US tries to undermine its own creation

By Fabio Massimo Parenti Source:Global Times Published: 2019/7/30 19:33:40

Photo: IC

Many national powers on the world stage agree that the WTO needs reform, but perspectives on this issue often diverge. Remember, the WTO entered a crisis a few years after it was formed, namely the 1999 Seattle WTO protests. 

Early criticism came from the bottom, small and medium-sized businesses and from local and small producers who were negatively impacted by the trade deregulation process that was implemented without clear democratic procedures. Today's crisis is centered on relations between major powers, China, the US, the EU, Russia and India, among others. 

US President Donald Trump's recent statements on WTO reform and the status of developing countries and least developed countries are an example. The target was China, which would open another trade war chapter, at least from the US perspective. All of this is unfolding after 40 years of Western-driven globalization that has involved deregulation in trade, service and finance. 

The US maintains that China and other developing countries have benefited too much from their status through special and differential treatment. Measures have been implemented to support developing and least developed countries in their market reforms, allowing them more time to access the WTO and accomplish membership through treaties and rules. The US has claimed such procedures need more in-depth review. However, other countries debate WTO reforms concerning trade dispute mechanisms and enforcement devices.  

It is ironic how the US acts unilaterally regardless of the circumstances, solely looking out for its interests. Washington is the new "tariff lord." It launched the trade war against China and other competitors. The action has divided the world into friends and enemies, and how much countries are willing to cooperate with US will. 

In the latest trade war development, WTO principles have been negated. The US has demanded market reforms based on unfounded accusations that China has created problems. Allegations against China include so-called national security issues related to telecom corporations and intellectual property theft. The US administration knows how to make a large minestrone soup, throwing industrial, legal and geopolitical issues in the same pot. 

China entered WTO in 2001 after changing a significant number of laws and regulations and accepting all of the conditions negotiated at the international level. At that time, China fulfilling WTO requirements faced zero opposition. 

We should not only focus on the special treatment foreseen in the developing world, but also on the limitations imposed on Chinese exports, even after it being a WTO membership for years. Other constraints China has faced include the use of a special price determination method that has involved surrogate nations. This was another move Beijing felt was unfair as there was no connection to domestic costs. 

The latter method had to end in 2016, according to accession protocol. Western nations refused to meet this obligation by using market economy status (MES) as a pretext and not linked to WTO formal requirements. Meanwhile, over 80 countries recognized China's MES.

The US and Europe supported and laid the foundation of the WTO and its subsequent expansion. Their efforts benefited the internationalization of their companies, not the socioeconomic structure of their nations and allowed other nations to open up. Western businesses could expand globally as they were supported by US dollar dominance, along with other levers, which made it easier for them to exploit lower labor costs, lack of domestic competition and financial weaknesses. 

Simultaneously, various regions underwent a financial crisis as a result of opening up too quickly, foreign speculation-manipulation, and weak economic and institutional environments. China was also exploited this way, but figured out a way to strengthen its political independence and priorities which helped avoid a severe crisis. Reform would happen gradually, according to its economic environment and combining careful global integration and domestic development. 

When countries like China and other emerging nations started to innovate and compete internationally while taking a more active role in global governance, the US began to question the WTO's institutional framework that it created with Europe.  

The author is professor of geography and international studies teaching at the International Institute Lorenzo de' Medici, Florence. He is also member of CCERRI think tank, Zhengzhou, and EURISPES, Laboratorio BRICS, Rome. His latest book is Geofinance and Geopolitics, Egea. Follow him on Twitter @fabiomassimos

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