GM intervention by U.S. raises free trade questions

WASHINGTON (Reuters) – Two months ago President Obama stood with other Group of 20 nations' leaders in London and pledged not to introduce protectionist measures in the global economic crisis.

Now some are wondering whether the Obama administration's decision to rebuild General Motors Corp by taking majority government ownership, and getting the global company to make more cars in the United States, breaks the spirit, if not the letter, of that pledge.

"We (the United States) are looked to as the leader of free markets," said Claude Barfield, a resident scholar and trade expert at the American Enterprise Institute in Washington.

He worries some of the signals sent this week in the U.S. help for General Motors "will come back to haunt us in terms of the competitiveness of U.S. corporations, and in terms of furthering U.S. public policy goals."

But other analysts say it will be hard for some countries in Europe and Asia to challenge U.S. subsidies for favored companies, if they are doing the same thing.

"Other governments are providing rescue packages in the automotive sector. And that has political relevance and to a certain extent, legal relevance," said John Magnus, a trade litigator with the Washington law firm Miller Chevalier.

General Motors has filed for bankruptcy protection to begin a fast-track restructuring. The company that emerges will be 60 percent owned by the U.S. government, which is giving GM a $30 billion cash infusion. The governments of Canada and Ontario will take a 12 percent stake.

BOLSTERING U.S. OUTPUT

Obama said explicitly on Monday that part of the plan was to shift more production back to the United States.

"As this plan takes effect, GM will start building a larger share of its cars here at home, including fuel-efficient cars. In fact, if all goes according to plan, the share of GM cars sold in the United States that are made here will actually grow for the first time in three decades," the president said.

Ron Gettelfinger, president of the United Auto Workers, said the union got a commitment from the company to build a subcompact car at a U.S. factory, instead of increasing imports from Asia.

"It should be built here if it's going to be sold here," he told Reuters last week.

The Obama administration denied on Monday reports that it had insisted that European automaker Opel be barred from the U.S. and Chinese markets after GM sells a majority stake, saying that any such decisions were up to GM.

But Barfield said U.S. actions over GM provided an excuse for other countries like China that want to build up domestic auto industries. "The Chinese will love this," he said.

Asked if the government help for GM could make the United States vulnerable to complaints by other countries before the World Trade Organization, Magnus noted that such trade cases were expensive to mount -- and foreign automakers would have to prove they were harmed by the U.S. subsidies.

"Plain vanilla domestic subsidies are relatively hard to challenge," he said.

Economic analyst Ed Gresser at the Democratic Leadership Council said the GM deal was "not something foreign governments can jump up and down about and say it's outrageous, the way they did jump up and down about the 'Buy American' legislation." He was referring to clauses in a $787 billion U.S. economic recovery plan that Obama signed in February.

In any case, Gresser said, "the spirit of the G20 wasn't that governments should feel duty-bound to let major industries collapse."