January 27, 2009 / 3:39 PM / 10 years ago

WTO chief warns on bank and auto industry bailouts

GENEVA, Jan 27 (Reuters) - Government bailouts of banks and the car sector could trigger trade disputes over their impact on competition, the head of the World Trade Organisation (WTO) said on Tuesday.

In a report to the WTO’s 153 member states, Director-General Pascal Lamy said state aid packages meant to stave off financial crises need to be implemented so they do not violate global trade rules or discriminate against foreign companies.

“Nothing can be said for the time being about the likely trade impact of these measures, many of which are still lacking publicly announced details,” Lamy said, suggesting the market effects of cash infusions, guarantees and other bailout steps will become clearer with time.

“It must be recognised that some of the measures at least, which in most cases constitute some form of state aid or subsidy, may eventually have negative spill-over effects on other markets or introduce distortions to competition between financial institutions,” he said.

The WTO’s dispute settlement body arbitrates disagreements between governments about tariffs, subsidies, and other barriers that are seen to create an uneven playing field.

Some of the biggest WTO disputes to date have centred on the European Union’s rules on banana imports, state aid for aircraft makers Boeing (BA.N) and Airbus EAD.PA, and European bans on genetically-modified foods and hormone-treated beef.

Trade lawyers say that U.S. loans for Chrysler [CCMLPD.UL] and General Motors (GM.N), Swedish assistance for Saab (SAABb.ST) and Volvo (VOLVb.ST), and car industry aid packages in Canada, Germany, France, Australia, Argentina, South Korea, China and elsewhere all could lead to WTO complaints.

Efforts to infuse liquidity and remove toxic assets from big banks in the United States and Europe also could lead to WTO litigation if they disrupt the availability of funds or give domestic banks an unfair advantage, Lamy’s report said.

Several countries have imposed trade-restricting policies since the onset of the financial crisis in September 2008, the report said, citing examples including:

— India raised tariffs on some imported steel products

— Ecuador raised tariffs on 940 products including butter, turkey, crackers, caramels, blenders, cell phones, eyeglasses, sailboats, building materials and transport equipment

— Indonesia limited the number of ports and airports serving as entry points for certain imports, such as electronics, garments, toys, footwear, and food and beverages

— Argentina imposed licensing requirements on products such as auto parts, textiles, TVs, toys, shoes, and leather goods

— The European Commission said it would re-introduce export subsidies for butter, cheese, and whole and skim milk powder

Some countries have taken steps to encourage trade since economic storm clouds began to gather, Lamy said, noting that China has removed implicit export taxes on exports of some textiles, clothing, bamboo products, plastics, and furniture.

The director-general said it was critical to keep commerce flowing at a time when overall economic growth slows.

“It has become more urgent for the WTO to strengthen multilateral disciplines that will reduce the scope for increased trade restriction,” he said, repeating his call for countries to finalise the Doha round, a global free trade accord that has been under negotiation since 2001. (For a related story on British auto industry aid package, click on [nLAL002143] )

Editing by Michael Roddy

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