TWN Info Service on WTO and Trade Issues (Jul19/34)
31 July 2019
Third World Network

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

Published in SUNS #8957 dated 30 July 2019

Geneva, 29 Jul (D. Ravi Kanth) – The United States President has declared a trade war over special and differential treatment (S&DT) availed by developing countries at the World Trade Organization, threatening China, India, South Africa, and Indonesia among others to give up S&DT in the current and future trade agreements to be 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 [the WTO] at the expense of the USA!”, President Trump wrote.

Coming days after the WTO’s General Council (GC) meeting in which the US proposal for “procedures to strengthen the negotiating function of the WTO” was roundly rejected for the third time, the memo appears to be a desperate act engineered by the USTR through the White House, said trade envoys, who asked not to be quoted.

[The New York Times reported the remarks in a story describing it as that Trump had given an ultimatum to the WTO to “remove” China and several other countries, including Singapore, Brunei and the UAE, from the status of “developing countries”, both exhibiting a level of ignorance on the nature of the WTO as an international organisation, and the USA as one of its members, with no superior rights.

[More to the point perhaps, the IELP blog ran a post, “Much ado about nothing? The President’s Memorandum on Reforming Developing-Country Status in the WTO”, by Henry Gao. See details at: SUNS]

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that “although economic tides have risen worldwide since the WTO’s inception in 1995, the WTO continues to rest on an outdated dichotomy between developed and developing countries that has allowed some WTO Members to gain unfair advantages in the international trade arena.”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

Adopting a divide-and-rule strategy, the memo 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 memo said, somewhat erroneously, 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.”

Therefore, “such disregard for adherence to WTO rules, including the likely disregard of any future rules, cannot continue to go unchecked,” Trump’s memorandum stated.

Picking on China, which made dramatic progress since joining the WTO in 2001 in several areas by catching-up with the developed countries, particularly in trade, 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.”

But a cursory glance at the commitments undertaken by China to join the WTO in 2001 clearly suggest that Beijing had agreed to substantial commitments in market access and rules which are closer to developed countries for acceding to the WTO.

However, the White House’s memorandum 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, lower level of commitments based on what are called less-than-full-reciprocity and measures to increase trading opportunities.

Further, there is a built-in non-reciprocity provision under the S&DT architecture, implying that the developing countries are not required to provide the same level of market access to the developed countries.

The Decision on Differential and More Favorable 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 of the GATT [General Agreement on Tariffs and Trade] 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 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.”

Without mentioning the existential crisis that the US had created at the WTO’s highest adjudicating body – the Appellate Body – by blocking the selection process for filling six vacancies, the memorandum shed crocodile tears by suggesting 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 [China, India, South Africa, and Indonesia among others] are prepared to take on the full commitments associated with WTO membership.”

The US, according to the memorandum, will leave no stones 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 [China, India, South Africa, and Indonesia among others] can no longer avail themselves of unwarranted benefits despite abundant evidence of economic strength.”

He issued dire threats by suggesting that “the USTR [United States Trade Representative] shall, 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.”

Effectively, the USTR will insist that China, India, South Africa, Indonesia, and 30 other countries cannot have S&DT in the ongoing fisheries subsidies negotiations at the WTO.

The memorandum has suggested that it “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 the differentiation/graduation for availing S&DT among developing countries, said trade envoys, who asked not to be quoted.

Despite the USTR’s efforts, if the developing countries fail to forego the S&DT within 90 days, then, 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 the S&DT. They include publishing “on its 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.”

Coming days after the WTO’s General Council (GC) meeting in which the US proposal for “procedures to strengthen the negotiating function of the WTO” was roundly rejected for the third time, the memo appears to be a desperate act engineered by the USTR through the White House, said trade envoys, who asked not to be quoted.

Significantly, the memo also coincided with the two reform proposals by developing countries that secured maximum support at the GC meeting.

The two reform proposals – “strengthening the WTO to promote development and inclusivity” and “an inclusive approach to transparency and notification requirements in the WTO” – were supported by a large majority of developing countries, and even Norway, said a trade envoy, who asked not to be quoted.

The US memo, which is based on selective facts, has already been dismissed at various meetings for the past five months.

A group of developing countries – China, India, South Africa, Venezuela, Cuba, Uganda, and Pakistan – had argued in their proposal on “the continued relevance of special and differential treatment in favour of developing members to promote development and ensure inclusiveness” (see SUNS #8850 dated 20 February 2019).

According to trade envoys from several developing countries, who asked not to be quoted, the US memo seeking developing countries not to claim S&DT is “ridiculous” and “absurd.”

The US memo, said one trade envoy, who asked not to be quoted, will not gain consensus because it has “no legal basis.”

It is “ridiculous” to ask developing countries to forego their S&DT without credible reasons, said another trade envoy, who asked not to be quoted.

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

The US is adopting diversionary tactics by not addressing the real issues that are plaguing the WTO, particularly the selection process for filling vacancies at the WTO’s Appellate Body as demanded by more than 114 countries, the envoy said.

The US has already received support from Brazil which had declared that it will begin to forego 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 30 more countries in the current and future trade negotiations.

In a letter sent to trade ministers of developing countries on behalf of President Trump on 26 April, the US Trade Representative Ambassador 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.”

But, the developing countries rejected the USTR’s letter and went on to oppose the US proposal.

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

The US (has been asked) “not to do anything more than three times,” said Chinese trade envoy Ambassador Zhang Xiangchen at the WTO General Council meeting on July 24, suggesting that the US proposal to bring about differentiation/graduation for accessing S&DT among developing countries has been rejected in three successive General Council meetings.

“China’s position remains unchanged on development, and special and differential treatment,” the Chinese trade envoy Ambassador Zhang Xiangchen told his American counterpart Ambassador Dennis Shea at the GC meeting on 24 July.

“The centrality of the Special and Differential Treatment,” said India’s trade envoy Ambassador J S Deepak at the General Council meeting on 23 July.

He said that the US proposal is “non-negotiable, treaty-embedded right for developing members and the least- developed countries.”

“It is essential to preserve S&DT for allowing developing countries the space to formulate their domestic trade policy, in a way that helps them to reduce poverty, generate employment and integrate meaningfully into the global trading system,” India maintained.

Moreover, “despite significant progress achieved by developing countries since the creation of the WTO, old divides have not been bridged and, in some areas, they have even widened,” Ambassador Xolelwa Mlumbi-Peter of South Africa said.

“While new divides, such as those in the digital and technological spheres are becoming more pronounced, in addition, despite progress achieved, developing countries have not come anywhere near catching-up with developed members,” she told her US counterpart at the General Council meeting.

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