January 31, 2009 / 5:53 PM / in 9 years

Canada sees resistance to any U.S. protectionism

TORONTO (Reuters) - Canadian Finance Minister Jim Flaherty said on Saturday any protectionist moves by the United States or other countries would meet resistance around the world but Canada would not erect trade barriers of its own.

<p>Canada's Finance Minister Jim Flaherty delivers his post-budget speech at the Whitby Chamber of Commerce brunch in Whitby, January 28, 2009. REUTERS/Mike Cassese</p>

“There is a clear consensus here that protectionism needs to be avoided, that protectionist is a direction we need not go,” Flaherty said during a conference call after a meeting with other finance ministers in Davos, Switzerland.

When asked what reaction any moves by Washington toward protectionism might provoke globally, Flaherty said: “They will be met by resistance by the finance ministers. That’s been a consistent message here.”

The issue took center stage at the annual World Economic Forum meeting in the Swiss ski resort after the U.S. House of Representatives this week passed a $825 billion stimulus bill with so-called “Buy American” provisions.

The U.S. Senate is to begin debate on Monday on its version of the stimulus bill, including a measure that expands the House language of “Buy American.”

The Obama administration said on Friday it was reviewing its position on “Buy American” after trading partners sounded the alarm that it could shut out foreign-made steel and iron used for projects funded by the stimulus package -- or an even broader range of manufactured goods under the Senate version.

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.

SNOWBALL EFFECT

“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.”

Flaherty said Canada was completely in favor of open markets, a position that reflected the central role of trade to the national prosperity.

“We are going to respect our obligations under NAFTA, the WTO,” he said, referring to the North American Free Trade Agreement with the United States and Mexico, and the World Trade Organization. “That’s where Canada’s wealth has come from historically and we need to stay on that path.”

The reaction in Davos to “Buy American” prompted the acting U.S. trade representative, Peter Allgeier, to say the Obama administration was working to ensure that any stimulus package is in line with international trade rules.

Flaherty said the ministers gathered in Davos recognized the pressure on some wealthy countries to bring in some protectionist measures that tend to be popular.

Even so, he said: “A point the finance ministers here have agreed on is, in the longer term, they are damaging to economies ... What we need to do is persist with our policies of increasing our trade opportunities, not restricting them.”

Editing by John O'Callaghan

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