There are growing signs of discontent with the ‘Buy American’ clause in the USA’s financial stimulus bill – a stipulation that “any public building or public works project funded by the new stimulus package use only iron, steel and other manufactured goods produced in the United States.” It now appears that this part of the stimulus package will be challenged by Brazil in the Dispute Settlement Body of the WTO.
The General Agreement on Tarriffs and Trade (GATT), for which the WTO has responsibility, has strict provisions regarding these matters and Brazil is likely to argue that two of its most sacrosanct principles – those of Most Favoured Nation (Article I) and National Treatment (Article III) – are contravened by the ‘Buy American’ clause.
Firstly, it is likely to be argued that ‘Buy American’ goes against the principle of National Treatment that:
internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.[emphasis added]
And secondly, Brazil could also argue that, in promising that ‘Buy American’ will not affect other parties to the Government Procurement Agreement, the US government is threatening to break the principle of Most Favoured Nation Treatment, i.e. that:
any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties [to the GATT].
However, the relation of the Government Procurement Agreement to Articles I and III of the GATT has never been tested in the WTO, and given the complete lack of jurisprudence on the matter, it is a matter of some interest whether or not Brazil will press its case before the DSB, and what the result will be. It may be the case that Article XX (h) of the GATT, regarding exceptions for intergovernmental commodity agreements, means that the US can escape the charge that ‘Buy American’ violates the Most Favoured Nation principle. The question of National Treatment is much less clear.
Certainly a superficial reading of the treaty documents suggests that the Government Procurement Agreement (GPA) is relevant in that the ‘Buy American’ clause relates only to materials garnered for public works schemes; another possible recourse for the USA would be to argue that ‘Buy American’ is a valid general exception under some of the other terms of Article XX to the GATT.
Regardless, if Brazil does bring the issue before the DSB the outcome will be highly interesting. In the mean time, other nations are taking a diplomatic, rather than a legal tack, in an effort to stave off this return to protectionism.