Business groups scold Congress on 'Buy American'

WASHINGTON (Reuters) - Leading U.S. business groups criticized Congress on Friday for including a 'Buy American' requirement in its $787 billion economic stimulus package, warning it would dilute the bill's impact and invite other countries to keep American goods out of their stimulus programs.

"The 'Buy American' provisions ... will signal to our trading partners around the world that the United States is returning to the bad old days of protectionism and economic nationalism," Gary Shapiro, president of the Consumer Electronics Association, said in a statement.

The final version of the measure requires public works and building projects funded by the stimulus package to use only U.S.-made goods, including iron and steel.

It also requires that it be done in a manner consistent with U.S. trade pacts -- giving Canada, the European Union, Japan and a short list of other trading partners some comfort they could share in the expanded U.S. public works market created by the stimulus bill.

But countries such as China, India, Brazil and Russia, which are not members of an international government procurement agreement, would be shut out.

U.S. steel companies and many small to medium-sized manufacturers lobbied hard for the measure in the face of strong opposition from other business groups.

"The provision ensures that the economic stimulus efforts will have a broad impact that includes our steel and manufacturing sectors," said Representative Pete Visclosky, who chairs the Congressional Steel Caucus.

Opponents argue the Buy American measure allows the cost of a project to be increased by as much as 25 percent over what it would be if imported materials were allowed.

'A MISSED OPPORTUNITY'

They also predict it will delay the start of projects because of the need for regulations to be drafted to ensure companies are complying with the requirements.

"The new Buy America provisions are a missed opportunity to re-energize the U.S. economy in a cost-efficient and timely fashion," said Cal Cohen, president of the Emergency Committee for American Trade.

Proponents say Buy American provisions have long been a requirement of U.S. public works projects without ever having been challenged at the World Trade Organization or in other trade forums, and that U.S. public agencies are adept at implementing the requirements.

One analyst said he believed President Barack Obama set a tone for his administration in persuading Congress to soften the provision by adding the language requiring the United States to abide by its trade pacts.

"The president personally said the basic principle of policy here is, don't launch into a trade war and don't violate our commitments under existing agreements. And that's actually kind of a major precedent," said Ed Gresser, director of the Progressive Policy Institute's trade project.

"I have sympathy for the idea that we need to very pure and set the highest example we can. But the really important thing for me is to honor the obligations we have. And that's a principle, having been said once, that will probably carry on into the future," he said.

A second analyst said the provision showed the United States was waking up to the fact it is the "last remaining trade virgin" in a world where other countries routinely shield their companies from foreign competition.

"Many of our trading partners excel at creating trade barriers and then calling us protectionist," said Michelle Applebaum, manager of Applebaum Research in Chicago and a former steel analyst.

(Reporting by Doug Palmer; Editing by Xavier Briand)