"BUY AMERICA" PROVISION RAISES CONCERNS IN

C O N F I D E N T I A L SECTION 01 OF 02 CANBERRA 000105

SIPDIS

STATE FOR EEB/DTC, EAP/ANZ; STATE PLEASE PASS USTR/WEISEL,
BELL

E.O. 12958: DECL: 01/30/2019
TAGS: ETRD ECON PREL AS
SUBJECT: "BUY AMERICA" PROVISION RAISES CONCERNS IN
AUSTRALIA

Classified By: ECONCOUNS E KAGAN, REASONS 1.4 B, D


1. (C) Summary. The "Buy America" provisions on the purchase
of US steel for infrastructure projects in the
recently-passed House economic stimulus bill have raised
considerable concern in Australian, provoking negative
headlines and commentary in the Australian media as well as
from key contacts. GOA officials have had little public
comment beyond saying through spokespeople they hope the US
will abide by its international obligations. In private,
they express great concern over the symbolic impact if the
final legislation appears to legitimize protectionism and are
watching this closely for fear this would give those with
protectionist impulses in other countries greater freedom to
act. Several contacts have asked if such "buy America"
provisions would apply to Australia's limited steel exports
to the United States in light of the government procurement
provisions of our bilateral FTA. End summary.


2. (U) The "Buy America: clause in the House of
Representatives' economic stimulus bill requiring suppliers
for government-funded infrastructure projects to use US steel
has provoked attention in the Australian media. Australia's
only national newspaper "The Australian" on January 30 ran
the page one headline, "Barack Obama's Threat to Free Trade
on Steel", and an editorial titled "Free Trade Threat". "The
Australian" story, which praised the Administration for its
overall approach to the difficult economic situation,
included an indirect quote from a spokesman for Prime
Minister Kevin Rudd saying that Australia expected the US to
"be mindful of its international trade obligations," such as
the US-Australia FTA. The Prime Minister's office told "The
Australian" it wouldn't comment about what "The Australian"
called the "protectionist threat" until legislation is
finalized.


3. (C) Steven Kennedy, Prime Minister Rudd's Chief
Macroeconomic Advisor, told Econcouns January 29 that
Australia is "very concerned" about the clause. He
recognizes this would have relatively little direct impact on
Australia. However, a move like this, if endorsed by a
popular new US Administration, could lend legitimacy to the
protectionist efforts in other countries, which is already in
evidence - even among G20 countries that committed to not
take such steps.


4. (C) Trade Minister Simon Crean is in Davos; his adviser
Trevor Holloway told econoff that Crean is very aware of the
issue and hopes the US will abide by its international
obligations and the FTA. Crean has made no public statement
on this. Holloway said Crean's concern was about the
perception of rising global protectionism in response to the
global financial crisis, noting the EU's decision to
introduce subsidies for dairy exports, which Crean has
Qintroduce subsidies for dairy exports, which Crean has
sharply and publicly criticized. Holloway said that Crean
was anxious to talk to Mayor Kirk once he is confirmed as
USTR; Crean spoke frequently to Ambassador Schwab and hopes
to maintain this relationship with the new USTR.


5. (C) Tim Yeend, the First Assistant Secretary for Trade
Negotiations at the Department of Foreign Affairs and Trade,
said the GOA was "watching carefully" to see what role the
Administration plays in trying to "fix" some of the
provisions of the stimulus bill. He said he is "not alarmed,
yet." Yeend said he would be surprised if the President
could not - or was not willing to - insert himself into this
kind of discussion. Failure to do so would "not be a
positive sign", and whatever happens, this would be the
"first indication" of where the President stands on trade and
on calls for protection.


6. (C) The article in "The Australian" today, Yeend said, has
generated a lot more media interest. He said that, should

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this provision remain and it did not account for the FTA, it
would create a "domestic political problem" for Australia, as
well as sending a very poor signal internationally. Yeend
also said the GOA was interested in seeing the direction of
the new Administration's trade policy, in particular on the
WTO Doha negotiations. He said that Minister Simon Crean
sees pushing to complete Doha now as a strong positive signal
to refute protectionist ideas. This would be a sign
ofconfidence in the merits and benefits of trade to counter
the "gloom and doom" about the current trade outlook
globally.


7. (C) Opposition Leader Malcolm Turnbull's senior adviser on
national security, Tony Parkinson, also raised the
buy-American steel provision at a meeting with POLCONS on
January 30. Parkinson, who had previously worked for former
Foreign Minister Alexander Downer, noted that there has
already been reaction to the measure and said he hoped it
would not become an issue. He also pointed out that the
US-Australia FTA provides access for Australian steel to
projects funded by the USG.


8. (SBU) James Pearson, the head of the West Australian
Chamber of Commerce, told Perth Consul General January 30
that any move towards protectionism would be bad for
Australia and Western Australia, which depend so much on
international trade. Andrew Stoler, former USTR official and
Executive Director of the University of Adelaide Institution
for International Business, Economics, and the Law, told
econoff such a provision would send a very bad signal.
Although he hasn't read the legislation, he said that from
what he understands of it, it may violate the national
treatment provisions of the GATT. He noted he has been asked
to contribute to an international web site (www.VoxEU.org)
being set up to offer views of economists to the G-20 on what
to do to fix the global economy, and in Stoler's words, "how
to avoid the mistakes of 1932."


9. (C) Comment: The GOA, recognizing that the House bill is
not the final version and hoping it will change in the Senate
and in conference, is unlikely to make any public criticism
at this time. However, they will see the Administration's
actions on this as an indicator of how it will approach trade
issues generally, and will likely respond critically if what
they see as protectionist measures survive in this
legislation or anywhere else. Australia, which has very low
barriers to trade and has been a strong proponent of Doha, is
very concerned about rising protectionist attitudes following
the G20 summit in November. They believe protectionism will
both exacerbate the global economic slowdown, and directly
threaten Australia's open economy and are likely to make the
points forcefully in public as well as private should the
clause remain in the final legislation. End comment.
Qclause remain in the final legislation. End comment.

CLUNE