Heterodox Markets and ‘Market Distortions’ in the Global Trading System

An important context for contemporary trade frictions is the emergence, since the 1990s, of a wide range of new forms of market capitalism, of which China's hybrid market economy is the most significant. Institutional diversity of this kind is a source of strength and dynamism for the global trading system, but it is also the cause of very serious friction. The GATT/WTO system has dealt with this problem before, but the existing settlement regarding the legitimate boundaries of institutional diversity is under pressure, and needs to be revisited. One concept which has been incorporated into WTO trade defences law (and elsewhere) to help draw these boundaries is the concept of the ‘market distortion'. The concept can be a useful one, but it has so far been interpreted and applied with an inadequate appreciation of its serious conceptual and practical difficulties. The potential result is a system of trade defences targeted in a discriminatory and even punitive manner against heterodox institutional forms, in ways which may excessively dis-incentivise institutional experimentation. In response, this paper argues for an approach to the interpretation and application of this concept which proceeds from an understanding of the institutionally embedded character of markets. This does not take the form of a readily available ‘solution', but rather a messy and evolving set of legal techniques which, in the best case, can form the legal basis of a practical and justifiable approach to the tensions caused by institutional diversity. A toolkit of legal techniques of this kind clearly cannot take the place of a more foundational political settlement of some sort, but it is a necessary accompaniment to it, if we are to preserve the aspiration towards a genuinely non-discriminatory and rules-based global economic order