EU Readies WTO Litigation on US Auto Subsidies

As if we needed further proof that official aid for America's dying automakers was a bad idea--truly a "sunset industry" if there ever was one--here come more bad news. EU-US conflicts at the WTO are usually interesting, from Boeing versus Airbus to genetically modified foodstuffs. Deutsche Welle now reports that the US disbursing $25B in automaker aid will likely result in the EU taking the US to the WTO's dispute settlement mechanism:

The EU is ready to go to the World Trade Organization should US governmental aid to its struggling auto industry be deemed "illegal" by European lawyers, Commission head Jose Manuel Barroso said Friday.

"We are looking at the (US) plan. The plan has not yet been made official but certainly, if it amounts to illegal state aid we will act at the WTO," Barroso told Europe 1 radio when asked about the US bailout package.

An aid package worth $25 billion was approved by the US Congress in September. The package was earmarked for investment in new generation technology but no timetable was fixed for payments to be made.

Since September, all three of the US major car manufacturers -- General Motors, Ford and Chrysler -- have been hit by the global financial crisis which has savaged the US economy, prompting the auto giants to call for bail-out assistance in much the same way as the country's banks.

US president-elect Barack Obama raised the issue of help for the industry with the aim of protecting jobs in the US industrial heartland but President George W. Bush has been reluctant to take action.

The WTO has a trade dispute mechanism to which aggrieved parties can take their complaints for settlement. If the EU deems the US package to be illegal state aid, the Commission will activate the mechanism in an attempt to win compensation.

Democrats thinking of throwing even more money at the "Big Three" (maybe we should add quotation marks from now on) should now be forewarned that the EU will drag the US to court on top of everything else. The most viable solution given a bad situation increases in attractiveness: sell Ford and GM to the Chinese.

To be fair, note that EU automakers are also petitioning for--you guessed it--state aid. As with Boeing versus Airbus, EU countries resorting to automaker subsidies would largely stalemate the matter.