GM intervention by US raises free trade questions

President Barack Obama's efforts to save General Motors from bankruptcy may undermine the USA's commitment to free trade, some commentators believe.

Two months ago President Obama, along with other Group of 20 nations' leaders, 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.

GM is selling its European operation, including the Opel and Vauxhall brands.

"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 US help for General Motors "will come back to haunt us in terms of the competitiveness of US corporations, and in terms of furthering US public policy goals."

But other analysts say it will be hard for some countries in Europe and Asia to challenge US subsidies for favoured 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 US government, which is giving GM a $30 billion cash infusion. The governments of Canada and Ontario will take a 12 percent stake.

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 US 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 has denied reports that it demanded that European automaker Opel be barred from the US and Chinese markets after GM sells a majority stake, saying that any such decisions were up to GM.

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

Meanwhile, Business Secretary Lord Mandelson has assured workers at GM subsidiary Vauxhall, which has plants at Ellesmere Port and Luton, that the preferred buyer for GM Europe has given a commitment about continued UK production. Canadian car parts maker Magna International has signed a memorandum of understanding to buy the Vauxhall and Opel brands.

Further information:

The latest issue of E&T magazine (vol.4 #10) is concerned with the future of the automotive industry, focusing on new technologies that will support it. Topics covered include sustainable fuel technologies; Formula 3 cars powered by biodiesel; motorsports' repositioning of itself as an unlikely champion of eco technology; the first Isle of Man TTXGP road race for zero-carbon motorbikes; the power requirements of the electric car and how satellite navigation systems and in-car communication can help reduce carbon emissions.

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