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U.S. Seeks End to WTO Flexibilities for Some Countries Claiming Developing Status

Wednesday, July 31, 2019
Sandler, Travis & Rosenberg Trade Report

A new Trump administration policy seeks to prevent countries that meet certain economic and other indicators from utilizing flexibilities for developing countries in World Trade Organization rules and negotiations. China, the primary target of the new policy, denounced it as indicative of the United States’ “wayward arrogance and selfishness” and said it “will bring controversy and chaos, putting new obstacles in the way of WTO reforms.”

In a July 26 memorandum, President Trump stated that nearly two-thirds of WTO members have designated themselves as developing countries. According to the memo, this designation allows countries to claim entitlement to special and differential treatment such as generous transition periods (to implement trade liberalization commitments), longer periods to impose safeguards, softer tariff cuts, procedural advantages in WTO disputes, and utilization of certain export subsidies. Self-identified developing countries have consistently sought weaker commitments than other WTO members in ongoing negotiations, the memo adds, and many of the world’s most advanced economies have used this status as an excuse not to comply with the most basic notification requirements under WTO rules.

While some of these self-designations are proper, the memo states, many are “patently unsupportable” in light of current economic circumstances. For example, seven of the ten 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, as do Mexico, South Korea, and Turkey, all of which are members of both the G20 and the Organization for Economic Cooperation and Development.

The memo singles out China as the most egregious case, stating that “virtually every current economic indicator belies China’s claim” to developing country status. For example, China accounts for nearly 13 percent of total global exports of goods, has been the largest global exporter of goods each year since 2009, ranks first in the world for exports of high-technology products (which increased by 3,800 percent between 1995 and 2016), has levels of outbound foreign direct investment (nearly $1.5 trillion) that exceed those of 32 of 36 OECD countries, and is home to 120 of the world’s 500 largest companies.

As a result, the memo directs the U.S. trade representative to 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. If substantial progress toward this goal has not been made within 90 days, USTR will no longer treat any WTO member that it deems to be improperly declaring itself a developing country and inappropriately seeking the benefit of associated flexibilities as a developing country for WTO purposes.

However, an Associated Press article cites former WTO official Jennifer Hillman as saying this change in treatment would not likely have much impact because “most of the more-generous deadlines developing countries got to open their economies have long since passed.” An article in The Wall Street Journal adds that such a change “would have no immediate impact on trading relations with other countries and … wouldn’t have any effect on tariffs, quotas, or cross-border commerce.”

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