By He Weiwen Source: China Daily Published: 2019-8-26
The US leader signed a memorandum on July 26, directing the Office of the United States Trade Representative to stop treating "advanced economies" such as China as developing countries according to the World Trade Organization's rules, and urging the WTO to change its definition for developing country within 90 days. But since major reforms to the WTO require consensus (in effect unanimity) among all members, the world trade body cannot change the definition, even if it wants to.
The WTO is the most important global trade body comprising 164 members. And the US has the same rights within the WTO as the other 163 members. The US can forward any proposal to the General Council of the WTO for review and consultation but has no right to force the WTO to make a decision in its favor. Therefore, the 90-day ultimatum will earn the US only the scorn of the WTO and its members.
The memorandum has not only challenged the WTO's authority, but also caused confusion over the meaning of developing economy. The US leader also has questioned the status of China, Qatar, Singapore, and other developing economies, without saying what a clear definition of a developing economy should be.
Developing economy status not defined
The US delegation to the WTO raised the issue at the WTO General Council months ago but its contention was rejected by most of the members. In the WTO, it's mostly the members that claim developing economy status; the WTO has no definitions for developing and developed countries.
The term "developing countries" evolved from "under-developed countries", which comprised a large number of countries and regions that had been colonized or ruled by European powers and gained independence after the end of World War II.
The United Nations identified 50 least developed countries (LDCs) and sought the support of the international community for their development. In the 1970s, the UN Conference on Trade and Development focused on development and suggested the term "underdeveloped countries" (and LDC) be changed to "developing countries". But the UN, too, has no standard definition for developing countries (or economies) nor has the International Monetary Fund or World Bank.
Per capita GDP defines a developed country
The White House memorandum correctly describes China as the world's second-largest economy and largest trading country with foreign direct investment larger than most Organization for Economic Co-operation and Development countries. But that does not make China a developed economy. What makes a developed economy is the level of development, not the size. The comprehensive indicator should be per capita GDP, not total GDP.
India is already the world's seventh-largest economy with a GDP three times that of Switzerland. Yet nobody describes India as a developed economy, and none doubts that Switzerland is a developed country－because India's per capita GDP is less than $2,000 while Switzerland's is about $88,000. China's per capita GDP in 2018 was $9,770, less than the world average of $11,296.78, and slightly less than Equatorial Guinea's $10,174 and Malaysia's $11,239. If nobody describes Equatorial Guinea or Malaysia as a developed economy, why should China be described as one?
The percentage of a country's rural population is another indicator of its level of development. Since all developed economies are industrial societies, an overwhelming majority of their population lives in cities, with less 25 percent living in rural areas. For example, according to the World Bank, last year, only 18 percent of the US' total population lived in rural areas－the corresponding figures for the United Kingdom was 17 percent, Japan 8 percent, France 20 percent, and Germany 23 percent.
In China, however, 41 percent of the total population lives in rural areas.
True, China's share of global exports increased fivefold from 1995 to 2017. But that reflects the total volume of its exports, not its development level. China's per capita export volume was about $1,750 in 2018, while the US had a per capita export volume of about $5,000 and Germany more than $18,000.
China shoulders more responsibilities
More important, despite being a developing economy, China has shouldered more international responsibilities than even some developed economies. For instance, China remains committed to lowering its average tariff level to below 10 percent. By Nov 1, 2018, China had reduced the actual level of its tariffs to 7.5 percent and its trade-weighted average tariff level to 4.4 percent, close to that of developed WTO members (Japan 2.1 percent, the US 2.4 percent, the EU 3.0 percent and Australia 4.0 percent).
In terms of market access, China's new foreign investment law permits foreign investment in telecom services. By contrast, in the US, foreign investment is prohibited in basic telecom services, and navigation rights in US rivers are given only to US ships and the shipping companies must be led by US citizens. On the other hand, in China, trunk line high-speed railway operation is open to foreign ownership. As such, China is no less open than a developed economy in many sectors.
As far as multilateral obligations are concerned, China signed the WTO Trade Facilitation Agreement and Information Technology Agreement and accepted many obligations that apply to developed members.
Memorandum will prove to be an exercise in futility
If the WTO makes no progress on the US memorandum in 90 days, Washington plans to arbitrarily change the "status" of selected WTO member countries, giving the short-shrift to WTO rules. Which will be another form of crude unilateralism, signaling a dark future awaits global trade.
For the past more than two years, the US administration has been blaming WTO rules for its trade ills and triggering trade disputes with China, the EU, Mexico, Canada, Japan, the Republic of Korea, India and Vietnam. But these bullying tactics have not helped the US reduce its trade deficits with these economies. In the second quarter of this year, US exports were down 5 percent year-on-year, a decline bigger than the period before it launched trade wars against its trade partners. Since the root of the US' trade problems are imbedded in its own competitiveness and industrial structure, not the WTO, targeting the WTO or other economies won't get it anywhere.
The aothor is a senior fellow of Chongyang Institute for Financial Studies at Renmin University of China.