A plan for a World Trade Organization sectoral agreement on semiconductors

To promote their economic security, or simply to inflict damage on other nations, countries are increasingly weaponising trade policy. To do so, trading nations must sidestep the rules-based system established in the aftermath of the Second World War because this system, in letter and spirit, opposes such behaviour. However, neglecting the rules-based system leads to uncertainty, and uncertainty incentivises trading nations to intensify their pursuit of national economic security, thus undermining the multilateral edifice even more.

It does not have to be this way, however. Based on an analysis of trade in semiconductors (a product market in which there is clear weaponisation of trade policy), we argue that, while a comprehensive negotiation on economic security may be currently unrealistic, a sectoral agreement within the World Trade Organization would be both feasible and appropriate, and could provide a template for regulating economic security. Such an agreement should include non-discriminatory trade in high-end semiconductors and a negotiated list of segments of the covered product market, in which signatories will be allowed to erect barriers to protect economic/national security without being obliged to compensate affected parties.

We are indebted to Simon Evenett for sharing his data with us, and to Kyle Bagwell, Emanuel Ornelas, Bernard M. Hoekman, Henrik Horn, Merit E. Janow, Matteo Maggiori, Inu Manak, Chris Miller, Stratos Pahis, Lucio Pench, Niclas Poitiers, Tom J. Prusa, Stephen Redding, André Sapir, Alan Sykes, Reinhilde Veugelers and Jeromin Zettelmeyer for numerous discussions on the issues discussed in this paper. We especially thank Ignacio Garcia Bercero for excellent detailed comments that helped improve our original draft.