Todd Tucker at Eyes on Trade points to the following proposal, referred to as a "Buy Keynesian" policy, from John Schmitt at CEPR:
The President could rewrite the current "Buy American" restriction to allow US recovery funds to be spent on US goods — as well as those from any country that passes an economic stimulus program that is at least as large (as a percent of their national GDP) as the package ultimately passed here. Call it a "Buy Keynesian" plan.
The "Buy Keynesian" clause would let the President thread the political needle. He gets to keep the "Buy American" provision that many taxpayers (and Senators) are demanding. And, when foreign leaders accuse him of protectionism, he can rightly respond that their goods have been excluded not because they are foreign, but because their countries aren't pulling their weight in the international recovery.
Todd notes that this "is a great idea, and obviously a great way to reflate the economy." However, he states, such a provision would violate the WTO Government Procurement Agreement (for covered measures, anyway), noting that "unfortunately, there is no Keynesian exception to the national-treatment and most-favored nation obligation."
This proposal reflects a long-standing thorn in the side of the GATT/WTO: "unilateral" trade measures used by some (often developed) countries to encourage other (often developing) countries to follow certain policies. I've always been torn about such measures. While I'm not a big fan of the general policy, I'm sometimes skeptical, at least for a few of the measures, that they violate WTO rules.
There are several points I wanted to make in response to the proposal:
(1) I'm not completely sure there is a violation here. If every Member is eligible, based on objective criteria, for U.S. recovery funds, there is an argument that the measure does not violate MFN. Does it matter that some countries are in fact excluded from the funds based on failure to meet the criteria? Probably yes, I have to concede, but it would be interesting to see how the Appellate Body dealt with this question.
(2) For those who advocate these policies, if it's OK (as a policy matter, not in terms of WTO legality) if we do things like this, is it OK if others do them, too? For example, let's say the EU gets annoyed with us for having such a weak currency, and takes action to discriminate against our goods unless we do something about it.
(3) Do the policies we are promoting affect the analysis? Today we may be using this approach to promote policies you like. Tomorrow it may be for something you don't like.