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Jul1. The US government holds a big stick to set a price to developing countries
US President Trump signed a memo on July 26, local time, directing the US Trade Representative to use all available means to ensure the World Trade Organization (WTO) to reform the developing country status and prevent “self-declared” developing countries that are not backed by proper economic indicators from enjoying the flexibility of special and differential treatment in WTO negotiations. This is the negotiation price given by the US president to developing countries in the toughest and unilateral way when WTO members are actively pushing for WTO reforms.
The memo generally includes the following contents: First, it challenged the “self-declaration” approach to the developing country status under the WTO; second, it challenged the use of such status by developing countries to seek flexibilities; third, it accused developing countries of seeking weaker commitments in WTO negotiations, thus seriously hindering the progress of WTO negotiations and harming the interests of other members; fourth, it singled out and criticized China at great length; fifth, it expressed the US determination to “reform”, stating that “the US will put in all necessary resources to change the WTO’s attitude towards the developing country status so that those advanced economies will no longer be able to take advantage of unfounded benefits”; sixth, unilateral enforcement and threat measures. The US declared, “if the US Trade Representative decides the WTO has not made substantial progress in the reform of developing country status within 90 days since the signing of the memo, the US may act unilaterally”. Trump gave a list of threats, including the unilateral cancellation by the US of the status of other countries as developing countries, the issuance of a blacklist, the consultation between the US National Security Council and the National Economic Council in adopting measures, and the nonsupport from the US for the status of certain developing countries as OECD members.
In fact, the US Trade Representative has already prepared ammunition for Trump to publish this absurd memo. In February this year, the US Trade Representative proposed to the WTO four standards for identifying developed countries: OECD member, G20 member, the World Bank’s classification of “high-income” economies or at least 0.5% share in global merchandise trade. To classify WTO members based on the standards of multiple international agencies is such a simple way, exactly a feature of the Trump administration. Take the G20 standard for example, the group is built on a group of seven developed countries (G7) including the US. The 1997 financial crisis in Southeast Asia made G7 recognize the importance to strengthen dialogues between developed and developing countries represented by emerging economies, hence the establishment of the G20. How come the developing countries that were identified at the time are now developed countries?
On April 26, US Trade Representative Lighthizer wrote to the trade ministers of developing countries in the WTO, “I am contacting you at the direction of President Trump. Please support this initiative and agree to give up special and differential treatment in current and future WTO negotiations”.
The US president’s memo on July 26 did not mention the four standards proposed by the US, but said that “about two-thirds of WTO members enjoy special treatment and fulfill weaker commitments by calling themselves developing countries under the WTO framework...”. It seems that the US requires a reshuffle before starting the WTO reform.
2. The US proposals are widely opposed
Many developing countries have opposed the approach of the US. On May 7, at the WTO General Council meeting, South Africa emphasized the principle of sovereignty and said, “more than two-thirds of WTO members are developing countries...there is not an agreed definition as to what will be considered ‘developed’ or ‘developing’; each member shall have the right to decide the most suitable category for itself and no other member shall impose any ‘graduation’ standard”.
From May 13 to 14, the trade ministers of 17 developing countries made it clear in India that “special and differential treatment is one of the main features of a multilateral trading system and is essential for integrating developing countries into global trade.”
A South American trade envoy said in Geneva that “developing countries are expecting inclusive reforms in the WTO”. Many countries have submitted proposals to the WTO General Council, pointing out that the real reason for the multilateral crisis is that “inequalities and imbalances in some existing multilateral trade rules provide inherent advantages for developed members”.
Zhang Xiangchen, China’s ambassador to the WTO, said on many occasions that the core of the development issue is not whether developing members are willing to make greater contributions in future negotiations, but whether they can obtain equal negotiating power. Some people only see the apparent inconsistency in the levels of commitments among the members and fail to see the imbalances in the structure of multilateral trade negotiations behind it. Zhang Xiangchen emphasized that special and differential treatment to developing members is part of the history of the multilateral trading system and its rules. The economic and social development gap between developing and developed members remains wide, the lack of capacity of developing members to participate in the multilateral trading system has not been solved, and the applicability foundation for special and differential treatment to developing members has not changed.
Even developed countries have expressed strong dissatisfaction. Norway has publicly commented on the classification standards proposed by the US Trade Representative, saying they were “neither realistic nor necessarily useful”. Norway pointed out that “the question should be how to design and allow members to scientifically meet their development challenges. The outcome of the negotiations, rather than the classification of members, is what is important”.
3. Are preferences to developing countries too many or too few?
The Trump administration believes that developing countries enjoy too many preferences in the trading system and should “graduate”. In fact, the US is the last one in developed countries that should have the right to say so. Developing countries could ask the Trump administration this question: Has the US fulfilled its commitments and given real preferential treatment to developing countries?
The generalized system of preferences (GSP) is a universal, non-discriminatory tariff arrangement implemented by developed countries on finished and semi-finished products, including certain primary products, exported from developing countries. It is a preferential system promised by developed countries to developing ones within the WTO system. When UNCTAD originally designed this system, it hoped that the GSP system would be a unified one. However, developed countries did not agree to adopt a unified preferential scheme, and formulated their own schemes, which fully reflected “flexibility”.
The US has reached GSP agreements with the Caribbean countries, but as it turns out, those are a mere scrap of paper. The US Congress does not agree with what is meaningful in the agreements. The Trump administration has little interest in the GSP system, and is constantly raising the GSP threshold to try to completely remove this policy.
Developing countries will have to pay more if they wish to receive real preferences from the US. US Trade Representative Lighthizer tried to use GSP as a bargain chip with developing countries. He said on an official occasion that “beneficiary countries that choose to cooperate with the US trade representative to qualify for trade preferences may face enforcement actions. The US government is committed to ensuring other countries comply with the agreement in our trade relations”. GSP treatment has just been terminated for India, Ukraine and other countries. On the website of the Office of the US Trade Representative, Ecuador and Indonesia are accepting the 2019 GSP deliberation. Many departments from the US environmental organization and the labor organization expressed dissatisfaction with these countries. It can be seen that the US preferential treatment to developing countries comes with a big price, including accepting its accusations of their human rights and environment.
In the 1970s, China applied to the US for GSP treatment. The US did not grant China GSP treatment based on the 1974 US Trade Law. China, as a communist developing country, was excluded by the US from its list of beneficiary countries. According to the US Trade Law, to receive GSP treatment, communist countries shall meet the following conditions: MFN status, WTO membership and IMF membership. After its accession to the WTO, China has fundamentally met the conditions of the US Trade Law, but it is still not among the beneficiary countries and has never received corresponding benefits.
WTO members have realized that the countries with the power to make rules are masters of flexibility, and that the policies that maximize the benefits of rich countries do not have the same effect in promoting the development of developing countries. How many people bought it when the Trump administration complained about developing countries enjoying too many preferences?
4. Is the negotiation right of developing countries too big or too small?
The memo signed by Trump accused developing countries of seeking weaker commitments in WTO negotiations and seriously hindering the negotiation progress. In fact, the negotiating right of developing countries has long been ignored, and development issues have never been given real attention.
In the WTO and its predecessor, the GATT, trade negotiations have always been centered around the interests of developed countries. Power was reflected in the first round of GATT negotiations, and the two sectors of clothing & textiles and agriculture, in which the best interests of developing countries lay, had been pushed out of the negotiating table.
In the 1980s, developing countries actively participated in the Uruguay Round negotiations, but their negotiating capacity was insufficient. Ali, former Deputy Secretary-General of the East African Community (EAC) once said, “the final result of our participation in the Uruguay Round is the introduction of some agreements that should be said to be more favorable to developed countries and very unfavorable to developing ones, very unbalanced. This is because when we signed the agreements, we had not figured out what this round was about. We didn’t know what we were signing off”.
Negotiations on this round of WTO reforms have not yet begun. The US does not talk about how to help developing countries build bargaining capacity. Instead, it accused them of trying to seek weaker commitments. How can such a start enable the WTO to serve development?
After the Uruguay Round, development deficit has been expanding. In the area of production, many developing countries have not achieved industrialization or participated in the division of labor in the global value chain. In trade, developed countries often have a monopoly on the world trade market, influencing international market through price discrimination and channels, which is unfair treatment to developing countries. Technically, compared with developed countries, many developing countries have insufficient research and development capabilities, especially at the arrival of the fourth industrial revolution, when the technological gap between developing and developed countries was widening. Therefore, developing countries should enjoy more policy room in the negotiations. Only in this way can WTO negotiations proceed. Big stick does not work. Only understanding and practical cooperation can win the active involvement of developing countries in WTO reform.
5. Are developing countries timid or independent?
In the history of WTO negotiations, it is rare that a president of a country would sign a negotiation proposal that defies multilateral rules and is full of threat clauses. The WTO can first discuss whether the threat clauses of the Trump memo are reasonable and legal before considering the negotiation proposals of the US.
The WTO negotiation mechanism has always advocated democracy and sought consensus to reach an agreement. This can be said to be the soul of decision making in negotiations. In several GATT/WTO negotiations, even if power can work, procedural respect should be given to the democratic approach of “consensus”. The way in which the US wields a big stick to set a negotiation price has fundamentally trampled on the WTO.
The threat clauses in the Trump memo ridiculously demonstrated the “unilateral international leadership” of the US. The memo arbitrarily formulated threat clauses, and linked the developing country status issue with many issues such as national security, seriously trampling on the preciseness of the WTO law. It abducted the WTO negotiation process with a special issue and substantially undermined the WTO reform process.
After World War II, developing countries suffered unfair treatment and accumulated some experience in dealing with American hegemony. The reason why developing countries push for WTO reform is that they wish to change the inequality in rule making. It is believed that developing countries have enough willpower to deal with the unilateral negotiation method of the US.
6. The voice of China
In the negotiations on China’s accession to the WTO, China has always insisted that the WTO is an international organization and will not be complete without the participation of China, the largest developing country. China can only join as a developing country. From legal documents such as the Protocol on the Accession of the People’s Republic of China and China’s actions, China has not abused the treatment to developing members, and assumed more obligations than other developing members. These efforts have been recognized by the WTO to a certain extent.
In response to the absurd contents of the Trump memo, China, like the vast number of developing countries, will never allow a simple way to redefine country category, and will respect existing WTO rules and resolutely oppose the unilateral negotiation approach of the US.
China should take the lead in stressing that WTO reform should aim at development and focus on solving development deficit. It should be said that emphasizing development reflects a general respect for the basic needs of humans and an ultimate call for major paradigm changes in the international economic system itself.
In June 2018, China published a white paper entitled China and the World Trade Organization, which described China’s value orientation to human development and global common development. The white paper stated that “China commits itself to opening up wider and deeper to promote common development across the world, providing other countries with more opportunities to share the benefits of China’s development. China is willing to work hand-in-hand with its global trading partners to make economic globalization more open, inclusive, balanced and win-win with benefits to all so that different countries, different social strata and different groups of people all share in the benefits of economic globalization”. This is the voice of China.
(The author is a Research Fellow at the National Academy of Development and Strategy, RUC and a Professor at the School of Economics, RUC)
Link to the original article: http://www.ce.cn/xwzx/gnsz/gdxw/201907/28/t20190728_32736601.shtml
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