Auto Program in Climate Bill Raises Trade Concerns

By JOSH MITCHELL

WASHINGTON -- A provision in the House-passed climate bill could violate world-trade rules by favoring U.S. auto makers in the distribution of some $2 billion in government subsidies, a leading free trade group warned Wednesday.
The provision would provide an estimated $2.14 billion over five years to auto makers to build plug-in electric vehicles "that are developed and produced in the United States." The language, added late in negotiations after heavy lobbying from the United Auto Workers, also directs the government to give preference to auto makers "located in local markets that have the greatest need for the facility."
Bill Reinsch, president of the Washington-based National Foreign Trade Council, said the electric-vehicle program could amount to government subsidies for U.S. auto makers, likely violating World Trade Organization rules that prohibit countries from favoring domestic companies.
The provision is the latest to come under criticism from businesses and trade experts who accuse Congress of trying to pass legislation designed to benefit U.S.-based companies over foreign competitors.
Mr. Reinsch warned the program for electric vehicles would invite retaliation from other countries. "One of two things will happen: either the Europeans will complain about it or they'll do the same thing and they'll provide subsidies in Europe to European car manufacturers," he said. "From a trade-policy standpoint, either outcome is market-distorting."
The council, which advocates free trade and whose members include Boeing Co., Wal-Mart Stores Inc., General Electric Corp., as well as General Motors Corp., Ford Motor Co. and Chrysler Group, plans to raise the issue with lawmakers and the Obama administration in coming weeks, Jake Colvin, an NFTC vice president, said. The Senate is drafting its own climate-change bill.
Michael Stanton, president of the Association of International Automobile Manufacturers, said the program appears biased against foreign-based auto makers. Toyota Motor Co., for example, is developing and manufacturing the plug-in version of its Prius model in Japan. A Toyota spokeswoman said the company was still studying the climate bill and wasn't prepared to comment.
GM, meanwhile, plans to make its plug-in Volt in Michigan, and stands to benefit from the provision. "We're going to be taking a look at this and seeing what we can do," Mr. Stanton said.
Alan Reuther, the UAW's chief lobbyist, said the union supported the provision as a way to ensure government money is being used to create jobs in the U.S. "This is neutral between all of the companies, foreign and domestic companies," he said. "It is saying, 'Invest in this country and we'll get you help to do that.'"
There is "no reason Toyota can't produce the Prius in this country," he added.—Ian Talley contributed to this article.
Write to Josh Mitchell at joshua.mitchell@dowjones.com