February 3, 2009 / 9:56 PM / in 9 years

Canadian companies fret over "Buy American" clause

TORONTO (Reuters) - The bulk of the raw steel that Walter Koppelaar buys comes from mills in the United States. His Canadian company fabricates it into bridge or building parts that are often shipped back to the U.S. market.

But a “Buy American” provision attached to the nearly $900 billion stimulus package working its way through the U.S. Senate may close the door to such products.

Last week, the U.S. House of Representatives passed a version of the bill that said only U.S.-made iron and steel be used in any public works projects funded from the package.

The version currently being debated in the U.S. Senate expands the provision to include that any manufactured goods purchased under any public works projects be American made.

“If they truly do not allow any manufactured product from Canada, regardless of raw material origin, that would be serious,” said Koppelaar, president of Walters Group, in Hamilton, Ontario.

“A fair number of Canadian manufacturers depend fairly heavily on U.S. exports, we being one of them.”

Walters Group does 40 to 45 percent of its business in the United States.

There are probably 15 to 20 steel fabricators across Canada that depend on the U.S. market for a good chunk of their business, said Steve Ross, General Manager at Cherubini Group, in Dartmouth, Nova Scotia.

Cherubini does around half of its business in the United States, where it buys 60 to 70 percent of its raw materials for building bridges, buildings and other structured products.

Ross said he understands that the “Buy American” clause is designed to keep cheap imports from countries like China and Korea, which have much lower labor costs, from flooding the market.

“We here ourselves can’t match the dollars that these guys are selling the stuff for,” he said of the offshore based competition.

A “Buy North American” provision would be preferred, he said.

“We are an integrated economy here in Canada and the U.S. and it wouldn’t be fair to kind of shove us out of that market when we are so integrated,” he said.

Canada and the United States have the world’s biggest trading relationship, worth more than $1.5 billion a day, and the two economies are closely intertwined.

Politicians in Canada have said they expect the United States to live up to its obligations under the North American Free Trade Agreement and the World Trade Organization. But if the U.S. chooses to go its own way, there would be little recourse for Canadian companies, said a the head of Canada’s largest industry and trade association.

“The NAFTA procedure is a long and drawn out affair,” said Jayson Myers, president of Canadian Manufacturers & Exporters.

He added that while federal procurement is covered under NAFTA, state and municipal procurement are not and the “Buy American” amendments would pretty much restrict any Canadian product from going into local U.S. markets.

That would likely lead to big Canadian job losses.

“If the U.S. market dries up, the Canadian market is not particularly robust either, so its going to be more contractors chasing fewer jobs,” said Koppelaar, of Walters Group.

Even more worrying, said Myers, would be if other countries around the world were to respond to the U.S. measures with similar restrictions of their own.

“If this develops into some sort of retaliation for the U.S. restrictions, I think the danger is that... we would see the same sort of trade restrictions that were imposed in the 1930s that led to the Depression... the potential impact on global trade could be severe,” he said.

($1=$1.23 Canadian)

Reporting by John McCrank; Editing by Jeffrey Hodgson

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