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US auto subsidies a WTO flag
By John Gong |
September 29, 2009, Tuesday
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THERE is a reason that chicken is chosen in combination with automobiles as the target of China's announced potential countervailing measures, in response to US President Barack Obama's recent decision to slap a 35 percent special safeguard tariff on some tire imports from China.
The otherwise China-bound chickens are now heading home to Washington to roost - for the US$81 billion bailout tab that Capitol Hill has lavishly showered upon Detroit.
The Congressional Oversight Panel released a report recently, projecting at least a US$23 billion loss of tax payers' money from this sucker deal.
But the Washington pork barrel is not something that China is usually concerned about. What raises eyebrows in Beijing is the potential violation of WTO rules involving US government subsidies to the auto industry.
Such massive state aid to an ailing industry certainly presents an opportunity that the Europeans will seize upon to lecture Washington on WTO rules against state subsidies, although Europe and Washington seem to be perpetually embroiled in the Boeing versus the Airbus battle. The cries of foul play are only matched by the size of the accusations (Boeing puts the combined value of all the subsidies Airbus has received at US$205 billion, while Airbus countered with a US$305 billion alleged government subsidy to Boeing).
Indeed, the US has a history of initiating countervailing cases against foreign imports, many involving Chinese exporters, in the name of complying with WTO rules on fair trade.
A case that attracted much attention several years ago was against Hynix, a Korean computer memory maker. Now America is finding itself on the defensive, this time vis-a-vis China.
What is ironic is that at one of the meetings of the never-ending WTO Doha Round negotiations just two years ago, US Trade Representative Susan Schwab proposed new language to prohibit five additional subsidies under WTO rules.
These subsidies include coverage of operating losses, forgiveness of government-held debt, lending to "uncredit-worthy" companies, government equity investments in "unequity-worthy" companies, and other financing measures not on commercial terms. It seems to me the US$81 billion auto-bailout gambit fits the very definition of every one of these five proposed subsidy prohibitions.
Alas, Washington has those hostile WTO member countries to thank, those who had the foresight - apart from the characteristically quarrelsome WTO negotiations - to vote down Mrs Schwab's bold suggestions. Had that language been accepted and the Doha negotiations concluded - that would have been eight years ago now, but still a decade away in my humble opinion - all the auto-bailout schemes so far would have clearly violated WTO rules.
Under the current WTO Agreement on Subsidies and Countervailing Measures (ASCM), China's Ministry of Commerce's case against American auto makers may be more difficult to prove.
Regardless, the Ministry of Commerce's objective seems to be more about prodding Detroit to relay the message to Washington about trade protectionism, as opposed to really aiming at pushing back American cars imported to China.
(The author is an associate professor of economics at the University of International Business and Economics. The views are his own. His e-mail: johngong@gmail.com)
The otherwise China-bound chickens are now heading home to Washington to roost - for the US$81 billion bailout tab that Capitol Hill has lavishly showered upon Detroit.
The Congressional Oversight Panel released a report recently, projecting at least a US$23 billion loss of tax payers' money from this sucker deal.
But the Washington pork barrel is not something that China is usually concerned about. What raises eyebrows in Beijing is the potential violation of WTO rules involving US government subsidies to the auto industry.
Such massive state aid to an ailing industry certainly presents an opportunity that the Europeans will seize upon to lecture Washington on WTO rules against state subsidies, although Europe and Washington seem to be perpetually embroiled in the Boeing versus the Airbus battle. The cries of foul play are only matched by the size of the accusations (Boeing puts the combined value of all the subsidies Airbus has received at US$205 billion, while Airbus countered with a US$305 billion alleged government subsidy to Boeing).
Indeed, the US has a history of initiating countervailing cases against foreign imports, many involving Chinese exporters, in the name of complying with WTO rules on fair trade.
A case that attracted much attention several years ago was against Hynix, a Korean computer memory maker. Now America is finding itself on the defensive, this time vis-a-vis China.
What is ironic is that at one of the meetings of the never-ending WTO Doha Round negotiations just two years ago, US Trade Representative Susan Schwab proposed new language to prohibit five additional subsidies under WTO rules.
These subsidies include coverage of operating losses, forgiveness of government-held debt, lending to "uncredit-worthy" companies, government equity investments in "unequity-worthy" companies, and other financing measures not on commercial terms. It seems to me the US$81 billion auto-bailout gambit fits the very definition of every one of these five proposed subsidy prohibitions.
Alas, Washington has those hostile WTO member countries to thank, those who had the foresight - apart from the characteristically quarrelsome WTO negotiations - to vote down Mrs Schwab's bold suggestions. Had that language been accepted and the Doha negotiations concluded - that would have been eight years ago now, but still a decade away in my humble opinion - all the auto-bailout schemes so far would have clearly violated WTO rules.
Under the current WTO Agreement on Subsidies and Countervailing Measures (ASCM), China's Ministry of Commerce's case against American auto makers may be more difficult to prove.
Regardless, the Ministry of Commerce's objective seems to be more about prodding Detroit to relay the message to Washington about trade protectionism, as opposed to really aiming at pushing back American cars imported to China.
(The author is an associate professor of economics at the University of International Business and Economics. The views are his own. His e-mail: johngong@gmail.com)
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