The EU on Policy Space

In the EU submission on WTO Reform that I mentioned yesterday, there was this suggestion on "policy space":

In the context of overall strengthening of rules, there should be openness to examine targeted adjustments for policy space. A balance needs to be found between the effectiveness of the rules, the policy space for supporting industrialisation and the necessary space to address negative trade impacts of State interventions. In terms of process, the EU advocates for keeping discussions on policy space linked to improvements of the WTO rulebook. Policy space cannot be handled in the abstract.

I'm intrigued by this, but I'm not sure what they have in mind.

When I hear that someone wants more policy space, the first thought that comes to my mind is reworking the public policy exceptions to be more flexible about allowing measures taken for designated policy purposes (or to change the approach to exceptions in such a way that they don't even designate specific policy purposes but rather just provide scope for using measures for any non-protectionist policy purposes).

But the EU framing of the policy space issue here seems to go in another direction: Their focus is on "the policy space for supporting industrialisation" as well as "the necessary space to address negative trade impacts of State interventions."

With regard to "supporting industrialisation," I would have thought there was a good deal of flexibility there all ready. State economic interventions such as tariffs and subsidies are allowed, subject to certain constraints. You can use tariffs by negotiating commitments that allow for them at the levels you want. And you can use domestic subsidies, although if they cause "adverse effects" you may have to agree to some rebalancing if someone brings a WTO complaint. I suppose the EU is thinking here of loosening these constraints, but I'm not sure in what way.

Then things get more complicated, as the EU also wants "the necessary space to address negative trade impacts of State interventions." But if we are going to, as noted above, create more space for state interventions that support industrialisation, and then also create more space for addressing the impact of state interventions, aren't we pursuing two goals that are in opposition to each other? And don't we just end up with spiraling trade conflict?

To make this a bit more concrete, an example of what we might see here is a looser set of rules on subsidies, making it easier to use this form of state intervention; and then also a looser set of disciplines on countervailing duties, so that governments affected by the subsidies can impose duties more easily.

Is this really the direction we want to go? More subsidies, and then more tariffs in response to the subsidies? I have doubts that this will benefit anyone's economy on balance.

But maybe I've misunderstood what they have in mind, and I'm eager to hear more from the EU on this. If I can speculate a bit, I can imagine one thing they might be thinking about is reining in the state interventions of certain Members while giving more space for other Members to use their version of these interventions. But coming up with changes to the existing rules that would get you to that result could be a challenge.

(Also, for whatever it's worth, I continue to believe that some new thinking about the scope of the public policy exceptions would be useful.)