WTO and the auto industry bailout

Bloomberg has an article on the international implications to remind us competitors are watching and acting as many of us look inward very intensely. This article reminds us that even though the Doha rounds are done, the WTO structure is in place.

A U.S.-triggered spate of global carmaker-bailout proposals may spark trade disputes over whether the Americans are unfairly trying to subsidize their industry or just making up for state aid that foreign rivals already enjoy.

As the U.S. considers a lifeline for its auto companies, officials in Europe, Canada and Asia are considering their own aid packages — even as the European Union threatens to lodge a complaint against any U.S. bailout to protect manufacturers from Renault SA in France to Fiat SpA in Italy.

China also may complain, though the government is considering helping SAIC Motor Corp. and Guangzhou Automobile Group Co.

Any World Trade Organization complaints may open a Pandora’s Box, bringing to a head a long-simmering dispute over policies that U.S.-based General Motors Corp., Ford Motor Co. and Chrysler LLC say unfairly aid rivals, including state-financed health-care and retirement benefits, and currency policies.

“Frankly, it’s stones and glass houses,” said Garel Rhys, professor of automotive economics at Cardiff Business School in Wales. “Everybody has been at this game for their own interests; nobody is pure.”

Neelie Kroes, the European Union’s antitrust chief, weighed in on the debate yesterday, urging the bloc’s 27 nations to avoid the “costly trap of a subsidy race” that would give some countries unfair advantages.

Greater ‘Temptation’

“The temptation may be greater now for member states to give subsidies that can result in their economic problems being exported to their neighbors but that would only worsen the economic difficulties,” Kroes said at a conference in Brussels.

“The European economy and European taxpayers will be better off if politicians choose another, more effective, route,” Kroes added. She pointed to EU rules allowing limited aid that doesn’t distort competition, including grants for entrepreneurs, research, education and environmental projects.

The U.S. kicked off the bailout war. Congress is trying to reach a compromise on giving automakers $25 billion the companies say they need to survive the next year, either by speeding up the use of funds already approved to develop more fuel-saving technologies and models or by providing a new source of funds. President-elect Barack Obama, who complained during the campaign that South Korea created disadvantages for American carmakers, supports helping the industry.