The Trump administration opened a new front in its quest to reform the global trade system on Friday by demanding that the World Trade Organisation update its definitions of "developing country" status and remove the favourable treatment that ranking brings to nations like China, its main trade rival.
If it doesn't get the change it wants, the administration said, it is willing to go it alone and will not apply that status to countries within the WTO it believes no longer qualify for special treatment.
The benefits of the developing country status, the White House said in a statement, include "longer time frames for imposing safeguards, generous transition periods, softer tariff cuts, procedural advantages for WTO disputes, and the ability to avail themselves of certain export subsidies - all at the expense of other WTO members."
In the memo, Trump directed US Trade Representative Robert Lighthizer to "use all available means" to change the WTO rules that allow countries to claim this status when economic data does not justify the special treatment.
"The WTO is in desperate need of reform," the memo says, citing definitions that hark back to its founding in 1995 and do not take into account the vast changes in economic status for nations such as China, which is now the second largest economy and largest exporting nation in the world.
"While some developing country designations are proper, many are patently unsupportable in light of current economic circumstances," the memo said, while also noting that nearly two-thirds of WTO members are claiming this status.
"China most dramatically illustrates the point," the memo said.
The US and China are in the throes of a trade war that has negatively affected both economies.
Indeed, on Friday the US reported that economic growth, hampered by the trade tensions, fell in the second quarter to 2.1 per cent, down sharply from the 3.1 per cent recorded in the first quarter.
When it entered the WTO in 2001, China clearly deserved the developing-country status, said Steven Englander, global head of G10 FX research at Standard Chartered Bank in New York.
"You can certainly understand the US viewpoint when they say that some countries with developing country status look pretty rich," he said.
US wins big in WTO fight against China over blocking of farm goodsBut he also cautioned that the Trump administration might not get the benefits it seeks in easing US trade imbalances just by changing WTO definitions.
"Were the WTO to do what the US wants it to do, the US would be surprised by how little its trade deficit changed," he said.
"What would happen would be is that some of the countries listed would have a smaller trade surplus and the countries that remain in the underdeveloped status would have a larger surplus with the US."
On July 16, the WTO ruled against the US in a dispute China brought to the Geneva-based entity in 2012.
It involved what Beijing called Washington's improper use of anti-subsidy tariffs on US$7.3 billion ($11b) worth of exports, including solar panels, wind towers, steel cylinders and aluminium extrusions.
Trump tweeted on Friday after the memo was issued: "The WTO is BROKEN when the world's RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment. NO more!!! Today I directed the U.S. Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!"
The memo cited economies it called wealthy but still claiming developing country status, including those of Brunei, Hong Kong, Kuwait, Macau, Qatar, Singapore and the United Arab Emirates.
"Mexico, South Korea and Turkey - members of both the G20 and the Organisation for Economic Cooperation and Development (OECD) - also claim this status," the memo said.
China's choice of Shanghai for US trade talks emphasises commercial focusLighthizer was directed to report back to Trump within 60 days. If after 90 days the USTR determines that no substantial progress has been made, it will take matters into its own hands and no longer recognise developing country status by those it thinks are misusing the designation.
Lighthizer and US Treasury Secretary Steven Mnuchin are due in Shanghai on Tuesday to restart stalled trade talks. China will be represented by Vice-Premier Liu He.
- South China Morning Post