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'Buy American' and H-1B restrictions to hurt

India on Friday joined the EU to wave the red flag on the 'buy American' clause in the Obama administration's $900-billion stimulus package. Commerce and industry minister Kamal Nath termed it a "protectionist measure" that would affect India-US trade ties and trigger retaliatory steps in other countries.

The clause is just another worry for India as two US Senators have introduced another amendment to the Bill, which, if passed, would prevent US companies receiving federal bailout money from hiring H-1B visa holders. The amendment would hit Indian software professionals, who use the visa programme to work with US companies.

Nath said in times of a global financial crisis, it was all the more important for governments to ensure a free flow of trade. "Protectionism is not a one-way street and is not good for the world", he said.

The 'buy American' clause in the stimulus package stipulates that raw materials like iron and steel, used in the infrastructure projects in the US, should be sourced from within the USA. Media reports say the clause could also be extended to other manufactured items. The provision aims to generate local jobs to revive the US economy.

For India, the implications are enormous. The US is India's top trading partner. In 2007-08, India's total trade with the US was $41.75 billion, with Indian exports constituting $20.72 billion, of which iron, steel and related products accounted for $1.9 billion. As the global downturn has intensified, the rate of growth of exports (April to December 2008-09) from India has declined to 17.1% from 21.76% year-on-year.

Nath had already said in the recent World Economic Forum meeting at Davos that protectionist trend is on the rise and had asked all the countries to resist taking such measures. Moreover, in November last year, the G-20 member countries, including India and the US, had committed not to implement any new protectionist measures.

Commerce secretary GK Pillai told FE that it is too early to measure the impact of the provision. "We will have to wait and watch. We will know only when a case where Indian exports are affected due to the clause comes before us. We will have to see the clauses in the US government tenders, whether it is biased towards firms in the US," he said.

He also pointed out that a vast majority of the goods in the US are imported. "If they (the US consumers) want to buy their costly drugs, that is their headache. US cars are also costly. There is more value for money in the goods made in countries like India", he said.

Trade experts and lawyers said the move is not WTO-compliant. "This clause is likely to fall foul of the WTO agreement on Government Procurement that does not permit any country to show bias to their domestic firms over companies of other countries when their government is procuring goods," said Samir Gandhi of Economic Laws Practice.

"This is certainly a trade barrier. This is a restrictive clause propping up US firms and discriminating against imports from other countries. India should find ways to join hands with other WTO members in raising the issue in the WTO forum," said Biswajit Dhar, head, centre for WTO studies, Indian Institute of Foreign Trade.

The US move has generated protests and criticism across the world, including in Canada and the European Union who have termed the decision as 'protectionist.'

Exporters in India too are worried. "Our relationship with the US traders is a long-term one. This clause will affect our exports, especially in the manufacturing sectors that are employment-intensive. The Indian government should take it up with the Obama administration and tell them that they should not insist their local manufacturers to make the products that are imported from India," said A Sakthivel, president, Federation of Indian Exports Organisation, the apex body for exporters.

Amit Goyal, president, Confederation of Indian Apparel Exporters, said, "It is a worrisome situation and the concept of free trade between nations is defeated, if America adopts a 'buy American' policy. The US is inviting a sort of trade war between countries with which it has been trading for years."

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