Business - US;Sparks fly over 'Buy American' provision in US stimulus plan

Washington, Jan 30 (IANS) A 'Buy American' provision in President Barack Obama's $819 billion stimulus plan that bans the purchase of foreign construction materials for public works projects has set off a heated debate about its efficacy.

The contentious provision in the bill as passed by the US House of Representatives Wednesday would, with some notable exceptions, ensure that only US-produced iron and steel be used for construction.

It expands on a 76-year-old federal law. The Senate, which is likely to take up stimulus next week, would go even further, effectively requiring that any products and equipment be American-made.

'The Buy American provision will help stimulate our own economy,' Democrat Byron Dorgan, who wrote the provision, told CNNMoney. 'When taxpayer dollars are used, we should urge that money to support the things be produced here at home.'

Critics argue the proposal appears to fly in the face of a G-20 agreement reached in November, when world leaders decided not to raise new trade barriers in 2009.

Many economists also argue that a Buy American provision could actually backfire, slowing economic growth instead of helping expand the American job market.

'It's not a good time to initiate protectionist measures in any shape or form,' Kurt Karl, head of economic research at Swiss Re was cited as saying.

'It hurts growth, because if you force one side to go with domestic production only, then that precludes them from getting less expensive materials from overseas.'

The economy is already reeling, and will soon enter the 15th month of a recession. A major drop in trade could cause a one percent drop in gross domestic product, according to Karl.

'We believe it invites reciprocal restrictions on US exports,' Peter O'Toole, a spokesman for General Electric, which gets half its of revenue from abroad was cited as saying.

'When you take competition out, it drives prices up. We're in a globalized world - we can't turn back the clock.'

But a host of politicians believe the Buy American provisions have appropriate safeguards to ensure stimulus spending is not wasted on expensive materials and the US economy does not suffer long-term consequences.

Dorgan for one said his support for the bill comes down to fulfilling President Obama's promise of creating up to 4 million American jobs.