Executive Summary

There has been a resurgence in the use of industrial policies (IP) due to the acceleration of technological revolutions, a trend towards regionalization, and an increasing interconnectedness between energy security, basic industries, national defense, and other non-economic objectives. In a context of rapid weakening of the principles of developmental multilateralism, this surge in IP and a more recent surge in unilateral trade measures have challenged the rules and institutions of the global trade and investment order. The use of IP has been contentious for several reasons. Some countries argue that IP is improperly used to create overcapacity or strategically manipulate markets. Developing countries argue that it is simply another tool that excludes them from developed country markets. There is also the risk that competitive IP could create a subsidy race that reduces global welfare. Workable solutions to these challenges require a set of international guiding principles acceptable to all states.

We propose seven principles that include (1) IP as a win-win for all, (2) universal opportunity, (3) value-addition, (4) competitiveness, (5) strong state capabilities, (6) time-limitation and benchmarking, and (7) non-discrimination, that would balance competition and cooperation and provide the basis for initiating diplomatic discussions on high-consensus principles to guide IP. This process should begin by creating soft law in key fora such as the G20, G7, and G77. It can then proceed to international policy arenas around implementation in specific issue areas such as ongoing discussion about carbon border adjustments, green clubs, technology transfer, tariffs justified on national security grounds, and so on.

“The proposed policy principles are based on the understanding that no country is better suited than another to conduct Industrial Policy. Every country may choose to pursue Industrial Policy to grow sustainably, depending on its resource endowment and stage of development.”