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Rodrik on China and the WTO

Today, Dani Rodrik points out just one way that WTO policies are potentially anti-development: WTO rules constrain industrial policy of exactly the sort that China has used to build its manufacturing base.  In looking at China's automotive industry, Rodrik says,

...domestic content requirements compelled vehicle manufacturers to source more of their inputs domestically than they would have chosen to do at the outset. Economists normally think this is a terrible policy because it breeds inefficient domestic suppliers. (Such requirements are also now banned by the WTO). But this has evidently not happened in China (and also in India), where first-tier suppliers have reached near-frontier levels of productivity.

Of course, China's industry isn't the only one that has succeeded using domestic policy that is now WTO-illegal — just look at South Korea's even more successful auto industry, Brazil's experience with Embraer, etc.  Each of these countries made judicious use of industrial policy to take advantage of backwards linkages and build a much more robust manufacturing base than they could have under WTO rules banning domestic-input requirements.

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