The international trade and investment issue chosen is that of the "Buy American" clause and the impact it has had on NAFTA members, Canada and Mexico. The main aim of this paper is to identify a group of stakeholders, consumers, workers, government and companies that are interested in and have been affected by the "Buy American" clause within the North America Free trade Area (NAFTA). Theories that can best describe the "Buy American" clause will be looked at briefly in this paper. To begin with, what do we understand by the "Buy American" clause.
An American Recovery and Reinvestment Act (ARRA) was signed by the US president Barack Obama in 2009 (Bacchus 2009). The "Buy American" clause aims at preserving and creating jobs, also to aid in the promotion of economic recovery in terms of economic recession. The "Buy American" provision in the stimulus package requires that all the manufactured good of iron and steel are to be used in projects funded by the American Recovery and Reinvestment Act (ARRA). According to Young (2009), the stimulus fund of $780 billion was meant to get the US economy going with $130 billion out of the $780 billion put aside for the construction of roads, housing, bridges, government and commercial buildings and other important infrastructure needed. According to the Bridges weekly trade news digest (Volume 13. no 6, 2009), it was stated by the legislation that the "Buy American" should be implemented in such a way that it does not fail to agree to the US international trade agreement. Although the North American Free Trade area (NAFTA) of which Canada and Mexico are members have been affected by the decision of "Buy American". Canada is one of the biggest and important trading partners to the United States (Bridges weekly trade news digest, volume 13. No5, 2009) and the impact of "Buy American" within the NAFTA region seems to be more on Canada. In retaliation of the "Buy American" clause they were threats of "Buy Canada" to help create jobs lost due to the clause, though Canadian and Mexican companies are allowed to bid for projects funded by the ARRA and are exempted from the "Buy American" (Barkeley and pulizzi 2010). Thus, there is still cause for concern as some Canadian companies are still facing problems. In the next section, some theories to best describe the "Buy American" clause will be looked at briefly and also the role play of the World Trade Organisation (WTO).
Protectionism and hegemonic stability are two theories which best describes the "Buy American" clause. Protectionism, according to Roots (1994, page 21), can be defined as a means of shielding domestic producers alongside import competitors, by regulating the volume of these imports trough tariff quotas which relates to the case of "Buy American" clause. Looking at the NAFTA region, a country that is in a free trade agreement cannot at the same period be defensive of its domestic producers against competition internationally. The NAFTA secretariat website stated the objectives of the NAFTA agreement. Article 102 section 1 of the NAFTA agreement includes in it national treatment and most favoured nation treatment (MFN) and transparency states that, elimination of trade barriers and also the facilitation of cross border movement of services and goods between territories of member states, promote investment opportunities and also the promotion of fair competition should be significantly boost the territories of the NAFTA members. Due to the "Buy American" clause, these objectives have been violated and have resulted in Canadian and Mexican companies suffering great losses.
For the Hegemonic stability theory, the leading states maintains stability and makes for the provision of public goods for example a stable currency, an open trading system that are relevant for the smooth running of the world economy (Bussmann and Oneal 2007). This theory was brought up by Charles Kindeberger in the 1970's and its focal point is on the role of a leading state like the United States in the 20th century and how change in the allocation of capabilities can affect the world economy (Helem Milner 1998). Powerful states such as the United States use their highly outstanding power to drive others to come together to construct an encompassing and systematic order (Mark Rupert 1995). The hegemonic stability theory best describes the "Buy American" clause. Due to the US growing and dominant power in the world economy, "Buy American" has made it difficult for Canada and Mexico and also other trade giants like China and India to do business in US due to these restrictions.
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