Seven months after the Buy American resolution, Canadian manufacturers are poised to become ensnared in yet another protectionist piece of U.S. legislation even though the Chinese are the intended target.
Gary Doer, Canada's ambassador to the United States, is sending a letter this week to congressional leaders, urging them to consider the impact on the Canada-U.S. trade relationship if the Foreign Manufacturers Legal Accountability Act passes Congress in the weeks to come.
"As we are each other's largest trading partner, Canada is concerned this legislation seeks to solve a problem that does not exist," Doer wrote. "It could instead result in unintended consequences of unduly burdening our bilateral trade."
The act, currently before the U.S. House of Representatives, is aimed at ensuring that the foreign manufacturers of defective protects can be served with legal papers. It was the result of the Chinese drywall fiasco that has damaged some U.S. homes and made homeowners sick; consequently, it isn't expected to face many hurdles in Congress.
The act is part of a "Make It In America" initiative by nervous Democrats who are hoping it will score them points in what's known as the Rust Belt, a manufacturing-heavy region of the Midwest and northeastern United States where exasperation about the widening trade deficit is off the charts. Rust Belt Democrats are vulnerable to defeat in the November mid-term elections less than eight weeks away.
"It's a bill that we're watching very, very closely," Birgit Matthiesen, the Washington-based senior adviser for the Canadian Manufacturers and Exporters, said Monday.
"There are already very strong legal arrangements between Canada and the U.S. for Americans to serve legal process in Canada and vice versa. So not only does this make no sense in terms of the economics between Canada and the U.S., it serves no legal purpose whatsoever. And if the concerns are about product safety, it's not about Canada."
The Canadian government has had little to say publicly about the act. International Trade Minister Peter Van Loan did not respond to a request for a comment on Monday.
But Canadian stakeholders say Doer and embassy officials on the ground in Washington have been toiling mightily to convince House and Senate leaders of the folly of the bill and how it could slow down trade with America's biggest trading partner.
"The embassy has done a fantastic job reaching out to Congress," said Joy Nott, president of Canadian Importers and Exporters, a group that's working with embassy officials on the file.
"Generally speaking, Canada understands the mindset of this legislation, and where it's coming from. How can you pry your hand off your heart and say no if you're in Congress, whether you're Democrat or Republican?" she said.
"But that being said, we have very serious concerns and we believe it's inconsistent with World Trade Organization agreements and with NAFTA."
In its present form, the bill raises more questions than it answers about how it will work in terms of cross-border trade between the U.S. and Canada, she added.
"What will change at the border? What will you have to report? Will it delay the thousands of trucks crossing the border daily? How will it logistically work? It's just another layer of bureaucracy at the border that could potentially hamper trade."
The European Union is up in arms about the law, saying it will be costly and prohibitive for small businesses.
In a recent letter to Nancy Pelosi, speaker of the House of Representatives, the European Union's ambassador to the United States warned the bill could spark a trans-Atlantic trade war and put the brakes to a global economic recovery — the same arguments that were made against the controversial Buy American provisions in the U.S. economic stimulus package last year.
"It is important to ensure that the provisions of the bill ... do not create additional burdens for small and medium-sized business on both sides of the Atlantic," wrote Joao Vale de Almeida.
"Open and undistorted trade remains a key vehicle to recovery, of course without prejudice to the legitimate interests of consumers for safe products."
A number of U.S. business and manufacturing groups are also sounding alarm bells, including the National Association of Manufacturers and the National Foreign Trade Council, which counts several blue-chip corporations among its members.
The chief sponsor of the House legislation is Betty Sutton, an Ohio Democrat who is facing a tough re-election battle. Several other Democrats fighting for their political lives are the bill's co-sponsors.
By making it easier to sue foreign companies for defective products, Sutton has argued, the legislation will help U.S. consumers and manufacturers alike.
"Every year, many Americans are injured, sometimes fatally, by dangerous products that have been manufactured abroad and imported into the U.S.," Sutton said in a statement after her legislation was approved by the Energy and Commerce Committee in July.
"We cannot allow foreign manufacturers to continue to undercut U.S. manufacturers by disregarding the safety of their products, thereby endangering our consumers and costing us jobs."
Gregory Somers, an international trade expert at the Canadian law firm Ogilvy Renault, said he expects the bill will become law and then face WTO challenges from the European Union.
"It's still being battered around from committee to committee, so it's not clear what kind of compromises might come about," Somers said from Ottawa.
"But if it goes through the way it looks right now, there would be WTO challenges to it. Canada's gun shy — we wouldn't issue the challenges — but if the Europeans brought one, we might join in without having to file our own complaint."