Obama) administration is very aware, and there seems to be a desire to do something to mitigate the effects of this legislation," Day told reporters in a conference call from the annual World Economic Forum meeting in Davos, Switzerland.
"If it's not resolved by the time the president arrives ... I just know how concerned our PM (prime minister) is on this and you can do your guesswork from there."
The "Buy American" measure, which would require public works projects to use only U.S.-made iron and steel, passed the House of Representatives last week as part of an $825 billion bill to boost the U.S. economy.
The Senate will begin debate on the stimulus bill on Monday and is considering even broader "Buy American" provisions designed to ensure that the money stays in the United States.
Canada, the top trading partner of the United States, every year exports about C$6 billion ($5 billion) worth of steel and iron to its southern neighbor.
Canada and other nations fear "Buy American" barriers could trigger a cycle of retaliation that would strangle world trade and undermine efforts to end the global economic crisis.
The measure would not raise any illegal tariffs but some experts say it may violate public-procurement provisions signed with the World Trade Organization by Canada, the United States, the European Union and other countries.
"There's some pretty furious legal research that's going on right now to see where it potentially may cross the line," Day said.
Allgeier told Reuters in Davos that Washington was working to make sure its stimulus package was consistent with its trade obligations and he echoed that in his remarks with Day.
"Their wanting to do something appears genuine at this point," Day said. "In no uncertain terms, they're telling us 'We hear you ... Keep talking to us and stay tuned.'"
The United States has not promised an exemption for Canada, Day said, but he added Obama "does have the capability to waive certain pieces of legislation or regulations if, in his determination, they go against obligations they've already signed onto."
Canadian Finance Minister Jim Flaherty said in a separate conference call from Davos that opinion had gelled among his counterparts that any protectionist moves by the United States "will be met by resistance."
"There is a clear consensus here that protectionism needs to be avoided, that protectionist is a direction we need not go," he said.
"What we need to do is avoid the mistakes that were made in the 1930s when countries took the protectionist route, which resulted in a very long recession/depression," Flaherty said in an interview with the Canadian Broadcasting Corp.
When asked by the CBC whether Ottawa would react in kind, Flaherty said: "That's exactly what countries should avoid ... That would start a snowball effect that is very negative for standards of living and quality of life."
Additional reporting by Frank McGurty in Toronto and Jonathan Lynn in Davos; editing by John O'Callaghan