Bhagwati, Senior fellow for International Economics at the prestigious Council on Foreign Relations, and Professor of Economics at Columbia University, however, praised US President Barack Obama, for coming out against the protectionist measure contained in the spending bill.

Following Obama's statement, the Senate passed through a voice vote early this week an amendment which said that nothing in the Buy America bill would violate US's international trade obligations.

"I think it's a terribly important development because so far many of us have been worried about President Obama not really stepping up to the plate at all while a variety of things like bailouts which are actually technically inconsistent with the WTO," Bhagwati said.

Obama's move, he said has averted the major danger of a trade war breaking out with the US breaking the WTO consistency requirement.

The so-called 'Buy America' provisions in the Senate bill stated that none of the funds may be used for a project ‘unless all of the iron, steel and manufactured goods used in the project are produced in the US’.

However, the amendment following Obama's statement against approving anything that violates America's international agreements is an indication that the provisions will be watered down before being turned into an Act.

Participating in a conference call on ‘Buy American Provisions in the Stimulus Bill’, Bhagwati said: "I think he (Obama) really understood finally that if we go in for the, provisions, it could lead technically to retaliation."

By this, he acknowledged that the Obama Administration has as strong signal to the world that it will operate within the bounds of its WTO obligation.

"I'm delighted President Obama has at least said, and the senators agreed, that WTO consistency is required," he said.

Observing that the ruling Democratic Party has been moving away from ‘free trade’ over a number of years, Bhagwati said Obama will have to step up to try and contain this element of protectionism.