ABSTRACT
Because of the emergence of the property of ‘increasing returns’ in the knowledge-based industries, the early front-runner in a high-tech sector today is more likely to establish an invincible position tomorrow. Governments thus have motives to subsidise R&D expenditures to facilitate the not-yet-existing industries, and to help them compete for the front-runner position. China’s Made in China 2025 project is a typical example. The existing WTO subsidy rules have been incapable of regulating such subsidies effectively. This is due to structural changes in the global trading economy that were not foreseen by the framers of the original WTO rules. We show that government agencies of democratic countries are usually much constrained in R&D subsidies, so that their high-tech businesses are disadvantaged in international competition, compared with the businesses or SOEs (state-owned enterprises) in authoritarian regimes. We propose possible directions for modifications to the WTO rules to deal with these changes.
