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Stimulus can harm world trade,says EU

US financial aid to carmakers and a number of stimulus packages adopted by other countries to fight the economic slowdown could distort global trade...

Written by Reuters | Brussels | Published: June 13, 2009 12:18:49 am

US financial aid to carmakers and a number of stimulus packages adopted by other countries to fight the economic slowdown could distort global trade,a confidential European Commission report said.

“The majority of the measures in the stimulus packages … affect positively national companies as well as foreign companies and imports. However other parts are aimed at helping national industrial sectors and could be trade-distorting,” the report,obtained by Reuters,said.

“Sector-specific and firm-specific direct subsidies,such as GM and Chrysler loans in the United States … are potentially the most trade distortive,” said the report by the Commission,which oversees trade policy for the 27-nation European Union. The report analyses the effects of trade policy on the world economy. It said global trade — set to fall this year for the first time since the 1980s — remains negative despite some signs of economic recovery.

“Despite some evidence of a slowdown in the pace of decline,the evolution of imports and exports of all major countries remains very negative,” the report said. “Moreover,the fact that unemployment continues to rise in most major economies,means the global recovery is still not fully underway.”

The report follows a regular probe carried out by Brussels between March and June into “potentially trade distortive measures” conducted by other members of the World Trade Organisation. It will be given to EU governments on Friday. It points to possible problems with the financial assistance given by the US government to its auto industry.

Washington has made a 60 percent investment worth $50 billion in General Motors Corp and an 8 percent stake of $12 billion in Chrysler as part of its plan to restructure them in bankruptcy.

Commission officials said Brussels was “paying close attention” to any moves by Washington to help its ailing auto industry,but a challenge by the EU at the WTO —the global trade watchdog — was unlikely. “In the current economic climate and given the problems of Europe’s own car industry,some of which is owned by GM,it is unlikely that we would see a (WTO) case any time soon,” one official told Reuters. The Commission is working with EU states to secure the future of GM’s Opel and Saab units in Europe. Brussels also criticises a raft of countries in its report,notably the United States,China and Russia,over elements of their stimulus packages. The Commission said the measures that it identified could harm trade flows,which have dwindled in the worst financial crisis in about 80 years.

The report also highlights concerns over a so-called US car scrappage scheme and incentives given to consumers to buy eco-friendly cars in Japan.

The EU’s ambassador to Washington warned the United States last month over government payments to encourage consumers to trade in old gas-guzzling cars for new American-made vehicles. He said the plan was “a clear violation” of WTO rules requiring a country’s laws to treat foreign and domestic products equally.

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