Why is US adamant on the redefinition of ‘developing country’ status in WTO?

In April 2020, US President Donald Trump again raised the issue of reforming the criteria for ‘developing’ country status in WTO, especially mentioning India and China. Even his predecessor Barak Obama had spoken of the same during his presidential term.

In a related move, on 10 February 2020, US had removed a number of countries, including India and China, from its trade list of developing countries maintained by United States Trade Representative (USTR). This meant that these countries could no longer escape punitive tariffs for exporting certain goods to US that were allowed to developing countries.

US enumerated following three criteria for these countries to not receive benefits-

1. WTO members with a per capita GNI above $12,375 as per World Bank data.
2. WTO members that have no less than 0.5% of the global trade share.
3. Countries that are either members or have applied for the membership of Organization for Economic Co-operation and Development (OECD), members of European Union and G20.

Unlike these parameters, declaration of ‘developing’ status in WTO is very straight forward by the way of “self-declaration”.

 Who can declare itself ‘developing’ country?

The status of developing county is based on ‘self-declaration’ and has no strict definition in WTO. Members can choose either ‘developing’ or ‘developed’. Out of 164 members of WTO, almost two-third have declared themselves as developing which has allowed them many trade benefits.

Benefits of ‘developing’ country status

It is often assumed that if a country has ‘developing’ status, it automatically becomes entitled to preferential schemes of trade by developed nations. This is not true as the preference giving nation can decide on its own the countries that stand to benefit from its schemes. For example, the Generalized System of Preferences under the U.S. Trade Act of 1974 facilities faster development of poor countries through trade benefits.

Nonetheless, WTO also have provisions known as “special and differential treatment” for the trade growth of developing countries-

1. A longer time frame provided to developing countries to implement WTO Agreements and commitments.
2. Measures are undertaken to increase opportunities for trade for developing countries.
3. All WTO members are urged to protect the trade interests of developing countries.
4. Support is also provided to developing countries to build capacity for the implementation of technical standards, execute WTO works and handle disputes.
5. Provisions related to least-developed country (LDC) members are also available.

Misuse of developing country status- the reason for USA’s step

With all these benefits, concerns against the misuse of these provisions have been raised by developed countries. The lack of strict criteria for developing status has instigated US to accuse China, the second largest economy and also other of appropriating the trade benefits that should be going to poorer countries.

Along with US, European Union and Japan had also issued a statement in September 2018 to update the rules of self-classification of developing or developed status and having a monitoring mechanism to review that status.

Suggestions for the parameters of developing country status

Overall, the demand for reforms in definition of ‘developing’ country status cannot be based purely on economic indicators, but should also consider social development indicators like health, education, infant mortality rate etc.

WTO should examine how well the wealth of a nation is distributed among its population as cumulative figures of GDP or GNI can be a misleading representation of the development of a country. Per capita income, on the other hand, presents a better indicator and has a more equalizing effect.

Without these considerations, redefinition of developing country status will only adversely affect the mandate of WTO to provide a fair platform for global economic policy making and assisting developing and transition economies for greater growth.

Related:

1.What are the key areas of reforms if the WTO has to survive in the present context of unilateralism and protectionism?

2.WTO struggling to stay relevant