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EXECUTIVE SUMMARY
In the wake of global recession, governments worldwide face increasing pressures to assist ailing domestic industries, especially companies deemed "too big to fail." The auto sector provides an excellent illustration of pitfalls inherent in attempting to rescue ailing domestic producers without breaching multilateral trade commitments. This paper analyzes how specific aspects of recent auto bailout programs may violate key provisions of the WTO Agreements, and concludes that protectionist elements of such programs may distort markets, encourage proliferation of similar measures by key trading partners, lead to WTO consultation or dispute settlement, and actually inhibit the global competitiveness of domestic automakers.
Key Words: Global competition, WTO, Trade, Automotive industry, Bailouts, Financial crisis, Subsidies
INTRODUCTION
"The consequences of our actions are so complicated, so diverse, that predicting the
future is a very difficult business indeed."
~ J. K. Rowling, British fantasy author (spoken by Headmaster
Dumbledore in Harry Potter and the Prisoner of Azkaban)
"If patriotism is, as Dr. Johnson used to remark, the last refuge of the scoundrel, wrapping outdated industry in the mantle of national interest is the last refuge of the economically dispossessed. In economic terms, pleading national interest is the declining cottage industry of those who have been bypassed by the global economy."
~ Kenichi Ohmae, Global Strategy Expert The current financial crisis has plunged us into an era of profound paradox. Many concepts that once seemed diametrically opposed- socialism/capitalism; liberalism/conservatism; mercantilist/globalist; free trade/protectionist- now bleed together like a watercolor painting left in the rain. The captains of Wall Street and titans of industry are being bailed out by a government that now holds substantial ownership stakes in some of our largest banks and Fortune 500 companies. The public grows wary of being told that the economic sky is falling, and companies deemed "too big to fail" continue to receive massive government aid while the average US taxpayer asks, "where is my bailout"?
In the current climate, national governments worldwide face mounting pressures to provide direct aid to their ailing local industries at a time when demand has slowed and there is worldwide overcapacity in most sectors. The temptation to implement protectionist measures is stronger than ever, and easy to rationalize to an angry and fearful electorate. National economies have...