Obama and the Big 3

I do not see how any subsidy plan is compliant with the WTO. Does nobody ever ask this question?

Why are the big 3 being allowed to submit plans that include laying off workers? Does that make sense to anyone? Give them money to fire workers and put the cost to the taxpayers?

Jay:
Might you possibly provide a link to relevant WTO documentation with respect to such potential compliance issues?

The automakers are going to have to layoff people if there is not as much demand for new cars. I heard last night on CNN that the big 3 US auto makers sold 6 million fewer cars this year than last year. They are only projected to sell 10 million cars this year.

We go from Banana Wars (its been 15 years already) to Car Wars in the WTO. I'm watching the Argentine auto industry right now. Argentina might try bailing out their industry before we get to ours. They're in desperate shape and just nationalized private pension funds. We'll see.

JNS, it was steel tariffs, not subsidies in 2003.

It seems odd that there is no desperate rush to fix multiple corporations within our economy at once. Over the summer comes this craze to quick, fix the banks - bail them out or else. Now, quick, fix the cars - bail them out or else. Automakers were suffering over the summer, yes, but making do until....what?...their turn to step up to the plate? How many other corporations are waiting in the wings, for their turn, to allow a frenzy to ensue over them next, and demand a bailout or else? It seems this whirlwind of economic panic has everyone demanding money be thrown all over the place, but my question is, why are you (fill in the blank) in need now, at this exact moment, instead of at another time? It all seems a little too convenient and orchestrated to me.

JNS/Jayackroyd -- Is a loan guarantee considered a subsidy? Are the Big3 asking for subsidation or for loan guarantees?

I'm wondering if other countries may be happy to have us bail out the auto industry because they too recognize (or think) that we could spiral downward if the auto industry tanks, and we're likely to take other economies with us. I expect the rest of the WTO is going to root for us to recover as quickly as possible.

Kathy,
Many other countries will be thrilled to have us bail out the auto industry. Among our biggest supporters would be Brazil, Mexico and especially Argentina - where the Big 3 are actually driving economic growth. The WTO is a mess and any Car War would take years to settle. And anyway, the WTO has been quite soft on subsidies. It's tariffs that they view as more harmful (like the Bush steel tariffs).

Kathy, I agree with you on that WTO would turn a blind eye to assistance to the auto industry.
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JNS and commenters, may I respectfully request that we be more explicit about the type of assistance we're talking about for both the banks and the auto industry.
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"Bailout" and "rescue" are media terms and are polarizing any meaningful discussion about what is going on and what these respective industries are getting from us the taxpayers.
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I am trying to seek understanding, and if we could be more explicit about the financial transactions that are taking place, I might be able to control my ire and frustration (probably not). It would help for more meaningful dialogue, too.

[...] auto industry in purely cynical political terms, allow me to say that Congress would be foolish to provide the automakers with a bridge to allow them to survive until the inauguration, and Barack Obama would be even more foolish to support such a [...]

JNS -- Wow that is a real stretch. I would imagine the WTO would come out against Stafford loans because U.S. students who borrow to go to college, are creating an unfair playing field for students in other countries who don't have government guaranteed loans.
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How would nationalization of the auto industry, i.e., getting an ownership stake in these companies, in return for financial aid, apply to WTO agreements?

JNS - You know, the same things were said about Chrysler in 1979, and they came back and repaid the loans early. I think the money involved is a pittance with respect to what AIG and the banks have received to date.
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I think the auto industry leaders made a big PR gaffe; perhaps their plans will provide a level of confidence that things are changing in Detroit.

And I want to wait and see specifically what's said during those hearings.
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I don't want to comment on them before I've actually heard and seen what they're putting forward.
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But I think it's premature to get into that issue.

Am I the only one who finds it really refreshing that we finally have a President elect who's willing to say "I don't know" rather than provide a pat answer that commits him to an unwise courtse of action. Maybe it happens a lot and I've never noticed it, but it feels good to me that were soon going to replace the shoot-from-the-hip idiot with someone who's actually willing to take the time to do things that won't require undoing.

Might you possibly provide a link to relevant WTO documentation with respect to such potential compliance issues?
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The short answer, stuart, is you're not allowed to subsidize export industries.
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http://www.wto.org/english/tratop_e/scm_e/subs_e.htm
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In particular, not with cash:
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The concept of “financial contribution” was included in the SCM Agreement only after a protracted negotiation. Some Members argued that there could be no subsidy unless there was a charge on the public account. Other Members considered that forms of government intervention that did not involve an expense to the government nevertheless distorted competition and should thus be considered to be subsidies. The SCM Agreement basically adopted the former approach. The Agreement requires a financial contribution and contains a list of the types of measures that represent a financial contribution, e.g., grants, loans, equity infusions, loan guarantees, fiscal incentives, the provision of goods or services, the purchase of goods.
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In order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member. Thus, the SCM Agreement applies not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies.
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A financial contribution by a government is not a subsidy unless it confers a “benefit.” In many cases, as in the case of a cash grant, the existence of a benefit and its valuation will be clear. In some cases, however, the issue of benefit will be more complex. For example, when does a loan, an equity infusion or the purchase by a government of a good confer a benefit? Although the SCM Agreement does not provide complete guidance on these issues, the Appellate Body has ruled (Canada – Aircraft) that the existence of a benefit is to be determined by comparison with the market-place (i.e., on the basis of what the recipient could have received in the market).
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There is no way to construe a bailout as the equivalent of what would be earned in the free market. If the US were to buy a fleet of cars from GM, that would be one thing. But to just give GM is a violation of the subsidy rules.
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JNS-
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Yes, I did read that piece. It seemed to completely skirt the fact that this kind of intervention is expressly forbidden under the WTO rules. It does seem, somehow, worthy of comment that your view is the US would blithely violate WTO rules trying to gain whatever benefit possible before a countervailing ruling. Without US support, the world's free trade regime, such as it is, is imperiled. A decision to subsidize a major manufacturing industry in violation of the WTO rules would be a major change in US policy regarding support of free trade.
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How would nationalization of the auto industry, i.e., getting an ownership stake in these companies, in return for financial aid, apply to WTO agreements?
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As I read it, they'd have to buy liquidated companies, or buy all the shares at some plausible market price.
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These things are incredibly complicated. As JNS says, what would happen is other countries would lodge a complaint with the WTO. Practically speaking, this would have to pre-negotiated. The fact that we're not hearing about the WTO issues, at all, makes me suspect that this is all smoke.
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jarais, thanks for reminding JNS that those were tariff impositions, not a bailout. And were also clear violations.

Yes, a loan guarantee is a subsidy as it artificially tampers with the natural market in a way that helps American companies.
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We aren't talking about "loan guarantees." We are talking about giving them money or credit lines. (And if you believe Ford is not going to use its credit line, you believe AIG is not going to use all of its loan commitments.)

It's not to the detriment of foreign car makers, but without the help those foreign makers would have a clear shot at market domination
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Of course it is. If Japan handed Honda 12 billion dollars in "loans," Detroit would be screaming. Most WTO cases involve "dumping," the claim that goods are being sold below cost. The ability of a company to sell below cost is evidence of subsidy. It's the subsidy that's not permitted. Giving companies money is subsidy.

so the loans essentially are what's standing in the way between a U.S. auto market dominated by foreign makers.
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You're writing that as fact. That's a claim the automakers may be making, but there's no way to know that's true. Nor is it necessarily true that the US is dominated by "foreign makers" if the "foreign" plants are here, while the "domestic" manufacturers are largely located elsewhere.
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I kind of think that a trade war isn't going to happen. There might be a bit of sabre rattling (wallet flapping?) over this, but nobody is going to try to force the US to sink it's own auto manufacturing sector in order to comply with WTO rules.
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And, if it comes to that, heck, forget WTO.
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Yes, it's a bit simplistic, but so is the idea of firing maybe 3 billion off to the Big 3 right now, and deal with the rest of it after Obama takes office.
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Then, and only then, will some sanity return and questions about when, where, how, why, if and what do we do to control the flow of the astonomically sized total of funds slated to go through the pipeline to the financial market.
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I mean, come on now, but that tweensy little problem is what, only 284 times larger than this particular tidbit!

Jayack - Don't you think the head of Ford has shown an incentive to not use the loans? (i.e, he loses 22million if they touch the loans)
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Also, are farm commodities exempt from the prohibition against subsidies?

As for a trade war, I think it was on Zakaria's show that someone was saying that the "trade war" is going to come in the form of China trying to get its own people to start buying the goods that we're no longer importing from China because of our downturn. That would make it less likely that China would loan us money.