Here’s What It Means to Be a WTO Developing Country

(Bloomberg) --

President Donald Trump says it’s not fair for China to receive preferential trade benefits as a developing nation at the World Trade Organization. Trump’s argument is that China -- the largest economy in the world after the U.S. -- should not enjoy the kind of preferential trade treatment that’s really intended to bolster much poorer nations. It’s “one of the reasons they’ve taken advantage of us,” Trump told attendees at the Economic Club of New York. “We’re considered the big, fat cow. And no longer.”

1. What does it mean to be a WTO developing country?

Special provisions in WTO agreements give developing countries more time to implement tariff reductions, increased asymmetrical access to foreign markets, protections that safeguard their trading interests and technical support to help them implement WTO rules. The aim of these preferences is to help poorer countries to reduce poverty, generate employment and integrate themselves into the global trading system.

2. How are ‘developing countries’ designated?

Any nation can declare itself to be a developing country upon joining the WTO. Almost two-thirds of the WTO’s 164 members have done so. The WTO doesn’t have an official policy or definition guiding what constitutes “developing.”

3. Can a country’s developing status expire or be revoked?

No, but other members can can challenge the decision of a member to make use of provisions available to developing countries. And a WTO “developing country” can choose to forego its special benefits at any point.

4. What does the U.S. want to change?

It proposes establishing four categories of WTO members that, based on their level of development, should forego special and differential treatment in trade talks. These categories would be:

• Members of, and countries seeking to join the Organization for Economic Cooperation and Development;
• Members of the Group of 20;
• WTO members classified as “high income” by the World Bank;
• WTO members that account for no less than 0.5% of global merchandise trade.

5. Why is the Trump administration doing this?

The U.S. says that efforts to update the WTO’s 25-year-old rule book have largely failed because export powerhouses use their self-declared development status to avoid making meaningful trade concessions. As a result, it says, the WTO “remains anchored to the past and unable to negotiate disciplines to address the challenges of today or tomorrow.” In a memorandum, the Trump White House argued, “When the wealthiest economies claim developing-country status, they harm not only other developed economies but also economies that truly require special and differential treatment. Such disregard for adherence to WTO rules, including the likely disregard of any future rules, cannot continue to go unchecked.”

6. Has this system been challenged before?

Yes. Previous U.S. administrations, including that of Trump’s predecessor, Barack Obama, have bristled at China’s demands for special preferences in WTO negotiations. The Trump administration is the first to explicitly call for specific countries to forego their development status. The European Union has also encouraged large developing economies like China to avoid asking for preferential treatment in trade negotiations on a case-by-case basis..

7. What’s been the response to the U.S. proposal?

Several countries including Brazil, Taiwan, Singapore and South Korea have agreed to relinquish their developing-country rights in future trade negotiations. China, India and dozens of other WTO members, including Bolivia, Cambodia, Cuba, Laos, Oman, Pakistan and Venezuela, have refused to do the same. Those countries said that any attempt to water down special rights for developing nations would be a “recipe for intractable deadlock at the WTO.”

8. What does this have to do with China?

Trump argues that China’s status as a developing country within the WTO -- which it declared upon joining in 2001 -- gives it “tremendous perks and advantages” including longer implementation periods for tariff cuts. China continues to demand developing-member privileges in WTO trade negotiations. The U.S. says China’s case is particularly egregious because it has grown into the second-largest economy in the world, produces some of the world’s fastest supercomputers and even landed a rover on the dark side of the moon.

9. What does China say?

That it will never agree to give up its rights as a developing member. Chinese trade officials argue that its special WTO rights were the product of hard-fought negotiations and came at a high price. “Our country is facing various challenges, difficulties and gaps in achieving a balanced and adequate development,” China’s ambassador to the WTO, Zhang Xiangchen, said during an October WTO meeting. “So, we will not make commitments beyond our capabilities, nor will we give up our legitimate and institutional rights as a developing member.”

10. Where does that leave things?

The WTO requires any formal agreements to be adopted by consensus among all 164 of its members. So the U.S. proposal remains just that -- a proposal -- so long as any WTO member opposes it.

The Reference Shelf

• A primer about the WTO and what it does.
• An explainer of the WTO’s special and differential provisions.
• A U.S. paper explaining the government’s view on developing country status.
• A statement from developing WTO members about the need to preserve their special rights.
• A transcript to Trump’s speech in New York

To contact the reporter on this story: Bryce Baschuk in Geneva at bbaschuk2@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Laurence Arnold

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