Menendez sez no bailout for foreign firms

The Detroit Free Press is reporting that some in Congress are eager to avoid having the bailout open the U.S. taxpayer up to limitless liability for the travails of multinational corporations.

Chrysler LLC should be forced to pay back its $4-billion loan from the U.S. Treasury should Fiat S.p.A. take control of the automaker, a U.S. senator told President Barack Obama today.

In a letter, U.S. Sen. Robert Menendez, D-N.J., said he did not want “American taxpayers paying to prop up the foreign auto industry.” Under the terms of the deal announced Tuesday, Fiat will take a 35% stake in Chrysler, and has the right to increase its stake to 55% if the two companies work well together...

“I am asking you to address the potentiality of foreign control and require the immediate payback of the loans already dispersed should such a scenario present itself,” Menendez said. “I am sure you would agree that the responsible action is to ensure that American taxpayers are not financing foreign automakers.”

Hat-tip to Simon Lester. Foreign banks have already been involved in some of the same shenanigans as it relates to the financial sector bailout, and the backdrop is of course the WTO's General Agreement on Trade in Services (GATS, and all its financial service tack-ons). Here's how legal scholar Apostolos Gkoutzinis describes this agreement:

The General Agreement on Trade in Services, the most significant product of the Uruguay Round of trade negotiations, is the most far-reaching in coverage of the international legal instruments that regulate the terms of trade in services among nations. The 1997 Financial Services Agreement and the specific national commitments on financial services operate against the legal and institutional framework established by the GATS. The agreement on trade in services reached in the Uruguay Round is perhaps the most important single development in the multilateral trading system since the GATT itself came into effect in 1948.

Here's a subtle way that so-called "trade" rules work as a constraint on public-sector activism and industrial policy: if every time you open up the piggy bank you have to open it up to thousands of corporations, you're going to be less likely to open it up at all. Such far-reaching non-discrimination rules are like advice from a demon psychologist: prioritize all objectives and all players all  at once. That kind of objective function would seem to lead to an equilibrium  away from selecting subsidization strategically and towards doing nothing at all.

Comments

[Imee]

well then if that's so, then the hopes of people on the auto industry bailout is just to no avail? my, that's a waste.