Subsidies and 21st Century Industrial Policy

Government support for industrial firms has moved sharply onto the radar of trade policymakers in recent years, owing in substantial part to the rise of China as a manufacturing and technology powerhouse and the level of financial support it provides to Chinese State Owned Enterprises.

Even before COVID-19, this had generated a backlash in advanced industrialized countries, with efforts to compel China to comply with WTO disciplines on subsidies picking up increasing traction together with more populist calls to contain China and decouple from it both technologically and economically. The crisis caused by the pandemic has amplified these trends and has re-invigorated political debate around the development of national industrial policy. It is becoming increasingly clear that post-COVID 19, industrial policy in many countries will be subject to a profound rethink and likely to be significantly overhauled towards more intervention and support either for specific industrial sectors or even national corporate champions.

Rationale

World Trade Organization (WTO) rules and processes for governing the use of industrial subsidies were already in need of modernization pre COVID-19, and not just in order to counter the rise of State capitalism emanating from China. Major economic powers such as the U.S. and the EU are critical of China’s economic policies and their market distorting effects, viewing them as a source of unfair competition. At the same time, many Western economies are taking a renewed interest in industrial policy including subsidies to support increased domestic production, as well as to reduce reliance on excessively concentrated global supply chains. 

Consequently, any broad-based reform effort has to be cognizant of the resultant political complexities and requires explicit political-economy frameworks if practical and implementable proposals are to be generated.

Our objectives

  • Provide practical, evidence-based analysis of existing subsidies regimes at the national and international level;
  • Assess the political-economy dynamics driving international debate and tension over subsidies and perceptions of unfair trade;
  • Analyse the nature and likely impacts of emerging policy proposals for subsidies as part of national industrial policy;
  • Develop proposals for trade policymakers considering avenues for the reform of industrial subsidies regimes and disciplines via the WTO, G20. OECD, UNCTAD and other plurilateral fora.

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