EU fires off warning about car subsidies

By Rikard Jozwiak

14.11.2008 / 19:04 CET

As talk grows of a rescue package for the US car industry, European Commission says it would be prepared to take issue of subsidies to the World Trade Organization.

José Manuel Barroso, the president of the European Commission, today indicated that the EU may be prepared to refer the United States to the World Trade Organization (WTO) if the US government were to offer subsidies to car industry in a way that goes against international trade rules.

"Of course, if it is illegal state aid, we will act at the WTO level", Barroso said in an interview for a French radio station.

A Commission spokesperson, Pia Ahrenkilde Hansen, later underlined that the president's remarks was "conditional". "We are analysing the plan and collecting information on the subject to see if it is in compliance with the rules of international trade," she said. "We have to assess what impact such aid would have on Europe."
 
Several American politicians, including President-Elect Barack Obama have signalled that aid might be available for car-making giants such as Ford and General Motors. Vehicle sales in the US have plunged to a 25-year low, and Democrats in the Congress are trying to draw up a $25 billion rescue package for the ailing car industry. The treasury secretary, Henry Paulson, has said that any federal aid provided would have to ensure the car-makers' long-term viability. He may be tempted to divert some money for the industry from his $700 billion financial rescue package. 

The EU is itself considering ways of helping Europe's car industry without discriminating against non-European car-makers. Data from ACEA, the European car-makers association, show that new-car registrations in Europe have fallen for six straight months. They are now 14.5% lower than they were a year ago.

The news comes at the same time as figures from Eurostat, the EU's statistical office, show that the eurozone is in recession. The economy of the euro area shrank by 0.2% in both the second and the third quarters of the year; two successive quarters of contraction is the common definition of recession. Individual EU countries such as Germany, Estonia, Ireland, Italy and Latvia are also officially in recession and there is now a widespread belief that interest rates will be cut further in an attempt to limit the economic damage.