[Viewpoint]Don’t bail out the Big Three
Just as Koreans are overly protective of agriculture, Americans feel special about the Big Three carmakers. General Motors, Ford and Chrysler form the backbone of American manufacturing and pride. Now the Big Three stand at the crossroads of survival and failure. International focus is on how the U.S. government responds to pleas from the Big Three because its decision will have a tremendous effect on the international economy.
Barack Obama enjoyed the auto workers union’s support in the recent presidential election, and the president-elect and the Democratic Party are pushing to use $25 billion of the $700 billion financial rescue program to bail out automakers. However, President Bush is against the idea of helping any particular industry with a rescue package, and the Republican Party requires restructuring as a precondition.
The Big Three have only themselves to blame for their troubles. When Japanese carmakers penetrated the American market by selling outstanding vehicles at affordable prices, the Big Three stubbornly stuck to their same models. Japanese companies pre-empted the market of the future with hybrid models, but American automakers were absorbed in gas-guzzling SUVs and eight-cylinder engines. Their executives were only concerned about their bonuses, and the labor union has long been a political group. Management at the Big Three has been inefficient and slack.
But despite all their faults, the Big Three are aggressively defending themselves. They even say that the automobile industry’s failure would mean the collapse of the U.S. economy. Either out of sympathy, patriotism or fear of the consequences, the U.S. government is not going to watch that happen doing nothing. President-elect Obama made clear his intention to save the Big Three somehow, even if action will only postpone their death rather than actually save them.
We should be cautious about our government’s move to bail out certain companies facing a management crisis. Such a move likely violates the World Trade Organization’s subsidies provisions. President Lee Myung-bak mentioned this concern in an interview with CNN.
We do not have to look far to find a similar example. Washington’s dilemma can be compared to Korea’s at the time of the late 1990s financial crisis when it saved Daewoo Shipbuilding and Marine Engineering and Hynix. The United States filed a suit against the Korean government with the WTO. The WTO ruled in Korea’s favor.
The ruling was based on two main factors. First, the restructuring was not intended to benefit a certain company. When foreign currency was in critically short supply, the shipbuilding and semiconductor industries had to be restructured. The government created conditions and chose Daewoo Shipbuilding and Hynix because they met the criteria.
Second, the government did not directly intervene. It did not push creditor banks to offer debt-equity swaps and rescheduling. When a debtor company failed, tremendous losses were expected so the banks made a “business-oriented decision” to provide additional funds and save the companies in order to collect the bonds.
If the U.S. government forces banks to provide funds to the Big Three automakers, trade friction is unavoidable.
Korea and Japan, Germany and France will compete to protect their own automobile industries. Protectionism will prevail globally, and the international community will be caught in a trap of discord and antagonism.
President-elect Obama advocates fair trade. However, if by fair trade he means protectionist trade, there is a problem. The WTO director-general called protectionism “a prelude to a war that will impoverish the entire community of nations.”
“Fair trade,” as the name suggests, has to be fair. If assistance to a domestic company hurts foreign companies, it is hardly fair. Barack Obama has to act audaciously.
The United States must not forget how it constantly demanded that Korean companies be independent during the last financial crisis. A fundamental prescription for the Big Three is not a rescue package but independence. I trust that the Obama administration will not play the prelude to a war.
*The writer is a professor of international trade law at Sogang University. Translation by the JoongAng Daily staff.
by Wang Sang-han