Industry bailouts risk unfair trade challenge

By Jonathan Lynn - Analysis

GENEVA, Oct 28 (Reuters) - Will global cooperation over the financial crisis give way to national fights over state subsidies to industries hit by the economic fall-out?

Maybe, say lawyers, since there are strict rules at the World Trade Organisation (WTO) limiting the use of subsidies.

But if all major countries are doing it, governments may not want to point fingers for fear of drawing attention to their own practices.

"To the extent that governments provide massive funds for bailouts, they do raise subsidies issues, there's no doubt about that," said Brendan McGivern, a partner at law firm White and Case, and former head of disputes at Canada's WTO mission.

However, he said countries often turn a blind eye to other nations' subsidies, especially if they are doing the same thing.

"Governments are always concerned that if they challenge other people's subsidies there's a risk of tit-for-tat retaliation," he said.

Differences over subsidies underlie some of the most bitter trade disputes, such as the challenges by the United States and European Union to each other's support for civil aircraft built by Boeing and EADS unit Airbus.

Governments around the world have pumped hundreds of billions of dollars into their banking systems, taking over toxic loans or injecting capital.