Subsidizing Technology Competition: China’s Evolving Practices and International Trade Regulation

Abstract

This article contributes to the growing debate about industrial policies and subsidies, the adequacy of the rules of the World Trade Organization (WTO), and future international negotiations of industrial subsidies, using China’s practices in the high-tech sector as an illustration. Through a review of China’s industrial policies in the high-tech sector including the 14th Five-Year Plan (2021-2025), we show China’s entrenched commitments and ambitions towards indigenous innovation, technology independence, and global leadership in key and emerging technologies especially in strategic sectors. However, we challenge the mainstream view that the existing WTO rules are inadequate to deal with Chinese subsidies. Based on a detailed analysis of the general subsidy rules and the relevant China-specific rules, we argue that the current rules create no hurdle to tackling the major types of technology subsidies in China. Any perceived deficiencies are
not China-specific and can only be addressed by WTO Members via negotiations. If such negotiations are desirable, then governments should seek to leverage the impacts of the pandemic and the global (ab)use of subsidies to generate the political will needed. Drawing on existing proposals for the reform of WTO subsidy rules, we develop some general principles and approaches to facilitate future negotiations emphasizing the need to focus on targeting trade-distortive subsidies rather than China, to balance between strengthening subsidy rules and preserving policy space, to follow economic guidance and data while accommodating political considerations, and most innovatively, to shift from the ‘one-size-fits-all’ approach to a country-specific approach through a scheduling method whereby an Industrial Subsidy Schedule is created to record policy objectives, subsidy commitments, and exceptions of each nation.

Keywords: China, WTO, US, Technology competition, Industrial policies, Subsidies, Trade War, ASCM, WTO-plus obligations, Negotiations