China, South Korea, and other economic powerhouses are treated as “developing nations” at the World Trade Organization (WTO) and given preferential conditions in trade. This is a classic example of an outdated WTO rule.
U.S. President Trump has jumped on this. He vehemently criticized this on Twitter at the end of July and ordered the Office of the United States Trade Representative (USTR) to accelerate reform of the WTO. If no progress is made within 90 days, the United States will unilaterally stop extending the preferential treatment, it is said.
Of course, it would be problematic if the U.S. were to act in an intimidating fashion without giving its counterpart an opportunity to state its case. Setting that aside, though, the U.S. sense of the issue is very much correct. Japan should join hands with the United States and Europe and actively promote reform of the WTO system.
The WTO extends “special and different treatment” to developing countries and allows many kinds of preferential treatment, including in tariff application in developed nations’ markets and domestic subsidies in agriculture. This kind of special treatment is offered because it would be hard to demand trade liberalization on the same level as that expected of developed countries.
The problem, though, is that any country can receive the status of developing country simply by declaring itself one. This is a systemic loophole that has been pointed out in the past.
In its criticism, the United States targeted China, South Korea, Mexico, and Singapore. South Korea and Mexico, for example, are members of the Organization for Economic Cooperation and Development (OECD), which is regarded as a club of developed nations. Singapore has a higher per capita gross domestic product (GDP) than Japan.
The nation the United States sees as most problematic [in this regard] is China. China’s per capita GDP is not high, but it is the world’s second-largest economy. It exerts more and more influence on the world economy and is unabashed in its desire to seek economic hegemony. It is unreasonable to treat such a country in the same way as developing nations.
China’s favorite trick is to play its “developing nation” card to avoid its obligations as a major power not only at the WTO [but in other contexts as well]. This was also true in the negotiations on global warming countermeasures. China continues to receive financing from the World Bank even though it is a major contributor to that organization. At the same time, it is offering financing to many countries through the “Belt and Road” initiative, which aims to create a huge economic bloc.
On the other hand, there are also countries, like Brazil, seeking to give up their developing nation status at the WTO in order to gain backing for joining the OECD. Taking this opportunity, the WTO should establish clear criteria to distinguish developed and developing countries. Such a response would reflect the structural changes in the global economy.
At an international conference held in May, Foreign Minister Taro Kono highlighted the importance of reviewing the WTO’s preferential treatment for developing nations. If that is the case, then Japan should promote systemic reform with urgency. Japan should lead the discussion so the United States does not take unilateral action.