“Industrial Policy In the Name of National Security: What Role for the WTO?” (Petros C. Mavroidis)

By Sophie Welsh

In his talk, “Industrial Policy in the Name of National Security: What Role for the WTO?”, Petros Mavroidis examined the problems facing WTO adjudication in cases where national security concerns shape industrial policy.  With recent technological advances, the scope of products being litigated at the WTO has grown and shifted. Current international trade laws are ill-equipped to deal with such cases, and WTO has not come up with mechanisms for effective enforcement.  This raises questions about how these cases should be handled at the WTO. What should be the role of the WTO in cases where national security concerns drive industrial policy? Mavroidis finds that the WTO should stay out of most cases, in order to continue being relevant in international trade policymaking.

Semiconductors provide a good case study because of their importance for national security, and because they illustrate the rapid changes in the market over the past few decades.  In the 1980s, Japan and United States split the market in semiconductors, but when Japan raised its export prices, the Europe Union initiated the GATT litigation, and prevailed. Japan was forced to comply with the resulting ruling and lowered its prices.  Meanwhile, the US did not make claims related to national security, which enabled Japan to cartelize the market and had disastrous consequences for the U.S.

The semiconductors market today is very different, with the emergence of Taiwan, South Korea, China, and the EU as major producers, and Singapore, Israel, Mexico, Canada, and India following them. Most facilities are foundries and fabless, with an emphasis on global value chains (GVCs). The market size keeps growing, with new dual-use goods from industrial appliances to cyberwarfare.

In the U.S., the Presidential Council of Advisors on Science and Technologies (PCAST) has recommended government subsidies for semiconductors, as seen in the CHIPS Act. All other major producers are also subsidized.  The US & EU subsidies largely aim to reshore or friend-shore in order to enhance national security (as seen in the example of TSMC coming to Arizona, at increased costs.

In recent years, WTO has handled several dispute settlement cases over semiconductors.  The West has litigated China’s export taxes on inputs (relating to rare earth elements, or REE), and China lost those cases. Now, China is in the process of litigating US export restrictions.

Mavroidis made the case against litigation in favor of deliberation. Current laws are outdated and have not caught up with the rapidly shifting field, particularly in the area of subsidies, and contain erratic and irrational elements regarding subsidies and national security. WTO judges may also be biased, with some parties challenging their nominations by the Secretariat.  The process of adjudication lacks institutional guarantees to preserve secrecy, a serious pitfall for protecting sensitive information.  Errors in decisions can also be costly (as Mavroidi asked, why would we trust an institution that doesn’t fully seem to grasp national security?). In general, the process of WTO adjudication in these cases are inappropriate and ineffective. 

What to do instead of adjudicating?  Mavroidis argues for deliberation lieu of adjudication, removing national security from adjudication, and emphasizing the necessity of close scrutiny for each case. Experts must be brought in to answer the basic questions: What is the objective of deliberation? Are the means appropriate? What other means can be used?  As he puts it, it is time for realism when national security concerns intersect with industrial policy at the WTO.