Targeting China, Trump pressures WTO to crack down on 'developing nations'

President Donald Trump opened another chapter in the trade war with China, ordering his top trade negotiator to pressure the World Trade Organization to crack down on countries the U.S. doesn’t think should be allowed to declare themselves developing nations.

Trump singled out China in a memo to U.S. Trade Representative Robert Lighthizer, saying that “the United States has never accepted China’s claim to developing-country status, and virtually every current economic indicator belies China’s claim.” In response, China said that it’s still a developing nation and needs flexibility and policy room, according to state broadcaster CCTV.

The president, who has long been a vocal critic of the institution, called the WTO “broken” in a tweet that followed release of the memo. But analysts said it was unclear what power the U.S. had to effect any change or to use it as justification for tariffs or other potential remedies, given that decisions at the WTO are made by consensus and the issue has long been a point of contention.

The move came ahead of a trip by Lighthizer and other officials to China, to try and restart trade negotiations that stalled in May. The U.S. has insisted as part of those negotiations that China should give up its developing country status, something China has said it will not do.

“The U.S. is playing the old trick of threatening and pressurizing just before the two nations are set to have high-level trade negotiations,” CCTV said in its broadcast in Mandarin.

Derek Scissors, a China expert at the American Enterprise Institute, said the move would do little to change China’s mind.

“It’s just an American aspiration,” he said. “The WTO is incapable of making difficult decisions. The U.S. would have to threaten to leave the WTO outright for the Chinese to start becoming nervous.”

Trump in his memo gave Lighthizer 90 days to determine whether there’s been “substantial progress” toward limiting the number of countries considered developing nations. The U.S. may act unilaterally if not, Trump said.

Developed vs Developing

“Although economic tides have risen worldwide since the WTO’s inception in 1995, the WTO continues to rest on an outdated dichotomy between developed and developing countries that has allowed some WTO Members to gain unfair advantages in the international trade arena,” Trump wrote. “Nearly two-thirds of WTO members have been able to avail themselves of special treatment and to take on weaker commitments under the WTO framework by designating themselves as developing countries.”

Seven of the world’s 10 wealthiest economies, Trump said, claim developing-nation status -- Brunei, Hong Kong, Kuwait, Macau, Qatar, Singapore and the United Arab Emirates. So do Mexico, South Korea and Turkey, who are all members of the Group of 20 and the Organization for Economic Cooperation and Development, Trump said.

Trade Laws

Jennifer Hillman, a former WTO jurist now at the Council on Foreign Relations, said the benefits that self-declared developing countries receive under the WTO are actually fairly limited. They also relate mostly to negotiations of new multilateral agreements, the conditions of which they typically are given more time to meet. Given that few new major multilateral agreements had been negotiated at the WTO in the past decade that meant few new benefits had materialized.

But she said the substantive point that the Trump administration is making was correct.

Rufus Yerxa, a former WTO deputy director-general, said there are some provisions in the U.S. trade laws and WTO subsidies agreement that require developed countries to treat developing countries differently in trade investigations.

“It seems like what the Trump administration is saying is that it will not respect those provisions with respect to certain countries that it does not consider to be developing,” Yerxa said. “I’m not sure that this has huge commercial significance but symbolically it might be important.”

Special Privileges

U.S. concerns over the ability of countries such as China and India to accord themselves “developing” status and try to grab special privileges have been longstanding. It was a major factor in the break down of the Doha Round of trade negotiations at the WTO in 2008 when the administration of George W. Bush clashed with India over it.

But the Trump administration has gone further than previous ones with the president even threatening at times to pull out of the WTO.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, said it was also unclear what measures the U.S. could take going forward, though the administration could be setting the stage for a withdrawal some day.

“It certainly adds fuel to the administration’s ongoing fire against the WTO,” he said. “The tactics of the Trump administration are different. They like to throw grenades at problems. But a lot of the concerns are longstanding ones.”