Forcing government departments and contractors to buy BlueScope Steel could clash with free trade agreements, including the China deal before Parliament, a leading trade lawyer has warned.
Andrew Hudson, a partner at Gadens, said the "buy Australian steel first" rules proposed by Senator Nick Xenophon could conflict with clauses in free trade deals guaranteeing "national treatment" for foreign companies in Australia. 
He warned foreign companies would try to challenge the rules and cases could be heard in foreign courts if they involved free trade deals, which had so-called "investor state dispute resolution" procedures.
"I am sure that appropriately instructed solicitors would consider bringing action under free trade agreements against the sort of 'buy Australia first' rules being proposed," Mr Hudson said.
He said all free trade agreements, including those with the United States, Korea, Japan and soon China, included similar provisions on national treatment.
"Buy Australia first" rules would also be hypocritical since Australia has recently complained that similar clauses in US legislation breached Australia's trade deal with the US.
Victorian Premier Daniel Andrews pledged during his campaign to introduce a local content law on major projects but is yet to legislate.
One steel industry source who asked not to be named said a "buy Australian first" rule for government infrastructure projects would only make a modest difference to BlueScope since most of its steel goes to the housing and mining sectors, for which government is not a major customer.
Steel importers say BlueScope has already secured significant protection against foreign imports using so-called anti-dumping provisions in Australian trade law. Daniel Moulis, a trade lawyer who represents Korean and other foreign steel makers, said he is fighting three legal actions in which BlueScope has asked the government to impose punitive tariffs on steel imports.
He said BlueScope used the laws in 2012 and 2013 to win high tariffs on most steel imports and was now running a new round of cases to cover the steel products still allowed to enter without penalty tariffs. "They are mopping up all the products that they missed out on last time," Mr Moulis said.
He said new penalty tariffs were unjustified and even the government's Anti-Dumping Commission had acknowledged BlueScope's profits had improved recently, thanks to the fall in the exchange rate which made its products more competitive. In one action, BlueScope is asking the commission to impose penalty tariffs on steel imports from Hyundai and Posco of Korea even though it rejected a similar application two years ago.