Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 27, No. 3, pp.307-348
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2014
Received 13 Jan 2014 Revised 12 May 2014 Accepted 07 Jul 2014

How Large or Small is the Policy Space? WTO Regime and Industrial Policy

Keun Lee ; Wonkyu Shin ; Hochul Shin
Professor, Department of Economics, Seoul National University, Seoul, Tel: 82-2-880-6367, Fax: 82-2-886-4231
Research Associate, Center for International Commerce and Strategy, and Graduate School of International Studies, Seoul National University, Tel: 82-2-880-4040
Department of Economics, Seoul National University

JEL Classification: F13, F53, K33, K41, O25


The paper identifies the need for improvements in policy space for developing and least developed countries under the current world trading system by examining the use of WTO dispute settlement system with descriptive statistics and case studies. The paper shows an asymmetry in the utilization of the dispute settlement system and the consequence of using the system between developed and developing countries. For instance, the paper demonstrates that the United States and some other developed countries use WTO rules effectively, resulting in the defeat of developing countries in disputes. These developing countries are forced to abandon their industrial policy measures. By contrast, the United States and the other developed countries continue to use WTO-inconsistent industrial policies in need without being much effectively challenged. Based on our findings, we suggest what should be done within the practices of the current rules, what can be done to change the current global rules, and what developing countries can still try under the current rules.


Industrial Policy, WTO Dispute, Policy Space, WTO SCM Agreement, Subsidies


For valuable comments and suggestions, we are grateful to Jose Antonio Ocampo, Lu Aiguo, Victor Polterovich, Dukgeun Ahn, Patrick Messerlin, and Walter G. Park. We acknowledge the support provided by the Korean government through the National Research Foundation of Korea, (NRF-2013S1A3A2053312). The second author thanks the grant under the research working paper series of Graduated School of International Studies at Seoul National University


  • Aghion, P., Dewatripont, M., Du, L., Harrison, A., and Legros, P. Industrial Policy and Competition: National Bureau of Economic Research, 2012. []
  • Ahn, D., and Messerlin, p. “United States―Anti-Dumping Measures on Certain Shrimp and Diamond Sawblades from China: Never Ending Zeroing in the WTO?” World Trade Review 13 (No. 2 2014): 267-79. []
  • Ahn, D., and Shin, W. “Analysis of Anti-dumping Use in Free Trade Agreements.” Journal of World Trade 45 (No. 2 2011): 431-56.
  • Avnimelech, G., and Teubal, M. “Evolutionary Targeting.” Journal of Evolutionary Economics 18 (No. 2 2008): 151-66. []
  • Baldwin, S. “Energy Efficiency & Renewable Energy: Challenges and Opportunities.” PPT presentation at Opportunities Clean Energy SuperCluster Expo at Colorado State University in April 2011.
  • Beason, R., and Weinstein, D. E. “Growth, Economies of Scale, and Targeting in Japan (1955-1990).” The Review of Economics and Statistics 78 (No. 2 1996): 286-95. []
  • Bhagwati, J. Protectionism (Vol. 1). Cambridge: The MIT Press, 1988.
  • Bora, B., Lloyd, P. J., and Pengestu, M. “Industrial Policy and the WTO.” The World Economy 23 (No. 4 2000): 543-59. []
  • Bown, C. P. “Developing Countries as Plaintiffs and Defendants in GATT/WTO Trade Disputes.” The World Economy 27 (No. 1 2004): 59-80. []
  • Bown, C. P. “Participation in WTO Dispute Settlement: Complainants, Interested Parties, and Free Riders.” World Bank Economic Review 19 (No. 2 2005): 287-310. []
  • Bown, C. P., and Hoekman, B. M. “Developing Countries and Enforcement of Trade Agreements: Why Dispute Settlement Is Not Enough.” Journal of World Trade 42 (No. 1 2008): 177-203. []
  • Bown, C. P., and Pauwelyn, J. The Law, Economics and Politics of Retaliation in WTO Dispute Settlement, Vol. 3. Cambridge: Cambridge University Press, 2010. []
  • Busch, M. L., and Reinhardt, E. “The Evolution of GATT/WTO Dispute Settlement.” Trade Policy Research (2003): 143-83.
  • Busch, M. L., and Reinhardt, E., and Gregory Shaffer. “Does Legal Capacity Matter? A Survey of WTO Members.” The Trade Review 8 (No. 4 2009): 559-77. []
  • Canis, B., and Webel, B. The Role of TARP Assistance in the Restructuring of General Motors. No. R41978, Congressional Research Service, 2013.
  • Chang, H.-J. Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press, 2002.
  • Chang, H.-J. “Kicking Away the Ladder: Infant Industry Promotion in Historical Perspective.” Oxford Development Studies 31 (No. 1 2003): 21-32. []
  • Cimoli, M., Dosi, G., and Stiglitz, J. E. Industrial Policy and Development: The Political Economy of Capabilities Accumulation. Cambridge: Oxford University Press, 2009. []
  • Cornia, Giovanni Andrea, and Rob Vos. “Common Elements for Inclusive and Sustainable Development Strategies beyond 2015.” In Alonso, José Antoniom, Giovanni Andrea Cornia, and Rob Vos (eds.), Alternative Development Strategies for the Post-2015 Era. Chapter 8, London and New York: Bloomsbury Academic, pp. 215-251, 2014. []
  • Davis, C. L., and Bermeo, S. B. “Who Files? Developing Country Participation in GATT/WTO Adjudication.” Journal of Politics 71 (No. 03 2009): 1033-49. []
  • Dicaprio, A., and Gallaher, K. “The WTO and the Shrinking of Development Space.” Journal of World Investment and Trade 7 (2006): 781-803. []
  • Fergusson, I. F. United States-Canada Trade and Economic Relationship: Prospects and Challenges In Mathew B. Reynolds, James K. Nelson (eds.), Canadian Imports and Trade Issues, Chapter 3, New York, US: Nova Publishers Inc., pp. 75-98, 2008.
  • Forbes (U.S.). “Still Government Motors.” 23, April, 2010.
  • Gallagher, K. P. “Losing Control: Policy Space to Prevent and Mitigate Financial Crises in Trade and Investment Agreements.” Development Policy Review 29 (No. 4 2011): 387-413. []
  • Girvan, N., and Cortez, A. L. “The Enabling International Environment.” In Alonso, José Antoniom, Giovanni Andrea Cornia, and Rob Vos (eds.), Alternative Development Strategies for the Post2015 Era. Chapter 12, London and New York: Bloomsbung Academic, pp. 355-381, 2014. []
  • Guzman, A. T., and Simmons, B. A. Power Plays and Capacity Constraints: the Selection of Defendants in WTO Disputes. Paper presented at the American Law and Economics Association Annual Meetings, 2005. []
  • Greene, R., and Mosk, M. 'Connected' Energy Firm Got Lowest Interest Rate on Government Loan, adcNEWS, 2011. Retrieved from, .
  • Grossman, G. M., and Helpman, E.-I. “Protection for Sale.” The American Economic Review 84 (No. 4 1994): 833-50.
  • Helleiner, E. “Understanding the 2007-2008 Global Financial Crisis: Lessons for Scholars of International Political Economy.” Annual Review of Political Science 14 (2011): 67-87. []
  • Horn, H., Mavroidis, P. C., and Nordström, H. Is the Use of the WTO Dispute Settlement System Biased? London: Centre for Economic Policy Research, 1999.
  • James, W. E., and Fujita, N. “Import Substitution and Export Promotion in the Growth of the Indonesian Industrial Sector.” ASEAN Economic Bulletin (1989): 59-70. []
  • Johnson, C. MITI and the Japanese Miracle: the Growth of Industrial Policy: 1925-1975. Cambridge: Stanford University Press, 1982.
  • Khor, M., and Ocampo, J. A. The Unsettled Global Trade Architecture. In discussion at the Conference on Global Economic Governance, Washington DC, pp. 7-8, 2010.
  • Langlois, J.-P. P., and Langlois, C. C. “Dispute Settlement Design for Unequal Partners: A Game Theoretic Perspective.” International Interactions 33 (No. 4 2007): 347-82. []
  • Lee, J.-W. “Government Interventions and Productivity Growth.” Journal of Economic Growth 1 (No. 3 1996): 391-414. []
  • Lee, Keun. “Capability Failure and Industrial Policy to Move beyond the Middle-Income Trap: From Trade-based to Technology-based Specialization.” In J. Lin (eds.), Industrial Policy Revolution I.: The Role of Government Beyond Ideology. Basingstoke, U.K.: Palgrave, pp. 244, 2013a. []
  • Lee, Keun. Schumpeterian Analysis of Economic Catch-up: Knowledge, Pathcreation and middle income trap. Cambridge: Cambridge Univ. Press, 2013b. []
  • Lee, Keun, and J. Mathews. “From the Washington Consensus to the BeST Consensus for World Development.” Asian-Pacific Economic Literature 24 (No. 1 2010): 86-103. []
  • Lee, Keun, and J. Mathews. STI for Sustainable Development, UN: committee for development policy, Background paper No. 16, 2013.
  • Leitner, K., and Lester, S. “WTO Dispute Settlement 1995–2010 — A Statistical Analysis.” Journal of International Economic Law 14 (No. 1 2011): 191-201. []
  • Lin, Justin, and J. Stiglitz (eds.), New Thinking in Industrial Policy. Basingstoke: Palgrave, 2013.
  • Lin, Justin Yifu. New Structural Economics: A framework for Rethinking Development and Policy. Washington DC: World Bank, 2012. []
  • Mayer, J. “Policy Space: What, for What, and Where?” Development Policy Review 27 (No. 4 2009): 373-95. []
  • Ocampo, J. A., Kregel, J., and Griffith-Jones, S. International Finance and Development. London: Zed Books, 2007.
  • OECD, Perspectives on Global Development 2013: Industrial Policies in a Changing World. Paris: OECD, 2013.
  • Pauwelyn, J. “Enforcement and Countermeasures in the WTO: Rules are Rules-Toward a More Collective Approach.” The American Journal of International Law 94 (No. 2 2000): 335-47. []
  • Pernick, R., Wilder, C., and Winnie, T. Clean Energy Trends 2013. Clean Edge INC., 2013. Available at:, .
  • Reyes, A. The Financial Crisis Five Years Later: Response, Reform, and Progress. Treasury Notes, 2013. Available at:, .
  • Schwartz, W. F., and Sykes, A. O. “The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization.” The Journal of Legal Studies 31 (No. S1 2002): S179-S204. []
  • Shadlen, K. C. “Exchanging Development for Market Access? Deep Integration and Industrial Policy under Multilateral and Regional-bilateral Trade Agreements.” Review of International Political Economy 12 (No. 5 2005): 750-75. []
  • Shin, H., and Lee, K. “Asymmetric Trade Protection Leading Not To Productivity But To Export Share Change.” Economics of Transition 20 (No. 4 2012): 745-85. []
  • Shin, W., Lee, K., and Park, W. G. When an Importer's Protection of IPR Interacts with an Exporter's level of Technology: Comparing the Impacts on the Exports of the North and South, Mimeograph, 2014.
  • Shin, W., and Lee, W. “Legality of R&D Subsidies and Its Policy Framework under the World Trading System: The Case of Civil Aircraft Disputes.” STI Policy Review 4 (No. 1 2013): 27-53.
  • Sykes, A. O. “Subsidies and Countervailing Measures.” In Patrick F. J. Macrory (eds.), The World Trade Organization: Legal, Economic and Political Analysis, Chapter 4, New York, US: Springer, pp. 1682-1706, 2005. []
  • Spencer, B. J., and Brander, J. A. “International R&D Rivalry and Industrial Strategy.” The Review of Economic Studies 50 (No. 4 1983): 707-722. doi: 10.2307/2297771. []
  • The New York Times (U.S.). “In Trade Ruling, Antigua Wins a Right to Piracy.” June 21 and December 22, 2007.
  • The White House. The American Jobs Act: President Obama's Plan to Create Jobs Now, Press release, 2011. Available at:
  • UNCTAD. Trade and Development Report. Geneva: United Nations, 2006.
  • UNIDO / UNCTAD. Economic Development in Africa Report 2011. Geneva: UN, 2011.
  • U.S. Department of the Treasury. Audit Report: Consultation on Solyndra Loan Guarantee Was Rushed, 2012.
  • U.S. Department of the Treasury. TARP Programs: Auto Industry-Program Status. September 05, 2013, Available at:, .
  • Wade, R. H. “What Strategies are Viable for Developing Countries Today? The World Trade Organization and the Shrinking of ‘Development Space'.” Review of International Political Economy 10 (No. 4 2003): 621-44. []
  • Wade, R. H. “Return of industrial policy?” International Review of Applied Economics 26 (No. 2 2012): 223-39. []