TWN Info Service on WTO and Trade Issues (July07/09)

19 July 2007

US gave huge industrial subsidies, while now proposing WTO ban

The United States in June proposed to expand the list of prohibited industrial subsidies under the WTO's Agreement on Subsidies and Countervailing Measures (SCM).

This was opposed by many developing countries on the grounds that this would deprive them of the tools the developed countries used to facilitate their own industrialization, and that the US did not propose to eliminate agricultural subsidies.

But another important point to note is that the US even at present is heavily subsidizing its industries, including some practices it seeks to prohibit.

For example, the US Congress approved $15 billion in cash and loans to 55 airline

companies, $5 billion in aid, and $10 billion in guaranteed loans.

Below is an article by Samuel Bollier and Robert Weissman of the Multinational Monitor.

It was first published in SUNS on 16 July.

Best wishes
Martin Khor

US gave huge industrial subsidies, while now proposing WTO ban

By Samuel Bollier and Robert Weissman*

Washington DC, 13 July 2007

The United States in June brazenly proposed to expand the list of prohibited subsidies under the WTO's Agreement on Subsidies and Countervailing Measures (SCM).

Many developing countries reacted angrily. First, they complained, the United States sought to deprive developing nations of many of the tools it used to facilitate its own industrialization. Second, the United States did not propose to eliminate the heavy agricultural subsidies on which it still relies.

These objections to the US proposal were meritorious, but they overlooked the ongoing pervasiveness of subsidization in the US economy, including some of the very practices the United States seeks to prohibit through the World Trade Organization - but which it certainly does not intend to abandon for its own economy.

The US proposals would prohibit government payments or loans to, or investments in, failing companies.

Over the last several decades, however, the United States has frequently undertaken such measures for industries or companies in distress.

Most notably, in the wake of 9/11, the US Congress approved $15 billion in cash and loans to 55 airline companies, prime among them American, Delta and United Airlines. This consisted of $5 billion of aid, and $10 billion in guaranteed loans.

The Air Transportation Stabilization Board was created to issue these loans. After its bankruptcy and subsequent bailout, US Airways demanded that the Pension Benefit Guarantee Corporation (PBGC), a government-run corporation, help pay the pensions of its workers. The matter remains unresolved.

This was not a unique case. Since 1970, the US government has bailed out numerous firms. In 1971, a $250 million loan guarantee kept Lockheed Aircraft (the forerunner of Lockheed Martin) from sliding into bankruptcy.

In 1973, the US government provided at least $5 billion to bail out the railroad industry. Eventually, in 1976, the Consolidated Rail Corporation (Conrail), a conglomerate of Penn Central Railroad and many other firms under the operation of the government, began operating, finally becoming profitable in 1981. It was privatized in 1987 in what was at the time the largest initial public offering in US history.

In 1979, the Chrysler Corporation Loan Guarantee Act, signed into law by President Jimmy Carter, infused $1.5 billion into the struggling car maker.

In the 1980s and 1990s, with a segment of the US financial industry known as savings and loans facing collapse, the government spent well over $100 billion in supports.

In 1998, with a massive hedge fund known as Long-Term Capital facing collapse, the government provided a different kind of support. Fearing ripple effects from a Long-Term Capital bankruptcy, the Federal Reserve - the US central bank - organized and pressured private bankers to provide $3.5 billion in funding to Long-Term Capital.

More generally, the United States may fairly be accused of double standards at the WTO for urging a prohibition on certain categories of giveaways, subsidies, loans and bailouts while permitting massive corporate welfare subsidies of different kinds within its own borders.

To highlight just a few examples:

* The 1872 Mining Act allows companies to buy federal land at the giveaway price of $5 an acre for mining purposes, and does not require any royalties on the profits obtained from extracting these minerals. Thanks to the 1872 Mining Act, the government - and the taxpayers - are being robbed of billions of dollars of wealth that is extracted from land that is legally theirs.

* The 1996 Telecommunications Act mandated that licenses to use the public-owned airwaves be given away for free to television broadcasters. The Federal Communications Commission, which oversaw the giveaway, estimated the value of the licenses at anywhere from $11-70 billion.

* The United States provides hundreds of millions of dollars in loans and loan guarantees to exporters and US firms investing overseas through the Export-Import Bank and the Overseas Private Investment Corporation. These benefits are typically conferred on health companies, but they provide massive subsidies by instituting the US government as an enforcer for overseas' partners' financial obligations.

* The US tax code provides for gigantic targeted subsidies to all kinds of industry. Corporations get tens of billions of dollars in special tax breaks every year, according to the president's own budget presentation. A single tax benefit for the oil industry (the oil depletion deduction) will be worth about $3.4 billion over the next five years, according to the president's budget statement; and a similar deal for minerals will confer $2.5 billion in subsidies on mining companies. An accelerated depreciation schedule for machinery will lavish more than $300 billion on business over the next five years!

There has evolved in Washington, D. C. a culture of corporate welfare provision so profound as to make almost unimaginable US demands that other countries eliminate industrial subsidies.

It is true that while Washington has a long history of bailing out companies in distress, the vast majority of US corporate welfare goes to companies that are in fine financial shape. But doesn't this make such subsidies less rather than more defensible?

(* Samuel Bollier is an intern at and Robert Weissman is editor of the Washington, D. C.-based Multinational Monitor.) +