How China’s new trade deal can help the US at the WTO

On New Year’s Day, a highly anticipated trade deal went into force. It’s called the Regional Comprehensive Economic Partnership (RCEP), and it combines the 10 members of the Association of Southeast Asian Nations (ASEAN) with five other countries, most notably China.

The pact is a headache for Washington. It showcases China’s leadership in the region, and will cost the U.S. an estimated $5 billion in lost exports to the Asia Pacific. But there is some good news. Not in Asia Pacific, mind you, but in Geneva, where the U.S. wants to reform so-called special and differential (S&D) treatment at the World Trade Organization (WTO). 

First the backstory. The WTO lets its members self-declare as a developed or developing country. Developing countries get S&D. For example, there are 27 relevant provisions on longer “transitional periods” for bringing obligations into effect, and 25 on “technical assistance.” By agreement, there are 10 provisions on technical barriers to trade, 10 on subsidies, but only a couple on health and safety standards, among others. The provisions say things like “take account of the special needs of developing country Members.” They have even come up in litigation a few times.

Where things get interesting is that the U.S. doesn’t like S&D. It argues that these provisions dilute developing country obligations at the WTO, and can encourage cheating. Not long ago, the Trump administration decided to do something about it.

In July 2019, the U.S. issued the “Reforming Developing-Country Status in the World Trade Organization” memorandum. Referencing “China and too many other countries,” it says it’s time for the Office of the United States Trade Representative (USTR) to act unilaterally and to “no longer treat as a developing country for the purposes of the WTO any WTO Member that in the USTR’s judgment is improperly declaring itself a developing country and inappropriately seeking the benefit of flexibilities in WTO rules and negotiations.” This means S&D.

The reaction abroad was over the top and predictable. India said the memo “strikes a death knell for the principle and practice” of S&D, and that it would “cause lasting and systemic damage to the multilateral trading system.” China conceded that it would not ask for a “blank cheque” on S&D, but vowed to exercise its rights in agriculture and financial services, in particular.

All told, two-thirds of WTO members claim the right to S&D. But the real problem is that S&D has morphed into something that goes well beyond the provisions themselves. It has become a narrative that has few referents in any texts. S&D thus gets in the way of negotiations, and undermines confidence in litigation when these provisions don’t work according to plan. Just ask Argentina and Brazil. 

Enter RCEP. The text is a mixed bag. It doesn’t cover a number of issues included in other trade deals, and some key obligations are shallow. But on S&D, RCEP is remarkably sober. It can help the U.S. engage China and others in reforming S&D at the WTO. 

On S&D, RCEP nods to the WTO’s phase-in period concerning intellectual property, and offers interesting language on a so-called “transitional safeguard.” But that’s about it. The chapters simply aren’t awash in S&D.

The real action is in the chapter on dispute settlement. Two things stand out. First, S&D is reserved for least developed countries (LDCs). Of RCEP’s current members, this means only Cambodia, Laos and Myanmar are eligible. The text calls attention to the “special situation” of LDCs, and requires that a complainant exercise “due restraint” in suing, and sanctioning, these countries. 

What does this mean? To a large extent, it doesn’t matter. It’s never going to come up in litigation. Cambodia, Laos and Myanmar have never participated in WTO dispute settlement. This is true of LDCs more generally.

Second, the panel is required to “explicitly indicate” how it took account of any S&D provisions raised in litigation. The WTO does this too, but for cases involving developing countries writ large, not just LDCs. The U.S. has no problem offering S&D to LDCs.  

Of course, like at the WTO, members of RCEP might come to see S&D as being more than what the text actually says. But in getting China and others to talk of reforming S&D at the WTO, the U.S. can use RCEP as Exhibit A.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University. Follow him on Twitter @marclbusch.