Canada encouraged by softened "Buy American" plan

(In U.S. dollars unless noted)

TORONTO, Feb 5 (Reuters) - Canada said on Thursday it was encouraged by the U.S. Senate’s move to soften the “Buy American” provision in its $900 billion stimulus bill, but said it would maintain diplomatic pressure on Washington to keep protectionist measures out of the plan as it moves forward.

The “Buy American” provision would have required that all public works projects funded by the stimulus package use only U.S.-made iron, steel and manufactured goods.

But, under the amendment passed by U.S. Senate on Wednesday, the provision must be “applied in a manner consistent with U.S. obligations under international agreements.”

Canadian Trade Minister Stockwell Day told reporters on Thursday the amendment was “a great step forward.”

“Respecting the fact that this is their legislation, we want to continue to impress upon them the things that we think are necessary to avoid either a North American or even a global negative reaction to that legislation,” Day added.

The bill still has to be reconciled with the version passed by the U.S. House of Representatives, which did not include a guarantee on trade obligations.

Day said Canada shipped about C$11 billion ($9 billion) in iron and steel products to the United States, in various forms, in 2007.

The Senate moved to amend the “Buy American” provision after several countries, including Canada, Japan and Australia, expressed concern over the legislation, and President Barack Obama warned the original language could trigger a trade war.

Senator John McCain, an Arizona Republican, urged the Senate to exclude any “Buy American” provision as part of the stimulus package, but his amendment was rejected.

“It would have been nice to see that go through,” said Day. “It would have put some extra weight on the amendment that’s already there, but we are pleased with progress so far.”

The United States has made commitments under the North American Free Trade Agreement and the World Trade Organization to provide trading partners such as Canada, Mexico, Japan and the European Union with access to its government procurement market and has received similar commitments in exchange.

But other countries such as China, Russia, India and Brazil are not party to those pacts so would not have any protection from the amendment passed by the Senate on Wednesday.

$1=$1.23 Canadian Reporting by John McCrank; editing by Rob Wilson