US subsidies ‘poison’ emerging market talks

The United States’ subsidies for failing industries risk ”killing” American attempts to discuss trade with China and other developing nations, US Federal Trade Commissioner (FTC) William Kovacic said on Friday.

Subsidies can damage internal competition and undermine efforts to persuade other countries to avoid protectionism during the worst economic crisis in decades, he said.

”The poison in this for the longer term is this is going to kill our efforts in talking with emerging market economies,” Kovacic, who chaired the FTC until March, said in a speech to a competition conference at the Chatham House thinktank in London.

”I have trips coming up this year to visit with Chinese officials and I am dreading the question and answer period because they are particularly astute students of what happens in Brussels and Washington,” he said.

”They have a keen eye for the contradictions that seem to creep into policy. So you are left there saying ‘don’t try this at home, we can handle it, we are adults, but it is bad for you’.”

Leaders of the G20 major economies pledged at a summit last November to fight protectionism, but 18 of their economies were named in a World Trade Organisation report in March on measures taken that could be seen as restricting trade.

Part of the $787-billion US stimulus package requires public works projects to use iron, steel and other goods made in the US, if that does not contravene trade commitments.

Similar provisions feature in a climate change Bill working its way through the US Congress. It would give aid to carmakers building plug-in electric cars in the US.

Helping failing industry undermines successful companies and sends the wrong signals to industry, Kovacic added.

Washington has taken a stake worth $50-billion in General Motors and an 8% stake of $12-billion in Chrysler as part of its plan to restructure them in bankruptcy.

”Subsidy schemes not only are going to affect competition internally, but they are sending a larger message that ‘if you fail grotesquely we will help you out, if you succeed thank you for your contributions to the American economy but no special help for you’,” Kovacic said.

”Buy American” may boost cartels and damage free trade, and it must end after an ”appropriate period”, he added.

”The message that ought to have been driven home is that our experience with cartels tells us that ‘Buy American’ has been a great protection and stimulus for cartel coordination,” he said. — Reuters

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