Developing Country Status

• 28 Oct 2019

• Recently, South Korea decided not to seek special treatment reserved for developing countries by the World Trade Organization (WTO) in future negotiations given its enhanced global economic status.
• South Korea, Asia's fourth-largest economy, has maintained its developing country status as a member of the WTO since the body's creation in 1995, mainly to guard its agriculture industry.

Background

• In July, 2019, USA accused developing countries, particularly China and India, of unfairly benefitting from their “developing country" status under the World Trade Organization (WTO) regime which permits such countries special and differential treatment (or S&D in WTO parlance).
• USA asked the WTO to define how it designates developing-country status, a move apparently aimed at singling out countries like which are getting lenient treatment under the global trade rules.
• The US has proposed that the WTO strip countries of developing-country status if they meet the following criteria-
  • being members of the Group of 20 advanced economies
  • being members of the Organisation for Economic Cooperation and Development (OECD)
  • being high-income countries as classified by the World Bank
  • taking up at least 0.5 percent of total global trade.

Impact of South Korea’s Decision

• The decision is likely to put pressure on countries like China and India which are enjoying the WTO’s developing country status, to reconsider and change their status in the WTO.

Definition of Developing Country

• In the WTO, developing countries are entitled to “special and differential treatment” set out in 155 rules. It was introduced as a mechanism to offer some respite to poor countries while they try to adjust to a new global trade order marked by lower barriers to trade.
• However, none of those rules define what a “developing country” is. Members announce for themselves whether they are “developed” or “developing” countries.
• However, other members can challenge the decision of a member to make use of provisions available to developing countries.
• As many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.
• The WTO deals with the special needs of developing countries in three ways:
  • The WTO agreements contain special provisions on developing countries. These provisions are referred to as “Special and Differential Treatment” (S&D) provisions.
  • The Committee on Trade and Development is the main body focusing on work in this area in the WTO, with some others dealing with specific topics such as trade and debt, and technology transfer
  • The WTO Secretariat provides technical assistance (mainly training of various kinds) for developing countries.

Advantages under Developing Status

• Under the global trade rules, developing countries claim entitlement to longer timeframe for the imposition of safeguards, generous transition periods, softer tariff cuts, procedural advantages for WTO disputes and the ability to avail themselves of certain export subsidies. For ex. developing countries such as India and China can seek to delay the implementation of these WTO agreements owing to their disadvantaged economic status.
• Developing countries are allowed to provide considerably larger input subsidies and minimum price support (they can offer product-specific farm subsidies up to 10% of the value of production, against 5% for developed countries, although the latter enjoy other flexibilities).
• Further, these countries will continue to provide indirect export subsidies, covering internal transport and marketing, until 2023, five years after the deadline for elimination of all forms of export subsidies.
• Developing countries can continue to impose tariffs and quotas on goods and services in order to limit imports and promote domestic producers who may otherwise be affected adversely by imports that are lower in price or better in quality. For ex., India subsidises agriculture heavily in the name of food security in order to protect its farmers.

Way Forward

• While the developing country status was supposed to help poor countries ease gradually into a more globalised world economy, it has had other unintended effects.
• Even many developed economies such as Singapore and Hong Kong which have per capita income levels higher than the U.S., have made use of the provision to classify themselves as growing economies.
• When the wealthiest economies claim developing-country status, they harm not only other developed economies but also economies that truly require special and differential treatment. Such disregard for adherence to the WTO rules, including the likely disregard of any future rules, cannot continue to go unchecked.
• The WTO is in desperate need of reform, without which the WTO will be unable to address the needs of workers and businesses or the challenges posed by the modern global economy.