Would a Detroit Bailout Violate International Trade Rules?
The possible American bailout of its Big Three automakers is already being described outside the United States as “protectionist” and a violation of commitments made to the G-20 not to contribute to a trade war in the midst of a global economic slump. Whether or not the typical Congressperson would see it that way, an overlooked consideration in the American debate is how the contemplated actions might come into conflict with existing US obligations in the World Trade Organization (WTO). The United States could trip over two WTO rules. The first is subsidies. Under WTO rules, subsidies—which can include indirect support through financial institutions and fiscal incentives—are classified into one of three categories. Export subsidies are prohibited. Production subsidies designed to displace imported intermediate inputs, which could be relevant if support is extended to automobile parts suppliers (which actually account for more employment than assemblers), are also prohibited. A second
