Why is U.S. President is upset with WTO? What has been the issue?
U.S. President Donald Trump has been attacking the World Trade Organization (WTO) for allowing countries such as India and China to engage in unfair trade practices that affect American economic interests. Mr. Trump has shown objection about the preferential trade treatment that these developing countries are getting from the WTO over US, as according to him these are not developing economies, as they claim to be, but instead grown economies. What is the “developing country” status? The “developing country” status allows a member of the WTO to seek temporary exception from the commitments under various multilateral trade agreements ratified by the organisation. It was introduced as a mechanism to offer some relief to developing and poor countries to help them in their effort to adjust to a new global trade order marked by lower barriers to trade. Countries such as India and China, while seeking exception from various WTO agreements, have argued that their economic backwardness should be considered when it comes to the timeline of implementation of these agreements. However, WTO does not formally classify any of its members as a developing country rather each individual country is allowed to unilaterally classify themselves as developing economies. Therefore, as many as 2/3rd of the 164 members of the WTO have classified themselves as developing countries. How does this special status is beneficial to India and China? As part of this special status, developing countries such as India and China, can seek to delay the implementation of the WTO agreements owing to their disadvantaged economic status.
Owing to this “developing country” status, they continue to impose tariffs and quotas on goods and services in order to limit imports and promote domestic producers who are usually adversely affected by imports that are lower in price or better in quality.
Does this criticism by the U.S. justified? We must keep in mind that while the status of “developing country” was supposed to help poor countries to ease gradually into a more globalized world economy, it has had other unplanned effects. Since, WTO allows countries to unilaterally classify themselves as “developing”, many countries have been happy to make use of this freedom. To name a few, many developed economies such as Singapore and Hong Kong which have per capita income levels which are even higher than the U.S., have used this WTO provision to classify themselves as growing economies. Adding to above, countries such as China justify its claim to the status by mentioning the wide difference between its the per capita income level and that of other higher economies such as U.S. inspite of a many-fold increment in their per capita income over the last few decades. Thus, Mr. Trump may have an effective case in urging the WTO to address the issue of how countries arbitrarily classify themselves as “developing” to justify raising trade barriers. Does this status benefits only developing economies? It is not that this status is only meant for benefiting the developing nations but also the developed ones. This can be understood the following way. The developed countries such as the U.S. have tried to force poorer countries to impose stringent labour safety and other regulations that are already widely prevalent in the West. These regulations can increase the cost of production in developing countries and make them globally uncompetitive. According to the developing countries, the introduction of labour issues into trade agreements as far beyond the scope of the WTO. It is argued by many economists that free trade benefits all countries irrespective of their income levels and the protectionist trade barriers hampers the transition of developing economies to higher income levels. Thus, according to them the developing country status may simply be a false pretext to justify protectionism. What could be the possible outcomes and way ahead? WTO’s criticism by Mr. Trump is seen by many as the opening of a new front in his trade war against China. Previously, the Mr. Trump had termed China as a “currency manipulator” for allowing the yuan to depreciate against the dollar. Further, China and the U.S. have also been slapping steep tariffs on imports from each other since early last year. The “developing country” status of China at the WTO was just an another opportunity seized by U.S. President to attack China. It is unlikely that the global trade rules will experience any drastic reform so soon since developing countries are most likely to oppose any efforts to stop them from protecting their domestic economic interests. Also, the inability of the WTO to check in global trade tensions has raised questions about its relevance in today’s world. Further, the inability of the dispute resolution mechanism of the WTO to enforce the decision has left the power to the individual states. It is likely to go away from its sole purpose for which it was constituted and has been narrowed down to a platform where individual members try to fight for their personal interests. Read More