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Industrial Policies and Product Space: A Comprehensive Approach Before the WTO

This document presents an analysis of industrial policies and their philosophical underpinnings, emphasizing the significance of efficient resource allocation for economic growth. It explores historical contexts such as the American and French Revolutions, discusses concepts like import-substitution industrialization, and highlights the need for technological acquisition within the current international regulatory framework, including challenges posed by WTO agreements. The impact of export restrictions and dynamic resource allocation issues are examined, alongside strategies for balancing growth and ensuring sustainable development.

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Industrial Policies and Product Space: A Comprehensive Approach Before the WTO

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  1. Bonds That Bind: A Product Space Approach to Some Industrial Policies Before the WTOWouter P.F. Schmit JongbloedColumbia Law SchoolIPD/JICA Workshop June 5-6, 2014

  2. Philosophical Basis for Growth • 1. American Revolution: Man recognizes his fellow as equals before socio-economic opportunity • 2. French Revolution: Man recognizes his fellow as brother

  3. Economic Growth • Through Efficient Resource Allocation • Static • Dynamic • Steady State Growth (balanced) • Import-Substitution-Industrialization (unbalanced) • Network (capacity proximity) • Through Technology and Learning • Specialization • Diversification

  4. Product Proximity • Ricardo Hausmann& Cesar Hildalgo (2007) • Luciano Pietronero (2012)

  5. “Nestedness” & the Product Space Taking advantage of Density:

  6. Getting Prices “Right” and “Wrong” Diversification: Capacity Accumulation (Coordination) Specialization: Factor Accumulation (Rationalization)

  7. Country Footprints: Quality & Proximity • Fundamental Equivalence of Growth Policies: • “Catch up” or optimization growth • “Frontier” or transformative growth • Constrained Emulation: • Viability (Lin) • Proximity (Hausmann; Pietronero)

  8. The Market Needs Help • Industrial policies aid technological acquisition • Growth through learning not by “primitive accumulation” of production factors • (Schumpeter, Solow, Stiglitz & Greenwald) • Current international regulatory framework non-conducive: • Intellectual Property (TRIPS) • Industrial Policy (GATT / WTO) • Regional and Bilateral Treaties (FTAs & BITs)

  9. Curious Case of Export Restrictions • WTO Legal (Art. XI GATT) • “No prohibitions or restrictions other than duties, taxes or other charges,[…], shall be instituted or maintained […] on the importation […] or on the exportation […] of any product .” • Exceptions in Article XI & XX GATT minimalized. • Restrictive Case Law • Accession Protocol: China, Russia, Vietnam, etc. • Regional and Bilateral Agreements (EU – Morocco)

  10. Economic Effect of Restricting Exports • Static: • Distortion resource allocation (Lerner Symmetry) • But; • 1. Unused market power (optimal tariff; inverse demand elasticity) • 2. External price volatility (investment disincentive; immature financial markets) • 3. Tariff threat (Voluntary export restraints – illegal; Safeguards Agreement) • 4. Domestic Redistribution (Uncertainty, Windfall, Peronism) • Dynamic: - Balanced growth; • Terms of Trade adjust to compensate over medium term • Resource misallocation (suboptimal production/consumption sets) • Institutional degradation (protection for sale) - Unbalanced growth; • Tariff Jumping; • Big Push; • Infant Industry. - Network growth; it depends (!)

  11. Differentiate WTO Case Law:Contextual Applicability Accession Protocol • WTO: Functional v. Aspirational (Broude) • Anachronistic: IADB; IMF; WB • Political economy emphasizes frontier growth: Getting prices “right” and “wrong” • Subsidies for R&D are “non-actionable” (8.2(a) SCM Agreement) • Strong international Intellectual property protection • Product Space country footprint should define: • “Developmental” v. “Commercial” • Drafting History GATT / WTO Applicability Accession Protocol • Working group • Static distortion to international resource allocation • Downstream effect: • China Raw Materials (coke, bauxite, magnesium, zinc, yellow phospherus) • NOTE: Product Space core: Metal Products, Chemistry, Machine products • China Rare Earth (rare earths, tungsten and molybdenum) • NOTE: Green technology, fuel cells, smart bombs, electric cars

  12. Time to let go…J Johan Cornz. Tromp King of Siam

  13. While in Over-Time… • The World Trade Organization is Retrenching: • Dominant Supply Chains • Surge of Mega-Regionals • Embattled Multilateralism Fit within my framework? New data!

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