Iron and steel provision won't be allowed to trigger trade war: Obama

President Barack Obama said Tuesday he will not allow a provision in the U.S. economic stimulus package to trigger international trade wars.(Ron Edmonds/Associated Press)

The final version of the United States' $819-billion economic stimulus package will not contain protectionist language, President Barack Obama said Tuesday.

In interviews with major U.S. networks, the president attempted to soothe global concerns that protectionism will be part of the package.

"We can't send a protectionist message," Obama said in an interview with Fox News.

"I think it would be a mistake though at a time when worldwide trade is declining for us to start sending a message that somehow we are just looking after ourselves and not concerned with world trade," he said.

The bill, which is meant to help pull the U.S. out of recession by stimulating the economy and creating jobs, has raised concerns about protectionism.

In its current form, it requires that all steel and iron used for infrastructure projects funded through the stimulation package be U.S.-made. The provision has quickly become known as the "Buy American" rule.

The package has been passed by the House of Representatives and is currently being debated in the U.S. Senate. The Senate version of the bill includes a provision that all stimulus-funded projects use only U.S.-made equipment and manufactured goods.

Obama said in an interview with ABC it would be a grave error on the part of the U.S. to push forward with any provisions that would violate international trade agreements and trigger trade wars.

"That is a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe," he said.

Obama has stated he wants to have the bill signed into law by mid-February. His administration will have some discretion and input into how the provision is implemented if the language remains in the legislation.

Chorus of warnings

A chorus of warnings about the "Buy American" provision in the legislation have been directed at the U.S. administration from Canada, the European Union and even American corporations and businesses.

Canada has argued that the provision violates international trade agreements, including the North American Free Trade Agreement, and that it could stifle global economic recovery.

Manitoba Premier Gary Doer and Saskatchewan Premier Brad Wall travelled to Chicago on Tuesday to lobby against including protectionist measures in the stimulus package.

Alberta Premier Ed Stelmach is also travelling in the United States to express opposition for the provision.

"We believe that with our input on this and constant involvement with the administration, that something is going to come of this that will be better than what's being proposed right now in the U.S. Senate," International Trade Minister Stockwell Day said Monday.

Before Obama made his comments, Day told reporters that Ottawa would be pressing forward in its efforts to convince Washington that the provision is a bad idea.

Obama would likely have the law on his side if he opted to block the "Buy American" provision from the final stimulus package due to existing international trade agreements, he said.

Within the constitutional framework of the U.S., the president can overrule something passed in Congress if he believes it violates international agreements, Day said.

Day had no comment later Tuesday, after Obama's televised remarks.

Canada could win an appeal: expert

If the legislation is passed with protectionist provisions, Canada could likely win an appeal, Debra Steger, a former World Trade Organization negotiator, told the CBC.

But concerted political pressure before the legislation is signed off on is likely the most effective route, Steger said.

"I would expect that we could work with other world leaders, because they don't like the bill any more than we do," she said.

A study released just hours before Obama's remarks painted a grim picture of the impact of the provision on the United States.

The report by the Peterson Institute for International Economics estimated that the "Buy American" provision could create about 1,000 jobs in the steel industry, but might cost as many as 65,000 across a wide range of sectors.

"The negative job impact of foreign retaliation against 'Buy American' provisions could easily outweigh the positive effect of the measures on jobs in the U.S. iron and steel sector and other industries," authors of the study found.

With files from the Associated Press