China’s status as a ‘developing country’ at the World Trade Organization (WTO) has become a contentious issue with a number of countries raising concerns over the upper middle-income nation deriving benefits reserved for developing countries under WTO norms. Moreover, concerns have been raised over the ‘least developed country’ (LDC) status, with Bangladesh potentially losing this tag after surpassing India in terms of GDP per capita.
Certain WTO agreements give developing countries special rights through ‘special and differential treatment’ (S&DT) provisions, which can grant developing countries longer timeframes to implement the agreements and even commitments to raise trading opportunities for such countries.
WTO pacts are often aimed at reduction in government support to certain industries over time and set more lenient target for developing nations and grant them more time to achieve these targets compared to developed ones.
The classification also allows other countries to offer preferential treatment.
How is a ‘developing country’ decided and why are some against China being classified as one?
The WTO has not defined ‘developed’ and ‘developing’ countries and therefore member countries are free to announce whether they are ‘developed’ or ‘developing’.
However, given the rise in China’s per capita income to become an upper middle-income country according to the World Bank and the country’s alleged use of unfair trade practices such as preferential treatment for state enterprises, data restrictions and inadequate enforcement of intellectual property rights, a number of nations have called on China to either refrain from seeking benefits available to developing countries or forego its classification as a developing country altogether.
“One way for China to show leadership would be by refraining from claiming benefits that would correspond to a developing country in ongoing negotiations,” the European Union said in a statement on the latest review of China’s Trade Policy conducted in October 2021. The United States Trade Representative also released a similar statement.
Australia too had recommended that China relinquish “its access to special and differential treatment”. China’s per capita income was $10,435 in 2020 according to the World Bank while that of India was $1,928.
How has China responded? What would be the impact of China losing this status?
China has consistently maintained that it is the “world’s largest developing economy” but has recently indicated that it may be willing to forego many benefits of being a developing country.
Li Chenggang, China’s Ambassador to the WTO, has reportedly said that the country may forego all exemptions available to developing countries in negotiations aimed at cutting fishing subsidies to curb overfishing.
Biswajit Dhar, professor of economics, Jawaharlal Nehru University, said a change in status for China to a “developed country” would impact negotiations in future agreements. “In effect China has (like developed countries) reduced its tariffs on most products to quite a significant extent.”
The WTO recognises LDCs relying on a classification by the UN based on a criteria that is reviewed every three years. LDCs are often exempted from certain provisions of WTO pacts. Bangladesh, currently classified as an LDC, receives zero duty, zero quota access for almost all exports to the EU. It is, however, set to graduate from the LDC status in 2026 as its per capita GDP has risen sharply surpassing that of India in FY21.
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