There is disagreement among countries on how international rules should address the cross-border spillover effects of increased government intervention in national economies. As a result, trade tensions have arisen.
This paper outlines the state of play and issues of concern in the areas of subsidies, state ownership and control, public procurement, investment screening and controls, and the use of trade remedies. It emphasizes the need for intergovernmental discussions to update existing rules and improve transparency, covering instruments and sectors of interest to a broad set of countries. The paper also calls for more research and analysis on the effects of policy instruments to inform these discussions.
Attitudes to the role of the state in the economy are changing. The COVID-19 pandemic and associated lockdowns and restrictions have accelerated this. Governments have invested in developing vaccines and treatments, supported households and firms, taken stakes in struggling strategic companies and intervened to ensure the supply of essential goods. As economies move towards recovery, governments will have a role to play in encouraging investment, creating jobs and ensuring equitable growth.
Climate change has provided another compelling rationale for increased government involvement to ensure markets price-in negative environmental externalities and technological solutions are commercially viable. International cooperation is essential in tackling these global challenges.
Trade tensions and unilateral retaliation erode trust and undermine multilateralism. Yet multilateral disciplines are needed to address the cross-border spillover effects created by state intervention. Existing rules go some way in doing this, but the fact that they have not been updated to account for new economic rationales for intervention, growth models and economic realities is a source of trade tensions.