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TWN
Info Service on WTO and Trade Issues (Jun21/05) Geneva, 9 Jun (D. Ravi Kanth) – The United States Senate on 8 June approved a comprehensive industrial policy bill worth $250 billion for boosting government spending on technology and research and development amidst Washington’s continued escalation of its trade and tech war with China and other countries, exposing its allegedly hypocritical positions against state-led industrial policies and enterprises. After threatening developing countries to not enter into the realm of setting industrial policies for the past several decades and curbing governments’ intervention in the industrial sector through the rules set out in the World Trade Organization’s Agreement on Subsidies and Countervailing Measures, the US is now embarking on its own state- led industrial policies, said several analysts. The bill, passed by the Senate on 8 June with overwhelming bipartisan support, is known as the US Innovation and Competition Act, and now has to be approved by the US House of Representatives. The legislation includes a trade package that renews the Generalized System of Preferences program, while strengthening the criteria that the beneficiary countries must meet to receive duty-free access to the markets, according to a report in the Washington Trade Daily on 9 June. The Senate bill seeks to create a new industrial policy ecosystem through $52 billion of subsidies only for the semiconductor sector, AI (artificial intelligence) technology, bio-research and development programs, and various other programs that seem to replicate the alleged industrial policies instituted by China, which Washington has repeatedly berated at the recent G7 trade ministerial meeting. The US Innovation and Competition Act also contains a new miscellaneous tariff bill that eliminates tariffs on imported products needed for manufacturing that are not readily available in the US. It calls for using domestically-produced “iron, steel, manufactured products and construction materials used in federally funded infrastructure projects.” The bill would also codify the “Made in America” Office that Biden created earlier this year by executive order. The controversial bill seeks to overhaul US government support for science by expanding the government’s role in technological research, including through the much-scaled-up funds for the National Science Foundation. Further, “it would authorize about $190 billion in spending to strengthen US advanced technologies to better compete globally,” according to a report in the Wall Street Journal (WSJ) on 9 June. Another controversial aspect of the bill is that it would ban downloads of the Chinese-owned social media app TikTok on all government phones. The Senate bill now authorizes an additional $10 billion for the Commerce Department to designate regional technological hubs for research, development and manufacturing of key technologies, according to the WSJ report. “We are in a competition to win the 21st century, and the starting gun has gone off (against China),” President Joe Biden said, after the Senate approved the legislation. “As other countries (China and Russia among others) continue to invest in their own research and development, we cannot risk falling behind,” the US President declared. The Senator Majority Leader Chuck Schumer, who led the campaign for passing the bill, said that it would pave the way to halt the gradual decline of the US as the world’s leader in scientific research and innovation. “When all is said and done, the bill will go down as one of the most important things this chamber has done in a very long time, a statement of faith in America’s ability to seize the opportunities of the 21st century.” In an interview with the New York Times (NYT), Schumer disagreed with the perception that the bill amounted to “industrial policy”, suggesting that “this means we’re going to invest in quantum computing or AI or bio-medical research, or storage, and then let the private sector take the knowledge and create jobs.” He also said in the same interview that “these are areas of dominance that we need research in, and these are the areas of potential industrial growth, great job growth.” The Republican Senator Marco Rubio, according to a report in the NYT on 9 June, said that “this type of targeted investment in a critical industry was unthinkable just a couple of years ago, but the need for smart industrial policy is widely accepted.” He called for laying the foundations for a strong workforce. Another Republican Senator John Cornyn, according to the NYT report, said the subsidies to the semiconductor sector had become a necessity. “For everything from national security to economic policy, there is a clear and urgent need to re-orient the way our country views and responds to the challenge from China,” the senator said. MADE IN THE UNITED STATES 2030 In many ways the US Innovation and Competition Act appears to have replicated its fierce adversary’s “Made in China 2025” program, which funnels huge government spending into technologies where the country is seeking to be independent of outside suppliers, according to the NYT report. Speaking to this writer in 2019, former South Africa’s trade minister Rob Davies said that the trade and tech war between the US and China will “continue for a considerable period of time as it will decide the “hegemon” to lead the fourth industrial revolution.” “It is essentially a battle over who is going to be the hegemon and who is going to lead the fourth industrial revolution,” Davies said. “Issues concerning technologies (of the unfolding fourth industrial revolution) will morph into national security issues,” Davies said. “Our view is we don’t want to back one master against the other, we want to see balanced, inclusive and developmental outcomes,” Davies said. “When proposals on any of these issues (in e-commerce) come out, the developing countries need to look at them with a long-term perspective and they must remain careful,” he cautioned. “Otherwise, the developing countries will pay a huge price,” said Davies. HYPOCRITICAL US POSITIONS The US Senate bill, coming close on the heels of the G7 trade ministers’ meeting a fortnight ago, has exposed its allegedly hypocritical positions and double-standards for the umpteenth time. For example, the latest US Innovation and Competition Act goes against what the US and six other trade ministers of the G7 developed countries said on 28 May on “market distorting policies and practices.” In their communique, the US and the other six members of the G7 said that they would “reaffirm our commitment to open markets and a global trading system that should not be undermined by unfair trade.” It has become moot whether the $250 billion US program containing largely subsidies will result in fair or unfair trade. The G7 trade ministers said they “remain concerned by the increased use of non-market policies and practices.” Yet, not one member is likely to point a finger at the latest US bill. “These (non-market policies and practices) distort competition and reduce fairness and trust in the system,” the G7 trade ministers said in their communique. “Fundamentally, we note that they (such non-market policies and practices) are a threat to the integrity and sustainability of the rules-based multilateral trading system,” the G7 trade ministers said. Now that the US has itself embarked on such “non-market policies and practices”, does it not pose a grave crisis to the integrity and sustainability of the rules-based multilateral trading system, said analysts, who asked not to be quoted. Without naming China, the G7 trade ministers said that market-distorting practices “create unfair competitive conditions, hindering the development and use of innovative technologies and undermining the proper functioning of international trade.” “Of particular concern are harmful industrial subsidies, including those that lead to severe excess capacity, a lack of transparency regarding the state’s role in the economy and the role of state enterprises in unfair subsidization, and forced technology transfer,” the G7 trade ministers maintained. With the unveiling of the US Innovation and Competition Act, it is a moot question whether other advanced countries are prepared to expose the apparent inconsistencies and double-standards of the US bill at the WTO, said analysts. UNCTAD’S RESEARCH PAPER Now that the world’s largest economy has chosen to resort to state-led industrial policy, the developing countries must take the cue and follow these policies for their industrial development. According to UNCTAD’s Research Paper No. 65, in order to recover better with sustainable growth, developing countries need to revisit their industrial policies in order to provide a level playing field to their SMEs (small and medium enterprises). The UNCTAD paper argues that “the profits of big tech firms and financial giants have multiplied manifolds during the pandemic, while scores of SMEs have been forced out of business.” It says that “while massive financial subsidies are being rolled out in the North to sustain its businesses, developing countries, who cannot afford comparable bailouts, will need to revive strategic trade and industrial policies to manage the stresses resulting from the pandemic and its aftermath.” The paper warns that “Covid-19 may reshape existing global value chains.” It has argued that the announced desire of the European Union to achieve “strategic autonomy” is indicative of a wider move to forge new supply relations in the North to strengthen local resilience. Given the benefits from automation and digitalization accruing to developed countries, “in this uncertain landscape, developing countries will need to re-engineer their existing production and distribution systems to strengthen local resilience and their own “strategic autonomy”,” the UNCTAD Research Paper has highlighted. “This will be ever more challenging if the recovery from the crisis in developing countries diverges from that in advanced countries,” it warned. In short, the US decision to escalate its trade and tech war with China poses a great threat to the multilateral trading system while undermining the WTO rule-book. Washington’s state-led industrial schemes and measures appear to create an uneven and rigged playing field for countries, which lack the resources that the US can deploy through its public funds.
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