U.S. President Barack Obama could step into a trade squabble when he visits Ottawa on Feb. 19. (Charles Dharapak/Associated Press)

There is unsettling news for Canada in U.S. President Barack Obama's economic stimulus bill, or at least in the version approved Wednesday night by the House of Representatives.

It says that steel used in public projects under the $819-billion US plan must be made in the United States, an idea likely to cause trade disputes and block sales by Canadian mills.

As passed by the House, Section 1110 of the American Recovery and Reinvestment Act of 2009 says, "None of the funds appropriated or otherwise made available by this act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States."

The exceptions to the rule are if "the head of the federal department or agency involved finds that" the rule "would be inconsistent with the public interest," there is insufficient U.S. iron and steel of satisfactory quality, or including U.S. iron and steel will increase the cost of the project by more than 25 per cent.

'We obviously have grave, grave concerns.' —Mike Gilmor, Canadian Institute of Steel Construction

This language won't necessarily be in the bill when it gets to Obama's desk for signing, but the final version could be even worse from the point of view of U.S. trading partners.

The Washington Post reported Thursday that a Senate version of the bill, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only U.S.-made equipment and goods.

Differences between House and Senate bills are reconciled in a process called conference. Although the president may ask for legislation, he doesn't get to write it, even when his party controls both chambers.

The CBC's Rosemary Barton, reporting from Ottawa, said the suspense is considerable.

"We don't exactly know what the final language will look like, so you can expect a big push from Canadian lobbyists down in the United States to try and get this as limited as possible so that there is little impact here in this country," she said.

"Already, there are some American companies expressing concerns about it, about potential retaliation if this were to go further."

'Countries around the world are expressing grave concern': PM

Asked about the issue during question period in the House of Commons, Prime Minister Stephen Harper agreed that it was a serious matter and a serious concern for the government.

“I know that countries around the world are expressing grave concern about some of these measures that go against, not just the obligations of the United States but, frankly, the spirit of our G20 discussions,” Harper said.

“We will be having these discussions with our friends in the United States and we expect the United States to respect its international obligations.”

'We expect the United States to live up to its treaty obligations of open and fair trade.'—Industry Minister Tony Clement

Industry Minister Tony Clement also did not hide his unease.

"We're always concerned when there are protectionist pressures in the United States," he told CBC News.

"The U.S. Congress is a place where you get manifestations of protectionist pressures, there's no doubt about that," he added.

"At the same time, the United States has treaty obligations that they have signed on to — NAFTA is one, the World Trade Organization is another — and we expect the United States to live up to its treaty obligations of open and fair trade."

Canadian steel producers and builders say they have "grave, grave concerns" about the bill.

`There's no question about it that some of our members and even non-members export work to the U.S., and it's a substantial part of their business," said Mike Gilmor, president of the Canadian Institute of Steel Construction.

Canada's big steelmakers, the former Dofasco, Stelco, Ipsco and Algoma Steel, which have all been bought by foreign buyers, sell to the energy, auto, construction and energy-pipe markets on both sides of the border.

The matter is likely to come up for discussion when Obama visits Ottawa on Feb. 19 in his first foreign trip as president, although the bill could be law by then, given his eagerness to start stimulating the economy.

There are already complaints from overseas about what's being called the "Buy American" rule.

Europeans also upset

In Brussels, the European Union warned Thursday that it would protest the provision, the Associated Press reported. Europe will not "stand idly by and ignore" a provision that "prohibits the sale or purchase of European goods on American territory," EU spokesman Peter Power said.

In Toronto, CBC business reporter Jeannie Lee said there is a great deal at stake for Canada — and especially for southern Ontario, where Canada's steel industry is concentrated and where the global slump has already gutted the auto industry.

Canadian steel plants produced almost 16 million tonnes of steel in 2007, employing about 32,000 people and, by one estimate, supporting 140,000 indirect jobs, she said.

Perrin Beatty, president of the Canadian Chamber of Commerce, said the proposed U.S. rule is bad for all concerned.

“It's bad for Canada, it's bad for the U.S., it's bad for the global economy," he said. "When you see people engaging in protectionism at the time of a recession, the fear is that other countries will retaliate as well."

It would leave U.S. taxpayers paying higher prices for public works and could spark "tit for tat" in trade policies, he said.

"The temptation will always be there for someone to say, 'Look, somebody has put up a barrier against us; we will put up a barrier against them,' and everybody loses as a result," he said.

With files from the Associated Press