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China’s developing country status brings it few benefits in the WTO

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A CRH (China Railway High-speed) bullet train leaves the Beijing West railway station at night in Beijing, China, 8 July 2019 (Photo: Reuters/Liu Jiaye).

In Brief

Whether China is a ‘developing’ or ‘developed’ country for the purposes of the World Trade Organization (WTO) matters a lot to US President Donald Trump. Trump ignited a new front in the US–China trade war in July 2019 by tweeting that the world’s richest nations are masquerading as developing countries to get special treatment. They are ‘cheating’, according to Trump. He directed the US Trade Representative Robert Lighthizer to ‘use all available means to secure changes’ at the WTO.

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Then Australia joined in. While in the United States, Australian Prime Minister Scott Morrison referred to China as a ‘newly developed economy’. He backed Trump by saying that, ‘Obviously, as nations progress and develop then the obligations and how the rules apply to them also shift’.

China is digging in. It stands by a statement from its Commerce Ministry spokesman Gao Feng in April 2019 that ‘China’s position on WTO reform has been very clear. China is the largest developing country in the world’.

What’s at stake? In practical terms, almost nothing. Trump and Morrison are demanding something that would give them little.

In the WTO, developing countries are entitled to ‘special and differential treatment’ set out in 155 rules. But none of those rules define a ‘developing country’. Instead, each member is able to ‘self-designate’, subject to challenges from other members.

Being recognised as a developing country was one of the three key principles on which China insisted when negotiating to join the WTO in 2001. It faced resistance. Several members cited ‘the significant size, rapid growth and transitional nature of the Chinese economy’.

In response, the WTO took what it called a ‘pragmatic approach’, meaning that China received hardly any of the special treatment that would normally be accorded to a developing country. For example, under the Uruguay Round of tariff reductions that applied to developing countries already in the WTO, China would have only needed to cut its average industrial tariff from 42.7 per cent to 31.4 per cent. Instead, it agreed to cut it to 9.5 per cent.

Similarly, it agreed to cut its agricultural tariff from 54 per cent to 15.1 per cent, instead of the 37.9 per cent that would have been required had it already been in the WTO. These cuts put its commitments on par with those of developed rather than developing countries.

On some issues, China’s commitments far exceeded those of even developed countries. For example, it agreed to eliminate all export subsidies on agricultural products, an obligation that developed countries were only able to accept 14 years later. It also undertook eliminating all export taxes, which are still allowed under WTO rules and still widely used by many governments. Many of China’s WTO commitments were imposed only on China, or the general rules were modified to either impose heavier obligations on it or confer less rights on it.

Contrary to popular belief, China received hardly any of the benefits that accrue to developing countries when it became a WTO member, besides the ability to use the title ‘developing country’.

After its accession to the WTO, China acted as a member of the developing country group and pushed hard for the group’s interests. In 2003, it joined India and Brazil in pushing developed countries to reform their agricultural trade policies while retaining flexibility for developing countries, a move that is yet to achieve success.

In the meantime, China enjoys little preferential treatment itself, partly because it has eschewed special benefits and partly because most of the transition benefits that were available to it have expired. Some of the provisions available to it are essentially voluntary on the part of the country offering them. Other times, the benefits available to developing countries are not available to developing countries with large export shares. At times, China has also actively forgone important benefits such as by not invoking its right to receive technical assistance under the WTO’s Trade Facilitation Agreement.

On some other issues, China’s sheer size has made it difficult to accommodate the country’s claim to developing country treatment. The negotiation on fisheries subsides, for example, would not be able to move without substantial commitments from China, since it implements one of the largest subsidies in the world.

In its position paper on WTO reform, China says it ‘will never agree to be deprived of its entitlement to special and differential treatment as a developing member’. At the same time, it ‘is willing to take up commitments commensurate with its level of development and economic capability’. It remains far less developed than traditionally developed countries. In purchasing power terms, its standard of living is about one-third that of the United States.

Although not practically important in terms of its obligations under the WTO, China’s developing country status is useful in other ways, giving it the opportunity to gain meaningful advantages in other international organisations such as the Universal Postal Union.

It costs the rest of the world little to accommodate China’s wish to be described as a developing country. If Trump and Morrison got what they wanted, they would find little had changed.

Henry Gao is Associate Professor of Law at Singapore Management University.

Weihuan Zhou is a Senior Lecturer and member of the Herbert Smith Freehills CIBEL Centre, Faculty of Law, UNSW Sydney.

A version of this article originally appeared here on The Conversation.

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