TWN Info Service on WTO and Trade Issues (Feb19/16)
25 February 2019
Third World Network

China faces litmus test at WTO for preserving “policy space”

Published in SUNS #8852 dated 22 February 2019

Geneva, 21 Feb (D. Ravi Kanth) – As the United States trade war against China appears to be inching towards a possible bilateral deal, Beijing is facing a litmus test at the World Trade Organization on whether it can stand firm with other developing countries to preserve “policy space” to pursue autonomous “developmental” goals, including the continuation of the special and differential treatment (S&DT).

Senior US and Chinese trade officials are expected to finalize a bilateral deal in Washington by Friday (22 February), outlining “six memorandums of understanding on structural issues,” according to a Reuters news agency report on 21 February.

The memoranda are expected to cover “structural” issues such as “forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.”

The bilateral deal would also indicate the level of market access that China would provide to US agricultural products, financial services, and automobiles among others.

However, there is no indication yet what the US will do in terms of reducing the barriers, including security-related impediments, imposed by the Trump administration on the Chinese telecommunication companies, particularly Huawei, the Chinese telecommunications behemoth.

The bilateral negotiations which seem like a comprehensive Round of trade negotiations between the two largest economies could have serious implications on what China could do at the WTO and elsewhere, according to trade envoys, who asked not to be identified.

China has repeatedly vowed to continue with its developmental policies in accordance with multilateral trade rules.

But, in the face of the kind of restrictions imposed by the US, it is difficult to see how far will China be able to protect its economic development model.

China’s developmental policies are viewed as offering a blueprint to other developing countries for catching-up in areas of industrial and social development.

The US and its allies feel that the multilateral trade rules they had created have enabled China to catch-up with the western technological giants in telecommunications, artificial intelligence and robotics among others.

Against this backdrop, the US is waging a trade war at the WTO to terminate the rules that it had helped to create since the Kennedy Round of trade negotiations in the 1960s.

In the wake of the disorder, spawned by the US administration of President Donald Trump over the past two years on several fronts, Washington appears emboldened now at the WTO to erase some of the rules it had helped put in place in the past, according to the British historian Adam Tooze.

The US is also threatening its trans-Atlantic allies that it will impose tariffs on the European autos if Brussels does not reach a trade agreement with the US on the latter’s terms.

The US Commerce Department has prepared a report early this week on the issue of auto-tariffs (on security grounds) and President Trump threatened Europe on Wednesday (20 February) that “if we don’t do the deal, we will do the tariffs [on the EU autos].”

China, which has so far withstood its ground in the face of the trade war launched by the Trump administration, faces several difficult choices.

If it agrees to far-reaching commitments in its bilateral deal to avoid the unilateral high tariffs that would come into effect on 1 March on Chinese goods worth $200 billion, China could find itself weakened for ensuring the continuation of multilateral trade commitments that were negotiated during various rounds of trade negotiations over the last 70 years, said a trade envoy who asked not to be quoted.

The US has proposed the termination of S&DT for China, India, South Africa, Indonesia, Brazil, and other developing countries that are members of the G20.

The US proposal, circulated at the WTO on 15 February, is aimed at driving a wedge between the developing countries on the one side, and least-developed countries on the other, for availing S&DT.

The US proposal, listed for inclusion in the agenda for the meeting of the WTO’s General Council (GC), is being tacitly supported by the EU, Japan, Canada, and Australia among others.

[While items proposed for the GC draft agenda for any meeting, generally are adopted, there are also instances when adoption of the item on the agenda has been blocked. SUNS]

The US draft decision on its agenda item “to strengthen the negotiating function of the WTO” sets out some dubious grounds for its proposal such as “to produce high-standard, reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations.”

Therefore, the S&DT benefits must accrue “to those members with the greatest difficulty integrating into the multilateral trading system,” the US argues in its proposal.

Effectively, the US draft decision could deny S&DT benefits to more than 30 countries on one ground or the other, including for being members of the G20. [See SUNS #8849 dated 19 February 2019 for details of US proposals and arguments.]

[The US proposed item, if accepted for inclusion on the GC agenda, could at best result in some discussion; but adoption of its draft decision would need the consensus of the GC. In the current state of US relations with the vast majority of the membership, any assumption of smooth sailing and consensus, will be misguided. SUNS]

The G20, as Tooze has pointed out, is a “self-constituted ad hoc grouping that, in questions of economic governance, has sidelined the United Nations [and] the membership of the 20 was picked on the basis of GDP and population statistics in the late 1990s, by second tier officials working for the governments of the US and Germany as part of the G8 forum.”

China along with India, South Africa, and Venezuela denounced the US moves to deny S&DT to all developing countries, in a paper they circulated on 18 February.

The four developing countries have argued succinctly that the S&DT is the sine qua non for promoting development in the developing countries on an inclusive framework. [See SUNS #8850 dated 20 February 2019 for details of the joint paper.]

In sum, while China tries to reach a bilateral deal with the US, it also faces a litmus test whether at the WTO it will stand firm with other developing countries to ensure the continuation of the S&DT and other developmental flexibilities negotiated during various rounds of global trade negotiations.