Editor’s note: China has received preferential treatment at the WTO as a “developing country” but it has long outgrown that status. This move continues towards the possible end of the WTO.
President presses trade organization to change China’s ‘developing country’ status
[Jacob M. Schlesinger and Alex Leary | July 26, 2019 | WSJ]
WASHINGTON—President Trump ramped up his attacks on China and the world trading system, threatening Friday to have the U.S. unilaterally revoke the special breaks global rules grant to nations that call themselves developing countries.
The move, coming on the eve of a new round of U.S.-China trade talks in Shanghai, appears aimed at pressuring Beijing to commit to new specific measures to buy more U.S. goods and further liberalize its market for foreign companies.
“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!!!” Mr. Trump wrote in a tweet. “Today I directed the U.S. Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!”
A memo Mr. Trump signed on Friday called on his administration to seek ways to force the World Trade Organization to change immediately how it treats certain countries. The memo focuses on China but names several other leading economies, including Turkey, Mexico, the United Arab Emirates and Qatar.
The Chinese Embassy didn’t respond to a request for comment Friday. China in the past has maintained that it abides by all WTO rules.
China was admitted to the WTO in 2001 following lengthy negotiations, amid widespread expectations that membership in the world body would ease its transition from a state-run to a market-oriented economy.
Mr. Trump, however, has contended that China shouldn’t qualify for the benefits that come with developing country status, which include export subsidies and procedural advantages for WTO disputes. Other developed countries have raised similar concerns.
Under current WTO rules, any member can decide to declare itself to be “developing” rather than “developed,” a status that allows it to avoid some of the market-opening measures adopted by other members, or to delay them.
The White House memo says that if the normally slow-moving WTO doesn’t change those longstanding rules in the next few months, the U.S. will, on its own, stop treating countries like China as developing.
Such a change would have no immediate impact on trading relations with other countries, and—unlike other dramatic Trump actions of the past two years—wouldn’t have any effect on tariffs, quotas, or cross-border commerce.
Clete Willems, who worked on trade and WTO policy at the White House until April, said any change in the rules would only affect “small stuff” in the short term.
The action has big symbolic importance, as the latest expression of administration displeasure with the Geneva body, especially how it has treated China since it joined in 2001. It is aimed at shaking up ongoing WTO talks over fishing subsidies and e-commerce, negotiations where China and other nations are angling to have any agreement in those talks grant them special privileges.
“This will really have an impact on those negotiations, where groups of countries are saying they shouldn’t have to take on the same level of obligations as the U.S., or the European Union,” Mr. Willems said. “They’re saying they don’t have to cut subsidies as much, or as fast.”
An administration official said the main point of the announcement was to “view current ongoing negotiations… through the new lens,” and wasn’t aimed to changing existing trade agreements.
The memo is the latest manifestation of the repeated aggravation Mr. Trump and his advisers, including U.S. Trade Representative Robert Lighthizer, have expressed about the quarter-century-old WTO, and their vows to shake it up.
Mr. Trump has at times threatened to pull the U.S. out of the 164-member WTO that the U.S. was instrumental in creating, complaining that it treats American unfairly. While there has been no sign he actually plans to go that far, he has taken various actions that are hobbling it, and could soon render it ineffective.
The Trump administration has blocked the appointment of judges to the WTO’s trade court in protest of rulings, including some that have favored China over the U.S. Unless the U.S. reverses that stance, the Geneva body’s ability to arbitrate trade disputes among members—one of its main functions—will effectively end by December when the terms expire for the two remaining judges, leaving the bench without a required quorum.
A primary complaint of Messrs. Trump and Lighthizer is that it allowed China over the past 18 years to grow into an export powerhouse without effectively forcing China to curb subsidies and government controls that give its producers an advantage in world markets.
“When the WTO came about and China joined… they became a rocketship,” Mr. Trump said Friday. “So you know, it’s a very unfair situation that happened at the World Trade Organization.”
The ability of China to call itself a developing country with an ability to avoid certain requirements while becoming the world’s biggest trader has long rankled U.S. officials.
“Such disregard for adherence to WTO rules, including the likely disregard of any future rules, cannot continue to go unchecked,” the memo reads. “China most dramatically illustrates the point.”
The White House memo claims economic indicators belie China’s claim to be a developing country. It cites several indicators, including China’s “explosive growth” that has given it the second largest gross domestic product in the world, and notes that China accounts for nearly 13% of total global exports of goods.
Beijing has repeatedly rejected the U.S. complaints in recent months.
“We do not shy away from our international responsibilities and are willing to assume obligations in the WTO that are compatible with our own economic development level and capabilities,” Gao Feng, a Chinese commerce ministry spokesman, said in April. “China is the largest developing country in the world.”
While many of Mr. Trump’s attacks on longstanding trade actions have drawn criticism from trade policy veterans, some of his complaints about the WTO—including the developing country issue—have drawn bipartisan support.
“There is a serious point to be made that big and well-developed countries like China and Korea shouldn’t be doing this,” said Jennifer Hillman, a former WTO judge appointed by the U.S. under President George W. Bush and now a law professor at Georgetown University. “The Trump administration is trying to draw some much stronger lines.”
It is unclear, however, whether the WTO body, which operates by consensus among its members, and which hasn’t adopted major reforms since its founding, can respond to the latest U.S. action.
“The US is asking for something the WTO can’t deliver, because it has not be able to agree on anything important for 18 years,” said Derek Scissors, a China expert at the American Enterprise Institute. “To affect U.S.-China talks, the WTO would have to be much more capable of change, or the U.S. would have to threaten to leave the organization entirely.”
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