By Doug Palmer
WASHINGTON (Reuters) - North American business groups urged leaders of the United States, Mexico and Canada on Friday to rein in "buy local" provisions they called a threat to free trade and economic growth.

"In this global economic downturn, it is imperative that the three countries work together more intensively than ever to make the most of their strengths and set the stage for robust and sustained economic recovery," the North American Competitiveness Council said.

Mexican President Felipe Calderon will host U.S. President Barack Obama and Canadian Prime Minister Stephen Harper on Sunday and Monday in Guadalajara for an annual meeting of North American leaders.

The advisory group made up of leading U.S., Mexican and Canadian business associations had its sternest advice for Obama, who they urged direct his administration to "clarify its intent and interpretation" of Buy American provisions passed as part of the $787 billion economic stimulus bill.

Obama, responding to an international outcry over the measure, persuaded Congress to exempt free-trade partners like Canada and Mexico from the strict requirement that public works projects funded by the bill use only U.S.-made goods.

But state and local governments carrying out stimulus projects can sidestep that instruction because they are not bound by international pacts. That has caused project delays and prompted some Canadian city and provincial governments to consider banning U.S. goods in Canadian projects.

Critics say the Buy American provisions also are at odds with the spirit of the North American Free Trade Agreement, which phased out tariffs among the three countries beginning in 1994 and promoted greater economic integration.

CONSISTENT WITH U.S. OBLIGATIONS

The advisory group urged the White House to make clear that when state and local governments "engage in procurement with the support of federal funds," they award any contracts in a manner consistent with U.S. trade obligations and the April 2 pledge Obama and other G20 leaders made not to raise any new barriers to trade and investment.

"For the same reasons, we urge provinces and municipalities in Canada not to proceed with 'buy local' requirements for public procurement that have been proposed in that country," the group said, adding a better approach would be for the countries to negotiate reciprocal access to government contracts at the state, provincial and city level.

"We have similar concerns about the new "Buy Mexican" program, but recognize that it is confined to an awareness campaign rather than an active policy," the group said.

Other recommendations included:

* Full implementation of a long-delayed U.S. commitment to allow Mexican trucks to operate in the United States.

* Rejection of a "carbon tax" on imports from countries judged not to be doing enough to fight global warming.

* Stronger regulatory cooperation among the three countries, and rigorous protection of intellectual property rights essential to innovation and economic growth.

(Editing by Philip Barbara)

http://www.reuters.com/article/politicsNews/idUSTRE5762RI20090807