Some stimulus plans may harm world trade: EU

BRUSSELS (Reuters) - U.S. 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 concludes.

"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," said the report, obtained by Reuters.

"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 U.S. Trade Representative's office had no substantive comment. "We will closely examine the report when it's released, but we do not believe that it is appropriate to comment at this time," said spokeswoman Nefeterius McPherson.

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."

AUTO AID

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 Organization. It will be given to EU governments on Friday.

It points to possible problems with the financial assistance given by the U.S. 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 criticizes 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 it has identified could harm trade flows, which have dwindled in the worst financial crisis in about 80 years.

G20 COMMITMENTS

The report also highlights concerns over a so-called U.S. 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.

Brussels also criticized Russia, Indonesia and Brazil over trade policies since March which it said "merit special attention" in respect of direct or indirect protectionism.

Indonesia is criticized over new public procurement laws, Russia over the introduction of tariffs on a range of imported goods and barriers to foreign investment, while the EU is unhappy with Brazil's moves to protect its steel sector.

The Group of 20 industrialized and developing countries (G20), of which all three are members, has committed to try to avoid taking protectionist measures to combat the downturn such as those taken in the economic slump of 1930s which analysts say led to the Great Depression.

"Some G20 members continue to impose trade restrictive measures. ... These clearly go against the G20 commitments not to resort to protectionism," the report said.

(Additional reporting by Roberta Rampton in Washington)

(Editing by Dale Hudson and Richard Balmforth)