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WTO needs to change how it designates developing countries: US

  • Category
    Economy
  • Published
    22nd Apr, 2020

The United States is asserting pressure on the World Trade Organization to change how it designates developing countries, singling out China for unfairly getting preferential treatment.

Context

The United States is asserting pressure on the World Trade Organization to change how it designates developing countries, singling out China for unfairly getting preferential treatment.

Background:

  • The United States, Europe and China have clashed over trade policy for several years and tensions could continue for decades without serious reform.
  • One of the most contentious points is the future of the World Trade Organization (WTO) — an intergovernmental institution that regulates international trade practices. 
  • The United States has called the WTO “broken,” saying countries such as China have taken advantage of it.
  • According to it, the WTO “has been very unfair to the United States for many, many years.
  • And without it, China wouldn’t be China, and China wouldn’t be where they are right now.”
  • The WTO needs to be updated, changed and reformed.

Analysis

Definition of developing countries:

  • There are no WTO definitions of “developed” and “developing” countries.
  • Members announce for themselves whether they are “developed” or “developing” countries.
  • However, other members can challenge the decision of a member to make use of provisions available to developing countries.
  • A developing country is also known as a low and middle income country (LMIC).
  • It is less developed than countries classified as “developed countries” but these nations are ranked higher than “less economically developed countries.”
  • These countries are characterized by:
    • being less developed industrially
    • widespread poverty
    • low education and literacy levels
    • government corruption
    • a lower Human Development Index when compared to other countries
    • health risks such as having low access to safe water, as well as sanitation and hygiene problems
  • However, developing countries do have the potential for high growth and security when evaluating factors including the standard of living, gross domestic product and per capita income.
  • The term refers to the current state of a nation and is not used to determine changing dynamics or future progress.

WTO & Developing nations:

  • About two thirds of the WTO’s around 150 members are developing countries.
  • They play an increasingly important and active role in the WTO because of their numbers, because they are becoming more important in the global economy, and because they increasingly look to trade as a vital tool in their development efforts.
  • Developing countries are a highly diverse group often with very different views and concerns.
  • The WTO deals with the special needs of developing countries in three ways:
  • the WTO agreements contain special provisions on developing countries
  • the Committee on Trade and Development is the main body focusing on work in this area in the WTO, with some others dealing with specific topics such as trade and debt, and technology transfer
  • the WTO Secretariat provides technical assistance (mainly training of various kinds) for developing countries

What does ‘developing’ actually mean?

  • In the WTO, developing countries are entitled to “special and differential treatment” set out in 155 rules.
  • However, none of those rules define what a “developing country” is. Instead, each member is able to “self-designate”, subject to challenges from other members.
  • Being recognised as a developing country was one of the three key principles China insisted on when negotiating to join the WTO in 2001.
  • It faced resistance. Several members cited “the significant size, rapid growth and transitional nature of the Chinese economy”.
  • In response the WTO took what it called a “pragmatic approach,” meaning that China got hardly any of the special treatment that would normally be accorded to a developing country.

About WTO:

  • The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.
  • The WTO was born out of GATT, an international trade agreement signed by 23 countries in 1947. 
  • At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.
  • The goal is to help producers of goods and services, exporters, and importers conduct their business.
  • The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who usually meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva).

Is it about more than benefits for China?

  • After its accession, China acted as a member of the developing country group and pushed hard for its interests.
  • In 2003 it joined India and Brazil in pushing developed countries to reform their agricultural trade policies while retaining flexibility for developing countries, a push that has yet to achieve success.
  • In the meantime, it enjoys little preferential treatment for itself:
    • partly because it has eschewed special benefits, partly because most of the transition benefits that were available to it have expired
    • partly because some of the provisions available to it are essentially voluntary on the part of the country offering them
    • partly because many of the benefits available to developing countries are not available to developing countries with large export shares
  • At times it has actively forgone important benefits, such as by not invoking its right to receive technical assistance under WTO’s Trade Facilitation Agreement.
  • However, on some other issues, the sheer size of China has made it difficult to accommodate China’s claim for developing country treatment.

What does the US say?

  • Since joining the WTO in 2001, China has continued to insist that it is a developing country and thus has the right to avail itself of flexibilities under any new WTO rules.
  • The United States has never accepted China's claim to developing-country status, and virtually every current economic indicator belies China's claim.
  • After years of explosive growth, China has the second largest Gross Domestic Product in the world, behind only the United States.
  • China accounts for nearly 13 per cent of total global exports of goods, while its global share of such exports jumped five-fold between 1995 and 2017. It has been the largest global exporter of goods each year since 2009.
  • Further, China's preeminent status in exports is not limited to goods from low-wage manufacturing sectors.
  • China currently ranks first in the world for exports of high-technology products, with such exports alone increasing by 3,800 percent between 1995 and 2016.

Conclusion:

China says it “will never agree to be deprived of its entitlement to special and differential treatment as a developing member”. At the same time, it says it “is willing to take up commitments commensurate with its level of development and economic capability”. It remains far less developed than traditionally developed countries. In purchasing power terms, its standard of living is about one-third that of the United States. Although not practically important in terms of its obligations under the WTO, its developing country status is useful to it in other ways, giving it the opportunity to gain meaningful advantages in other international organisations such as the Universal Postal Union. It costs the rest of the world little to accommodate China’s wish to be described as a developing country. 

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