Will GM Bailout Trigger a WTO Case?

That's what the American Enterprise Institute seems to think in a new policy brief:

GM had recently informed Congress that it planned to produce roughly 50,000 subcompacts per year in China to sell in the U.S market in the near future. However, on Thursday, UAW President Ron Gettelfinger said that GM had agreed not to import the cars from China and to produce them in the United States instead as part of its deal with the UAW. This change opens up an enormous set of problems for the United States that will stretch well beyond the automotive sector. The United States has commitments under the World Trade Organization for its tariffs on cars; it's supposed to avoid quantitative restrictions altogether. This latest policy switch looks very much like a government-mandated reduction in auto imports from China...

Nor will GM be the only automaker affected. The principle criticism levied by opponents of the Korea-United States Free Trade Agreement has been that South Korea maintains non-tariff barriers that block imports of U.S. cars. Will the United States still make these arguments while it blatantly uses its financial leverage to block foreign auto exports into the United States?

The Wall Street Journal cited some factors that might tamp down this criticism:

The Canadian government is taking a stake in GM, which could give the restructuring a sense of multilateralism.

Some other governments may balk at challenging the U.S. because they also support domestic auto makers. The German state of Lower Saxony holds just over 20% of Volkswagen AG. The German government and the European Commission have fought for years over a German law that essentially allows Lower Saxony to block VW's major decisions.

...And notes some other potential WTO conflicts of the GM move:

U.S. support for GM has both trade and investment implications. On the trade front, the issues include whether U.S. support amounts to unfair subsidies and whether, as a government-owned entity, GM is bound by international procurement rules that limit the U.S. government from discriminating against foreign suppliers.

When it comes to investment, GM's moves overseas could face tougher scrutiny. The U.S. often closely examines investment by state-owned companies to make sure the firms are acting in a commercial rather than political fashion. That level of scrutiny might now be applied to GM overseas.

Once again, I gotta point out the double standard here. There was not a lot of hooting and hollering going on when AIG and Citi became government-owned entities, and there is certainly a case that could be made that these moves ran afoul of the spirit if not letter of the U.S. WTO commitments on financial services. To paraphrase Leo Gerard, we'll call your bailout WTO-illegal if it benefits those that shower after work, but not if it benefits those that shower before work.

(HT to Simon Lester.)

Comments

[jordan]

Taxpayers do not have unlimited funds -- but the government continues to spend money like it's their own pocket book.

When capitalism's business cycle veers into discomfort (unemployment, slowing sales and borrowing, etc.) -- the State (government) now suppresses recession with monetary policy (making money cheap and abundant) and fiscal policy (quantitative easing, injections of liquidity, stimulus programs, etc.) so nobody feels pain. But the problems are still there, just hidden for a time by the bailouts. They will continue to grow until another bailout is needed (e.g. Chrysler).

Capitalists and those that embrace the free market reject this narrow notion for many reasons. Chief among them is that fact that experience and progress is the byproduct as we surmount difficulty. The Marines say, pain is weakness leaving the body. These downturns are inefficiencies leaving the system. These loans will be used to prop up inefficient systems. Nobody truly learns. Nobody truly grows. Nobody progresses.

--

Stop the paronioa: You do not need to boycott car manufactures that accept bailouts. Capitalism thrives when you make a decision that fits you. You should find the car that you want -- and that meet the criteria important to you. Car manufacturers that accept bailout money will be required to add inefficiencies to their business model and are at a disadvantage to produce the car that meets your needs the best. You should make car manufacturers and dealers compete for your business.

So if you are thinking about a car, check out this process on this blog: http://excarsalesman.typepad.com/

Sincerely,

Ford Fan