Protectionism Concerns May Drown Geither's Unity Appeal at G7

Protectionism Concerns May Drown Geither's Unity Appeal at G7

ROME -(Dow Jones)- The message of unity that U.S. Treasury Secretary Timothy Geithner plans to bring to his Group of Seven counterparts could be drowned out by the rising chorus of complaints about protectionism.

Geithner's intent is to go into his first meeting of the Group of Seven leading industrial nations this weekend with a "bold" agenda to spur more aggressive actions to fight the deepening economic and global crisis, a senior Treasury official said Wednesday. He will hold up the near-$800 billion stimulus bill nearing passage in Congress and the revamped financial stability plan as a signal that President Barack Obama plans to succeed where his predecessor failed.

But the financial rescue package has elicited an unenthusiastic response owing to its lack of details, while a "Buy American" provision in the stimulus bill drew sharp criticism across the G7.

The U.S. stimulus bill, along with a French auto aid plan that would protect domestic production, have thrust protectionism to the center of the meeting at a time when risk aversion is on the rise again in global markets.

"I regard this all as kind of a big, big distraction from the main business" of dealing with the crisis, said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington.

Italy's Finance Ministry, which is hosting the two-day event, laid out an agenda Thursday saying that "fostering a common framework for policy action and fighting protectionist pressures, which tend to gain strength in difficult economic conditions, will be the centerpiece of our work."

A watered-down version of the "Buy American" provision survived in the reconciled $789 billion U.S. stimulus bill agreed to Wednesday, which will now go before both houses for a full vote. The bill stipulates that virtually all manufactured goods used in public works projects funded by the stimulus plan come from U.S. companies, but a clause has been added to ensure compliance with World Trade Organization obligations.

However, that hasn't completely eased concerns about protectionism, as the bill could still restrict imports from such countries as China, India and Russia, which aren't part of the WTO Government Procurement Agreement.

Japanese Finance Minister Shoichi Nakagawa has said the bill would still be discussed during the G7 meetings.

While Obama has made clear that the U.S. will meet its WTO obligations, the Treasury official acknowledged that the issue is still alive.

"Secretary Geithner has received questions and I'm sure that he will receive more and I'm sure that he'll explain exactly that," the official said.

Hufbauer, however, said "Geithner will be playing defense on this issue."

"But what he will try to do is make his apologies for the U.S. in a private room and move on, because the financial crisis is really the big turkey," said Hufbauer, former deputy assistant Treasury secretary for international trade during the administration of President Jimmy Carter.

Geithner also could face questions about the administration's plan to help automakers, an issue that is now the hot-button topic in Europe as countries warily eye each other's plans to help their own domestic industries.

As part of the $17.5 billion U.S. auto bailout announced in December, General Motors Corp. and Chrysler LLC have to present plans by Feb. 17 on how to become viable.

European Commission President Jose Manuel Barroso cited an "element of discrimination" in the U.S. auto aid Thursday in explaining the need to ensure that the French plan doesn't cause a negative spillover effect on other countries. Noting that the U.S. is helping GM but not its Opel subsidiary in Germany, Barroso said, "that is precisely the sort of thing we want to avoid in Europe."