South Korea last week said that it would give up its “developing country” status at the WTO, which means it would forgo unconditional rights that come with its special and differential treatment (S&D) to protect its sensitive agriculture industry.
South Korean Minister of Economy and Finance Hong Nam-ki told a news conference in Seoul on Friday it would be difficult for the country to be recognized as a developing country in negotiations at the WTO with its enhanced global economic standing.
Yet it is clear that this announcement follows pressure from the US. Since early this year, US President Donald Trump has pressed the WTO to make sure that self-declared developing countries, especially China, do not take advantage of preferential treatment that is not consistent with their economic strengths and levels of development, while also pushing for an overhaul of the rules that address unfair trading practices. Washington proposes that member states should not be categorized as “developing” and enjoy S&D status if they are a member of the G20 or Organisation for Economic Co-operation and Development, classified as a high-income country by the World Bank, or they account for at least 0.5 percent of global merchandise trade.
South Korea, which has maintained its developing country status since 1995, meets all four of these criteria. Its government’s decision means that South Korea would not have more time to implement free-trade commitments, could not enjoy more exemptions from other member states’ safeguard actions and might be less likely to levy higher tariffs on imports to protect some domestic industries.
However, its move toward more trade liberalization and the further opening of its markets is a positive development for Taiwan, where policymakers believe a level playing field in Taiwan-South Korea trade would lead to mutually beneficial results for both economies in the long term. Taiwan already last year switched its status from a “developing” to a “developed” country in WTO negotiations, as the government intended for the nation to move toward trade liberalization to better connect with the global market, while paving the way for plans to join the Japan-led, high-standard Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Meanwhile, farmers in Taiwan and South Korea have voiced their opposition to the decision to drop the developing country status. It remains to be seen if the potential benefits from the change would offset the loss of S&D benefits and the possible negative impact on sensitive agricultural industries. Nonetheless, the development adds pressure on China.
China has been the world’s second-largest economy in terms of nominal GDP since 2010 and has continued to recognize itself as a developing country since joining the WTO in 2001. This status enables it to provide subsidies in agriculture and set higher barriers to market entry. Simultaneously, China promotes non-market, non-transparent policies, such as state subsidies and other protectionist measures, to undermine the fair competition environment of global trade, sparking criticism and punitive tariffs from the US and Europe.
As Washington and Beijing remain locked in a trade war, Trump in July threatened to withdraw recognition of developing country status for China and other wealthy economies at the WTO unless changes are made to the trade body’s rules.
However, 45 countries (including China and India) this month submitted to the WTO their opposition to the plan, and it would be naive to think that China would voluntarily change its status without more pressure from the White House. Seoul’s move could increase that pressure on Beijing, but more is needed from other fronts to address China’s problematic trade practices.
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