UPDATE 2-Canada concerned about "Buy America" steel policy

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By Louise Egan

OTTAWA Jan 29 (Reuters) - Canada is asking Washington to withdraw a "Buy America" provision from its stimulus plan and its top trade envoy will raise the issue with the head of the World Trade Organization in Davos this weekend.

Prime Minister Stephen Harper said on Thursday he was very concerned about the measure, which is aimed at protecting U.S. jobs, suggesting it violated WTO rules.

"This is obviously a serious concern to us," Harper told Parliament. "Protectionism must be avoided during this global slowdown."

Canada exports about C$6 billion ($5 billion) worth of steel and iron to the United States every year, its top trade partner. It was not clear how big a threat the U.S. policy would be to the business.

"I know that countries around the world are expressing great concern about some of these measures that go against not just the obligations of the United States but the spirit of our G20 discussions," Harper said in response to an opposition question on the issue.

The U.S. House of Representatives passed an $825 billion stimulus package late Wednesday that included a clause that said the funds could be used only for projects in which all the iron and steel involved was produced in the United States.

The bill still has to pass the Senate and be signed into law by President Barack Obama.

Trade Minister Stockwell Day will put Canada's concerns to WTO chief Pascal Lamy in Davos, Switzerland, this weekend. He will also lobby U.S. officials there.

"It a bit premature to talk about launching a formal complaint," he told reporters.

"The legislative process in the United States is not complete yet. We'll see what the final outcome is but we're engaged with the Americans already over this issue," Day said.

But the left-leaning New Democratic Party said the "Buy America" strategy was not entirely new and may not necessarily violate trade rules.

"In the free trade agreements, there's latitude in there for this to go ahead, so its not as dramatic as is being portrayed, though very serious and needs to be looked at," said Wayne Marston, an NDP legislator.

The NDP said on Thursday that Ottawa's economic recovery plan should also include a "Buy Canadian" clause to save jobs. (Reporting by Louise Egan; editing by Rob Wilson)