Vinod K. Aggarwal and Simon J. Evenett — The Sad Truth Behind Growing Clashes at the WTO

What we've seen instead [of tariffs and other forms of protectionism] is selective subsidization—a more direct response to the fact that, at the onset of a crisis, firms need cash more than they need customers. Indeed, so many governments implemented subsidies (thereby delaying reductions in capacity and employment in many sectors and thus distorting trade flows) that we saw the perverse effect for a while that no one brought cases to the WTO. As the saying goes, people who live in glass houses mustn't throw stones.

The governments behind these subsidies weren't only interested in stabilizing their firms. They were also interested in restoring economic growth. In addition to across-the-board monetary and fiscal policy measures, many of them targeted specific sectors and even specific firms as growth poles. This amounts to a revival of the industrial policy that has been pooh-poohed for decades in the US, the UK, and much of the English-speaking world.

Now, disputes have arisen over these crisis-era state efforts at industrial policy, particularly in auto parts, wind power, and solar panels—and also over some pre-crisis industrial policy initiatives, such as those relating to biofuels. But do these formal objections reveal only the tip of the iceberg?....

Here's the bottom line for managers: don't count on WTO rules to protect your interests. It is clear that, during the crisis era, policy choice has sought to circumvent the stricter WTO rules. Because so much of this favoritism has taken the form of various subsidies rather than import-reducing measures such as tariffs and antidumping measures, governments have felt they did not have to change their rhetoric. Publicly, they can claim to maintain "open borders" to commerce even as they aggressively shift the odds in favor of a select few.

Don't be misled by the avowed rejections of protectionism. Just because tariffs aren't being raised across the board, it doesn't mean firms' overseas commercial interests are being treated without prejudice. Policymakers' commitment to the level playing field has been tested during the crisis era and found wanting—and managers must now live with the consequences.

The Harvard Business Review | HBR Blog Network
The Sad Truth Behind Growing Clashes at the WTO
Vinod K. Aggarwal and Simon J. Evenett