The White House has opened another front in its broader offensive against the World Trade Organization, which it considers to be woefully inadequate in governing global trade. President Donald Trump has directed an investigation into possible avenues of U.S. action against countries determined to improperly claim developing status to gain special treatment under WTO rules.
U.S. President Donald Trump, a frequent critic of the World Trade Organization, has taken another shot at it, complaining that rules allowing countries to designate themselves as developing economies eligible for special consideration in trade talks and in other matters at the WTO give some, like China, an unfair economic advantage. The criticism was included in a White House memo issued July 26, in which Trump also directed the Office of the U.S. Trade Representative to "secure changes at the WTO" that would prevent countries from claiming developing status not justified by "appropriate economic and other indicators."
Trump singled out China, which has the world's second-largest economy but is classified by the WTO as developing. The memo also pointed out that seven of the world's top 10 economies by gross domestic product per capita — Hong Kong, Kuwait, Macao, Qatar, Singapore and the United Arab Emirates — also have self-declared as developing and thus eligible for special and differential treatment under WTO rules. Mexico, South Korea and Turkey, despite being members of the Organization for Economic Co-operation and Development (OECD) and the Group of 20 industrialized nations, also classify themselves as developing, the memo pointed out. The memo notably omitted criticism of India, though it has been cited by the Trump White House as an abuser of this label. In May, the United States stripped India of its benefits under the Generalized System of Preferences. New Delhi is negotiating with the White House to try to avoid becoming a target of a Section 301 case that could lead to tariffs.
Why It Matters
It is unclear what way the United States has to change the WTO rules, given that Washington does not directly grant significant trade benefits to the countries that get special and differential treatment, giving it little leverage against them. The White House memo set a 60-day deadline for the U.S. trade representative to report on the status of negotiations on the classifications. After 90 days, it directs the trade representative's office to stop treating countries as developing under the WTO if the U.S. determines they have inappropriately claimed developing status and, where applicable, not back those countries' entry into the OECD. In addition to those actions, the trade representative could open investigations under Section 301 of the Trade Act of 1974, starting a process that could allow the White House to impose tariffs on countries determined to be treating the United States unfairly. However, threats to pull the United States out of the WTO are unlikely to come to fruition.
It is unclear what way the United States has to change the WTO rules, given that Washington does not directly grant significant trade benefits to the countries that get special and differential treatment.
The WTO does not set eligibility standards that differentiate between countries with developing and advanced economies. In a communique sent to members in February, the United States proposed that the WTO institute four criteria for measuring a country's eligibility for developing status. It suggested that members of the G-20 and the OECD should not be able to claim that status, and neither should countries the World Bank classifies as high income or countries that account for "no less than 0.5 percent of global merchandise trade." The United States, which has long complained about the way the WTO labels countries as developing, is not alone in attempting to change the organization's criteria. The European Union has also proposed reforms to the WTO process. By blocking appointments to the WTO's Appellate Body, the United States will effectively paralyze the multinational body's appeals process for trade disputes starting Dec. 10, forcing countries to manage their trade disputes on a bilateral level.
Dates to Watch
Imminently: The Office of the U.S. Trade Representative will soon publish a list of the countries that the United States believes are abusing the self-declared developing status label.
Sept. 25: Deadline for the U.S. trade representative to update the president on the status of negotiations with targeted countries as well as other WTO members who share in this complaint.
Oct. 25: The U.S. could cease to treat countries that do not make changes in response to U.S. demands as developing under the WTO.