Japan and Australia warn on "Buy American," protectionism

TOKYO Thu Feb 5, 2009 9:36am EST

1 of 4. Molten iron from a blast furnace is poured into a furnace to produce steel near Tokyo, February 6, 2008.

Credit: Reuters/Michael Caronna

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TOKYO (Reuters) - Japan and Australia expressed concern on Thursday about protectionism stemming from the "Buy American" provisions in Washington's mammoth stimulus measures aimed at helping pull the U.S. economy out of recession.

Australia warned the move to protect U.S. iron and steel makers would lead to a retaliatory trade war, while Japan sent a letter to top aides of U.S. President Barack Obama and the Senate's majority and minority leaders echoing concerns by other U.S. trading partners.

"The common responsibility shared by the two countries, which are the world's No.1 and No.2 economies, is to resist protectionism together," Japan's chief cabinet secretary, Takeo Kawamura, told a news conference.

The letter was sent to U.S. Secretary of State Hillary Clinton and head of the National Economic Council Lawrence Summers, as well as the Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell, from Ichiro Fujisaki, the Japanese ambassador to Washington, Kawamura said.

Japan is the fourth biggest exporter to the United States, after China, Canada and Mexico.

The deepening global financial crisis and the failure to complete the World Trade Organization's long-running Doha round to free up global commerce, have raised fears that countries will block imports to protect jobs.

China has yet to give any official reaction and its major state-controlled media outlets have reported the "Buy American" plan but have refrained from commenting, suggesting that China is still deliberating how to respond.

On Wednesday, the U.S. Senate voted to soften the "Buy American" provision in its $900 stimulus bill, which originally allowed only U.S.-made iron, steel and manufactured goods to be used in public works projects funded by the bill.

The vote for the amendment came after Obama expressed concern about the possibility of a trade war. Last week, the U.S. House of Representatives included a "Buy American" provision that would allow only the use of U.S.-made iron and steel in public works projects in its $825 billion stimulus package.

TRADE WAR

Australian Trade Minister Simon Crean said the U.S. Senate had made the wrong decision by voting to keep the "Buy American" provisions in the stimulus bills.

"This is the wrong course of action, they have got to reverse their decision," Crean said in a statement. "It will result in retaliatory action, it will result in a trade war."

Australia is a major iron and steel producer and a strong advocate of free and open trade. Australia has a standing free trade agreement with the United States, and last year exported A$484 million ($314 million) worth of steel to the United States.

Crean said other nations would hit back at the United States if the "Buy American" clause remained, undermining the benefits of Obama's stimulus measures.

He said Australia was also examining the "Buy American" to see if it had any impact on the Australia-U.S. free trade agreement.

Mexican President Felipe Calderon and Canadian Prime Minister Stephen Harper have also vowed to fight any move to introduce protectionist measures in the region as a way to combat the economic slowdown.

(Additional reporting James Grubel in CANBERRA; Writing by Sugita Katyal; Editing by Jeremy Laurence)

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