Europe Warns Against 'Buy America' Clause

On Monday, the US Senate began negotiating the economic stimulus package after Congress passed an €819 billion bill. In the Senate, however, that amount is expected to rise to up to €900 billion.

In the Senate version, the "Buy American" clause goes even further, stating that funds from the stimulus package cannot be used "unless all of the iron, steel and manufactured goods used in the projects are produced in the United States."

'A Negative Signal'

In both the House of Representatives and the Senate, the Republicans have broadly rejected the protectionist provisions. They have also criticized the package for not containing sufficient tax breaks. The Republicans believe the package, in its current form, won't have the immediate stimulus effect the Democrats are hoping for.

White House spokesman Robert Gibbs denied those charges on Monday. He also said that President Obama would review the "Buy American" provisions, and that changes were likely in the Senate draft before it is put to a vote on Friday. Afterwards, the drafts of the House and Senate version must be reconciled before it goes to President Obama for his approval. Given the divisions over the measures, Obama himself has expressed readiness to compromise. Obama is seeking to implement the stimulus package by mid-February.

In Germany, industry insiders are viewing the draft legislation with skepticism. "The fact that this clause even came to be is a negative signal that worries us," said Sigrid Zirbel, regional director for America at the Federation of German Industry (BDI), who said she viewed the legislation as a "sign things are moving in the direction of protectionism." But she said any final conclusions would have to be drawn after the bill is finalized.

On Friday, White House spokesman Gibbs said the Obama administration would review the "Buy American" provisions. "It understands all of the concerns that have been heard, not only in this room but in newspapers produced both up north and down south."

German Chancellor Angela Merkel would likely welcome any shift in American thinking. She has warned against national subsidies and protectionism in the wake of the global economic and financial crisis. "I am very wary of seeing subsidies injected into the US auto industry," Merkel said last week. "Such periods must not last too long because they inevitably lead to a certain degree of distortion and, quite frankly, constitute protectionism."

Merkel was also speaking out against comments made by the French government. On Friday, French Economics Minister Christine Lagarde described a little bit of protectionism during times of crisis as a "necessary evil."

-- dsl with wires

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