Three Changes Not Foreseen by WTO Rules Framers Twenty-Five Years Ago

Abstract

We argue that three structural changes to the global trading economy not foreseen by the original WTO rules framers have rendered existing WTO rules outdated, and partially contributed to the US–China trade war. The first change is the prevalence of the Internet. The lack of relevant WTO rules in this field allows authoritarian countries to exercise control over Internet access, create cyberspace trade barriers, and abuse locally collected data. The second change is the emergence of the property of ‘increasing returns’ in the knowledge-based industries. The early front-runner in a hi-tech industry today is most likely to establish an invincible position tomorrow. Governments thus have motives to subsidize not-yet-existing industries to help them compete for the front-runner position. China’s Made in China 2025 project may be one example. WTO existing subsidy rules are incapable of regulating effectively. The third change is the emergence of large previously communist economies, where the distinction between the public and the private sector is blurred. The prevalence of state-owned industries shakes the WTO’s free-market foundations. Current WTO transparency rules cannot reveal the true extent of government intervention or guarantee fair competition. We propose possible directions for rules modifications to deal with these changes.