Canada hopes to be exempted from stimulus provisions

TORONTO -- Canada, America's top trading partner, is cautiously optimistic it will be exempted from protectionist provisions in the U.S. economic stimulus bill that call on major public works projects to favor U.S. iron, steel and manufactured goods over imports.

Canada and other U.S. trading partners warn that favoring U.S. companies would breach Washington's trade commitments and could set off a retaliatory trade war.

U.S. trade with Canada totaled about $560 billion in the first 11 months of last year, well ahead of trade with second-place China, which was about $379 billion in the January-November period.

Canadian International Trade Minister Stockwell Day voiced objections when he met with interim U.S. trade representative Peter Allgeier at the World Economic Forum in Davos, Switzerland this weekend.

President Barack Obama does not have a trade representative yet, but was represented by Allgeier, a Bush administration holdover who served as ambassador to the World Trade Organization.

"Following the discussions I've had, and with the interventions we've made on a number levels I'm cautiously optimistic that something can be worked out," Day said on a conference call with reporters on Saturday.

Day said Allgeier was very much aware how big of a concern it is to Canada. He said the president has certain abilities to waive parts of the legislation if they go against the obligations of the North American Free Trade Agreement -- which links the U.S., Canada and Mexico -- and other international pacts aimed at liberalizing world trade.

"They are looking for ways to handle our concerns," Day said. "The administration is very aware. There seems to be a desire to do something to mitigate the effects of the legislation going through, if it does go through."

Asked about the protective provisions Friday, White House press secretary Robert Gibbs would say only that the administration was reviewing them.

The provisions are likely to find support among Americans outraged that money from a stimulus package likely to top $800 billion could go to foreign competitors of U.S. companies.

The U.S. House of Representatives passed the $819 billion stimulus bill on Wednesday that included "buy American" provisions that would call on major public works projects to favor U.S. steel and iron.

Canada's trade minister noted the Senate is considering expanding the measure to include manufactured goods, a more far-reaching provision. The proposed Senate provision states that none of the funds may be used for a project "unless all of the iron, steel and manufactured goods used in the projects are produced in the United States."

Day said the provisions in the stimulus bill are similar to the U.S. Smoot-Hawley Act of 1930, a tariff law which he said had exacerbated the Great Depression.

"In a time of global downturn countries should not be lapsing backwards into protectionist activity. That only results in other countries then wanting to put up barriers and the last thing we need now is a retaliatory trade war," Day said.

Canada and the EU are waiting to see if the measure is included in the final economic-recovery package that is expected to emerge from the Senate next week. Democratic leaders have pledged to deliver it to the White House for President Barack Obama's signature by mid-February.

Obama is scheduled to make his first foreign trip as president to Canada on Feb. 19. Day said it is a major issue for Canadian Prime Minister Stephen Harper.

"If it's not resolved by the time the president arrives here, I just know how concerned our PM is on this," Day said.