ANNOUNCED AS TEMPORARYNo
Capital injection and equity stakes (including bailouts)
The U.S. Government has provided billions of dollars in loans and other forms of support to two of the Big Three automotive producers (i.e., Chrysler and General Motors). Ford has thus far declined government aid. There is no single instrument through which this aid has been extended; see the chronology below for details on the evolving measures.
The relationship between the government and General Motors (GM) has grown especially tight. The Obama administration and GM reached an arrangement on March 30, 2009 by which, in exchange for funds already committed by the U.S. Treasury and a new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred stock in 'New GM' and approximately 60% of the equity. The governments of Canada and Ontario also lent $9.5 billion to GM and New GM, in exchange for which they received approximately $1.7 billion in debt and preferred stock and approximately 12% of the equity.
The question of whether this aid discriminates against foreign automotive producers is complex. On the one hand, there are no elements of the support packages that explicitly provide for blatantly trade-distorting measures such as tariffs or other border barriers, production or export subsidies, etc. On the other hand, there are at least three respects in which the support measures might be seen as discriminatory. One is the general contention that government supports to industry distort markets by erecting barriers to exit and favoring some producers over others. Second, the supports are available only to domestic firms, and not to the 'transplant' operations of foreign firms in the United States. The third issue is the most contentious: The state may acquire control or influence over the decisions of the firm, and seek to exercise this power in ways that are intended to favor investment and production in the domestic market.
There is somewhat mixed evidence regarding the extent to which such influence may have been exercised with the aim of promoting production and employment in the United States rather than other countries in which the U.S. auto firms have operations. The U.S. delegation to the WTO has stressed that the government loan to GM is intended to benefit all of the firm's continuing operations without regard to geographic location.'1'
The timing and content of two decisions that were simultaneously announced on May 29, 2009 nevertheless appear to suggest that the concurrent bargaining over government support, a new labor contract, and GM's plans for investment may have led in at least one instance to a decision against multinational investment and trade. GM announced that day that its employees represented by the United Auto Workers (UAW) had ratified key modifications to the GM-UAW 2007 National Labor Agreement. The modified agreement included concessions that will help GM reach the objectives of its Viability Plan. The company also announced that day that it plans to build a future small car in the United States, utilizing an idled UAW-GM facility. The re-tooled plant will be capable of building 160,000 cars annually. GM noted that currently about 67 percent of its cars and trucks sold in the United States are U.S.-built, but that it 'anticipates that U.S. production levels will increase beyond 70 percent by 2013.' That announcement came after GM was reported to be considering the production of a small car in China, with part of the output to be exported to the United States. Press reports asserted a connection among these developments. A May 14, 2009 report in Business Week, for example, underlined the fact that the UAW strongly objected to the proposed investment in China, and had 'asked the U.S. Treasury Department to reject the company's restructuring plan because it closes plants here while building more overseas.' The subsequent joint announcements of the U.S. investment and the conclusion of the new labor contract create the impression of a quid pro quo.
Chronology of Key Events in the Evolution of U.S. Government Efforts to Support the Auto Industry
November 18, 2008: The Senate Banking, Housing and Urban Affairs Committee holds a hearing on the state of the domestic automotive industry. The CEOs of the Big Three appear at the hearing, stating that they need $25 billion in financial aid.
December 2, 2008: The Big Three submit revised plans to Congress pledging deeper reforms (e.g., reducing the number of brands) while also raising the bailout request to $34 billion.
December 9, 2008: The terms of an emerging deal between the White House and Congress are revealed, under which a Federal 'car czar' would oversee a short-term, $15 billion bailout for the Big Three.
December 11, 2008: The House of Representatives approves the Auto Industry Financing and Restructuring Act (H.R.7321) by a vote of 237-170, but the Senate rejects the package by 52-35 on a procedural vote.
December 19, 2008: President Bush announces his approval of a plan to loan $17.4 billion to GM and Chrysler. Funds would be made available from the Emergency Economic Stabilization Act of 2008 (the law authorizing the financial industry bailout). He declares that although that legislation had limited Troubled Assets Relief Program funds to the financial sector, they could be spent on any program he deemed necessary to avert the financial crisis.
December 31, 2008: GM and the U.S. Treasury sign a loan agreement.
February 17, 2009: GM issues a new viability plan. President Obama signs into law the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), commonly known as the stimulus package. It includes three provisions intended to aid the automotive industry: $300 million for the acquisition of higher fuel economy vehicles by government agencies; an additional deduction for state sales tax and excise tax on the purchase of motor vehicles; and a tax credit for new qualified plug-in electric drive motor vehicles. None of these provisions discriminate between domestic and foreign vehicles.
February 18, 2009: GM and Chrysler approach the government seeking a second bridging loan for $16.6 billion and $5 billion, respectively. Both firms proposed further economies in conjunction with the loans.
March 29, 2009: The Obama administration requests the resignation of GM CEO G. Richard Wagoner Jr. and directs Chrysler to form a partnership with Fiat within thirty days.
March 30, 2009: President Obama lays out a framework agreement with GM. Further details on the arrangement are provided in a White House fact sheet.
April 30, 2009: Chrysler files for bankruptcy after talks break down with its lenders.
May 14, 2009: Chrysler announces the closure of one-fourth of its U.S. dealerships as part of its restructuring process.
June 1, 2009: GM files for bankruptcy after failing to negotiate deals with its bond holders, and also announced agreements with the U.S. Treasury and the governments of Canada and Ontario to accelerate its reinvention and create a 'New GM.'
June 10, 2009: Most Chrysler assets are sold to 'New Chrysler,' formally known as Chrysler Group LLC. The federal government financed the deal with $6.6 billion in financing.
June 24, 2009: President Obama signs into law the Consumer Assistance to Recycle and Save (CARS) Act of 2009, providing incentives for consumers to scrap older vehicles and purchase new, more fuel-efficient cars and trucks (see the Global Trade Alert report on this measure).
June 25, 2009: GM receives U.S. Bankruptcy Court approval of $33.3 billion in debtor-in-possession financing from the U.S. Treasury and the Canadian and Ontario governments.
July 17, 2009: The House of Representatives approves an appropriations bill requiring that any vehicles purchased with money provided in the bill be produced by the Big Three firms (see the Global Trade Alert report on this measure).
September 30, 2009: The conference committee between the House of Representatives and the Senate on the aofrementioned appropriations bill approves a compromise version of the bill removing the House-approved provision requiring that any vehicles purchased with money provided in the bill be produced by the Big Three firms.
'1' As cited in Report to the TPRB from the Director-General on the Financial and Economic Crisis and Trade-Related Developments, WTO document JOB(09)/62 (July 1, 2009),page 45.
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