On August 10, President Obama met with Canadian Prime Minister Stephen Harper, who pressed him yet again to soften the regulations implementing the "Buy American" rules in last February’s economic stimulus package, known as the Recovery Act.

The president responded: "We have not seen some sweeping steps toward protectionism. This has in no way endangered the billions of dollars of trade taking place between" Canada and the United States.

Is this so? Due in part to objections from business and major trading partners such as Canada, the Recovery Act was amended to require that "Buy American" rules "be applied in a manner consistent with" NAFTA, the WTO Government Procurement Agreement and other accords. This amendment resolved many difficulties at the federal level.

However, tens of billions of dollars in Recovery Act spending is being channeled to states and municipalities. Outside of road building, states and municipalities have never been forced to comply with "Buy American" rules in the past. Nonetheless, the Office of Management and Budget has issued interim guidance requiring states and municipalities to comply fully with the Recovery Act’s "Buy American" mandates.

This is unprecedented. At a time of economic crisis, in the context of a stimulus package that is intended to spend money and create jobs quickly, this is a self-defeating idea. It is retarding economic recovery.

The "Buy American" requirement for U.S.-made steel in transportation infrastructure projects has not been a huge shock to the system as similar rules have been around for 30 years. But in the $130 billion North American water and wastewater sector, we’ve got a real mess on our hands.

Canadian firms are now being excluded from U.S. municipal contracts. Retaliation by Canadian municipalities could result in billions of dollars in lost business for U.S. companies.

Also, the "Buy American" rules are being interpreted in a way that bars some U.S.-based manufacturers from bidding on projects. That’s because many U.S. manufacturers rely on global production chains that integrate components from U.S. and foreign sources. American manufacturers are finding it difficult to comply with "Buy American" rules because it is often impossible to avoid sourcing at least a portion of their content from other countries.

The Recovery Act included $7 billion in funding for municipal water and wastewater projects. The House Transportation and Infrastructure Committee reports that each $1 billion in infrastructure investment creates about 35,000 jobs and an additional $6 billion in economic activity.

Do the math. This means more than 200,000 jobs that this portion of the Recovery Act funds could "save or create," if they weren’t tied up in "Buy American" red tape. And more than $40 billion in economic growth to boot — just in this sector.

When the housing and school construction funding starts to move, you can be sure we’ll be hearing more about the cost of "Buy American" rules in those sectors.

On the Chamber’s website, we have profiles of small businesses such as Aquarius Technologies of Wisconsin, and Aqua-Aerobic Systems of Illinois, that are definitely facing a crisis of lost sales and potentially large layoffs due to "Buy American" rules.

It’s not too late. The Office of Management and Budget (OMB) has received comments from the business community on its interim guidance, and it has the authority to fix this mess. OMB is due to issue revised guidance shortly that could lift the unprecedented burden of "Buy American" rules on state and municipal governments. We hope it happens soon.