The (surprise) return of development policy space in the multilateral trading system: what the WTO Appellate Body blockage means for the developmental state

Abstract

Since the establishment of the World Trade Organization (WTO) – which led to a dramatic expansion in the scope of global trade rules and made those rules legally binding on states – scholars have highlighted the constraints it has imposed on development policy space. By prohibiting many of the standard tools of the developmental state, the WTO’s rules have been seen as ‘kicking away the ladder’ for developing countries, preventing them from using the trade and industrial policies needed to catch up with more advanced economies. However, since 2019, the US has disabled the WTO’s enforcement mechanism by blocking judicial appointments to the Appellate Body. As a result, this article shows the trade and development landscape has now changed fundamentally: WTO rules – once a powerful constraint on development policy space – are no longer legally enforceable. The article analyzes two recent landmark disputes – Indonesian nickel export restrictions and Indian export subsidies provided through special economic zones – in which developing countries have successfully blocked WTO panel rulings that would force them to repeal developmentalist policies. Ironically, given that the US was originally the dominant force behind the WTO’s anti-developmentalist rules and its binding dispute settlement system, one important consequence of the US Appellate Body blockage has been the re-emergence of development policy space in the multilateral trading system.