Developing Country Status in WTO

US President Trump has made a sharp criticism against the World Trade Organisation (WTO) for allowing countries such as India and China to engage in unfair trade practices that affect American economic interests.

President Trump questioned the “developing country” status enjoyed by India and China at the WTO and argued that these countries are not developing economies, as they claim to be, but instead grown economies that do not deserve any preferential trade treatment from the WTO over developed countries such as the U.S.

Developing Country Status

  • The developing country status allows a member country of the WTO to seek a temporary exception from the commitments under various multilateral trade agreements ratified by the organisation.
  • It was introduced during the initial days of the WTO as a mechanism to offer some respite to poor countries while they try to adjust to a new global trade order marked by lower barriers to trade.
  • The WTO however does not formally classify any of its members as a developing country.
  • Individual countries are allowed to unilaterally classify themselves as developing economies. So, as many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.

Benefit from the Developing Country Status

  • Several trade agreements have been ratified over the years under the WTO to help foster more trading in goods and services between nations by lowering various barriers to trade such as tariffs, subsidies and quotas.
  • Developing Countries seek to delay the implementation of these WTO agreements owing to their disadvantaged economic status.
  • This enables them for continuing to impose tariffs and quotas on goods and services in order to limit imports and promote domestic producers who may otherwise be affected adversely by imports that are lower in price or better in quality.
  • India, for instance, subsidises agriculture in the name of food security in order to protect its farmers.
  • The local producers may also be protected by protectionist barriers such as tariffs, consumers in India and China will have limited access to foreign goods.

Why the US is concerned?

  • The developing country status was intended to help poor countries ease gradually into a more globalised world economy. But it has other unintended effects.
  • Since the WTO allows countries to unilaterally classify themselves as “developing”, many countries were more than willing to make use of this freedom.
  • Many developed economies such as Singapore and Hong Kong which =have per capita income levels higher than the U.S. have made use of the provision to classify themselves as growing economies.
  • Further, countries such as China justify that while their per capita income level has increased many-fold over the last few decades, these are still far below that of high-income levels in countries such as the U.S.
  • Hence President Trump has a prima facie case in urging the WTO to address the issue of how countries arbitrarily classify themselves as “developing” to justify raising trade barriers.

Is WTO Pro-developing Countries?

  • It is not wise to say that WTO rules always work to the advantage of developing countries alone.
  • Developed countries such as the U.S. have time and again tried to force poorer countries to impose stringent labour safety and other regulations that are already widely prevalent in the West.
  • These regulations increase the cost of production in developing countries and make them globally uncompetitive.
  • Developing countries further view the introduction of labour issues into trade agreements as beyond the scope of the WTO, which is primarily supposed to be an organisation dealing with trade.

Arguments against Trade Barriers

Many economists oppose the fundamental argument of poorer countries that low per capita income levels to justify their decision to raise trade barriers. They argue that free trade benefits all countries irrespective of their income levels. In fact, they argue that protectionist trade barriers impede the transition of developing economies to higher income levels. The developing country status is simply a false pretext to justify protectionism.

An extension of the US-China Trade War

Many view President Trump’s criticisms of the WTO as the opening of a new front in his trade war against China. Earlier, the U.S. President had termed China as a “currency manipulator” for allowing the yuan to depreciate against the dollar. China and the U.S. have also been slapping steep tariffs on imports from each other since early last year.

China’s developing country status at the WTO gives President Trump yet another opportunity to attack China. Since developing countries are likely to oppose any efforts to stop them from protecting their domestic economic interests, global trade rules are unlikely to experience any drastic reform any time soon.

WTO Losing Relevance

The inability of the WTO to rein in global trade tensions has raised questions about its relevance in today’s world. This is particularly so given that global tariff rates over the years have dropped more due to bilateral trade agreements rather than due to multilateral trade agreements brokered at the WTO.

The dispute resolution mechanism of the WTO which can pass judgments on disputes, lacks the powers to enforce them as the enforcement of decisions is left to individual member states.

WTO initially envisaged as a global body to promote free trade has now deteriorated into a forum where competing governments fiercely try to protect their narrow interests.

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