Trump declares “trade war” against South on S&DT

Even as proposals for development-friendly WTO reforms are being tabled, the US has stepped up its push to deny many developing countries continued recourse to special and differential treatment at the trade body.

by D. Ravi Kanth

GENEVA: The United States President has declared a trade war over special and differential treatment availed of by developing countries at the WTO, threatening the likes of China, India, South Africa and Indonesia to give up S&DT in the current and future trade agreements negotiated at the WTO.

“The WTO is BROKEN when the world’s RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment. NO more!!!” President Donald Trump tweeted on 26 July.

“Today I directed the US Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!” Trump wrote.

Presidential memorandum

Coinciding with the president’s remarks, the White House issued a detailed memorandum which, among others, stated that “although economic tides have risen worldwide since the WTO’s inception in 1995, the WTO continues to rest on an outdated dichotomy between developed and developing countries that has allowed some WTO Members to gain unfair advantages in the international trade arena.”

The presidential memorandum claimed that “nearly two-thirds of WTO Members have been able to avail themselves of special treatment and to take on weaker commitments under the WTO framework by designating themselves as developing countries.”

Apparently adopting a divide-and-rule strategy, the memorandum said “while some developing-country designations are proper, many are patently unsupportable in light of current economic circumstances.”

It said “7 out of the 10 wealthiest economies in the world as measured by Gross Domestic Product per capita on a purchasing-power parity basis – Brunei, Hong Kong, Kuwait, Macao, Qatar, Singapore, and the United Arab Emirates – currently claim developing-country status.” Further, “Mexico, South Korea, and Turkey – members of both the G20 and the Organization for Economic Cooperation and Development (OECD) – also claim this status.”

The memorandum said that “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.”

It added that “such disregard for adherence to WTO rules, including the likely disregard of any future rules, cannot continue to go unchecked.”

The memorandum suggested that “China and too many other countries have continued to style themselves as developing countries, allowing them to enjoy the benefits that come with that status and seek weaker commitments than those made by other WTO Members.”

However, even a cursory glance at the commitments undertaken by China upon joining the WTO in 2001 would clearly show that Beijing had agreed to substantial commitments in market access and rules which are closer to those applying to developed countries.

The White House memorandum also stated that “these [developing] countries claim entitlement to longer timeframes for the imposition of safeguards, generous transition periods, softer tariff cuts, procedural advantages for WTO disputes, and the ability to avail themselves of certain export subsidies – all at the expense of other WTO Members.”

As part of the S&DT provisions, developing countries are allowed longer time periods for implementing WTO agreements and commitments, a lower level of commitments based on what is called “less than full reciprocity”, and measures to increase trading opportunities.

The Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries – which is called the Enabling Clause in trade jargon – further concretized the S&DT framework at the end of the Tokyo Round trade negotiations in 1979.

Turning a blind eye to these treaty-embedded provisions that have been concluded in various rounds of GATT negotiations, the memorandum claimed that “these [developing] countries have also consistently sought weaker commitments than other WTO Members in ongoing negotiations [fisheries subsidies negotiations], which has significantly stymied progress.”

Denouncing the self-designation rule for availing of S&DT, the memorandum maintained that “many of the world’s most advanced economies have used developing-country status as an excuse not to comply with the most basic notification requirements under WTO rules, depriving United States traders of vital trade data. The status quo cannot continue.”

The memorandum went on to suggest that “the WTO is in desperate need of reform, without which the WTO will be unable to address the needs of workers and businesses or the challenges posed by the modern global economy.”

Claiming that the US has already demanded reforms in other international organizations, it expressed concern that “with respect to the WTO, there is no hope of progress in resolving this challenge until the world’s most advanced economies are prepared to take on the full commitments associated with WTO membership.”

US measures

The US, according to the memorandum, will leave no stone unturned “to make trade more free, fair, and reciprocal by devoting all necessary resources toward changing the WTO approach to developing-country status such that advanced economies can no longer avail themselves of unwarranted benefits despite abundant evidence of economic strength.”

In the memorandum, the president directed the US Trade Representative (USTR) to, “as appropriate and consistent with applicable law, use all available means to secure changes at the WTO that would prevent self-declared developing countries from availing themselves of flexibilities in WTO rules and negotiations that are not justified by appropriate economic and other indicators.”

The memorandum further suggested that the USTR “shall pursue this action in cooperation with other like-minded WTO Members.”

The European Union, Japan, Canada, Australia and several other industrialized countries, barring Norway, will press ahead with seeking differentiation/graduation among developing countries in availing of S&DT, said trade envoys who asked not to be quoted.

If the developing countries fail to forgo S&DT within 90 days, then, according to the memorandum, the US will “(i) no longer treat as a developing country for the purposes of the WTO any WTO Member that in the USTR’s judgment is improperly declaring itself a developing country and inappropriately seeking the benefit of flexibilities in WTO rules and negotiations; and (ii) where relevant, not support any such country’s membership in the OECD.”

The USTR will also resort to naming and shaming provisions in case the developing countries do not fall in line by giving up S&DT. They include publishing on the USTR’s website “a list of all self-declared developing countries that the USTR believes are inappropriately seeking the benefit of developing-country flexibilities in WTO rules and negotiations.”

Rejected proposal

Coming days after the 24 July WTO General Council meeting in which a US proposal for differentiation among developing countries was roundly rejected, the memorandum appeared to be a desperate act engineered by the USTR through the White House, said trade envoys who asked not to be quoted.

The US proposal had already been dismissed at previous meetings over the past five months.

One trade envoy who asked not to be quoted said it would not gain consensus because it had “no legal basis.” According to another envoy, it was “ridiculous” to ask developing countries to forgo their S&DT without credible reasons.

Perhaps the US could secure some support for its memorandum from major South American countries and a few Asian countries such as Singapore, South Korea and Hong Kong, but the majority of developing countries would oppose it, the envoy said.

The US has already received support from Brazil, which has declared that it will begin to forgo S&DT at the WTO.  Subsequently, there have been sustained attempts by the US to bring about differentiation/graduation to deny S&DT to China, India, South Africa, Indonesia and some 30 other countries in current and future trade negotiations.

In a 26 April letter sent to developing-country trade ministers on behalf of Trump, the USTR Robert Lighthizer had written, “I am reaching out to you to ask you to support this [American] initiative by agreeing to forego special and differential treatment in current and future WTO negotiations.”

However, at three successive WTO General Council meetings, China, India, South Africa and a majority of countries opposed the US proposal.

It remains to be seen how the developing countries will step up their battle for development-oriented reforms when they return to the WTO after the summer break, given the escalating threats from the US to bring about differentiation/graduation in availing of S&DT. (SUNS8957)                   

Third World Economics, Issue No. 684/685, 1-31 March 2019, p12-14