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TWN
Info Service on WTO and Trade Issues (Apr25/04) Geneva, 4 Apr (D. Ravi Kanth) — China, the European Union, Australia, and Brazil among others on 3 April said that they are being forced to impose retaliatory countermeasures against American goods and services due to the reciprocal tariffs announced by United States President Donald Trump on 2 April, a development that has seemingly caused the “biggest systemic shock” to the global trading system. In a single stroke, the reciprocal tariff regime announced by President Trump has seemingly put paid to the strenuously constructed rules of the 80-year-old General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization. Meanwhile, the WTO’s Director-General, Ms Ngozi Okonjo-Iweala, finally issued a statement on 3 April against the reciprocal tariff regime announced by President Trump. She said: “The WTO Secretariat is closely monitoring and analysing the measures announced by the United States on April 2, 2025.” “Many members have reached out to us and we are actively engaging with them in response to their questions about the potential impact on their economies and the global trading system.” According to Ms Okonjo-Iweala, “the recent announcements [by President Trump] will have substantial implications for global trade and economic growth prospects.” “While the situation is rapidly evolving, our initial estimates suggest that these [reciprocal tariff] measures, coupled with those introduced since the beginning of the year, could lead to an overall contraction of around 1 percent in global merchandise trade volumes this year, representing a downward revision of nearly four percentage points from previous projections,” the DG said. The DG conveyed to the Trump administration that she is “deeply concerned about this decline and the potential for escalation into a tariff war with a cycle of retaliatory measures leading to further declines in trade.” She said that “despite these new measures, the vast majority of global trade still flows under the WTO’s Most- Favored-Nation (MFN) terms.” “Our estimates now indicate that this share currently stands at 74%, down from around 80% at the beginning of the year. WTO members must stand together to safeguard these gains,” she added. She cautioned that the “trade measures of this magnitude have the potential to create significant trade diversion effects”, while underscoring the need for members to “manage the resulting pressures responsibly to prevent trade tensions from proliferating.” The DG underlined that the WTO was established precisely for moments like this – “as a platform for dialogue, to prevent trade conflicts from escalating, and to support an open and predictable trading environment.” However, the DG did not mention that the crucial enforcement function of the WTO remains paralysed because of the repeated blockage by the US since December 2019 of appointments to the Appellate Body, the highest adjudicating body for resolving global trade disputes at the WTO, said people familiar with the development. “CARPET BOMBING” The new reciprocal tariff regime announced by President Trump seems akin to the US practice of “carpet bombing” during the Vietnam War in the 1960s and early 70s, while paving the way for an unprecedented global trade war, said a trade official who asked not to be quoted. In announcing the reciprocal tariff regime at the White House Rose Gardens on 2 April, President Trump claimed that the US has been “looted, pillaged, raped and plundered by nations near and far, both friend and foe alike”. With the announcement of his imposition of reciprocal tariffs against some of the poorest countries that are currently “drowning” in post-Covid-19 economic recovery problems, President Trump has taken the world back to 19th century colonial trade, said the Nobel Prize-winning economist Paul Krugman in an interview with the BBC. “This is the biggest shock for the world trading system,” Krugman said. The European Union, in a strong condemnation of the US reciprocal tariffs on 3 April, said that the world will experience grave consequences because of these tariffs. European Commission President Ursula von der Leyen said the consequences stemming from the reciprocal tariffs “will be dire for millions of people around the globe.” “We are finalizing the countermeasures to retaliate against the 25% tariff on cars and automobile products”, while also finalizing the next round of countermeasures against the reciprocal tariffs, she said. The EU is the largest trading partner of the US and it has massive “firepower” to hit back with retaliatory countermeasures, said former WTO Director-General Pascal Lamy. Responding to Washington’s allegedly punitive reciprocal tariff regime, the Chinese foreign ministry spokesperson, Guo Jiakun, said that “the United States, under the pretext of reciprocity, has imposed additional tariffs on imports from multiple countries, including China.” “This constitutes a serious violation of World Trade Organization rules and severely undermines the rules-based multilateral trading system,” the Chinese spokesperson said. He said that Beijing “firmly opposes this and will take necessary measures to resolutely safeguard its legitimate rights and interests.” Countries, both big and small, that have been affected by the retaliatory tariffs rebuked the US for violating the core rules enshrined in the General Agreement on Tariffs and Trade (GATT), in particular the non-discriminatory principle outlined in its Article 1 and the binding sanctity of scheduled commitments in Article 2, according to statements issued by several countries. According to a news report in The Economic Times on 3 April, the Indian Commerce Ministry said in a statement: “Keeping in view the vision of Viksit Bharat [aimed at turning India into a developed country by 2047], the Department is engaged with all stakeholders, including Indian industry and exporters, taking feedback of their assessment of the tariffs and assessing the situation.” The US has announced a reciprocal tariff of 27% on Indian exports to the American market. The Indian Commerce Ministry said “the Department is also studying the opportunities that may arise due to this new development in the US trade policy.” Norway, which is being charged a reciprocal tariff of 16% on its exports to the US, said that it is disappointed with Washington’s tariff, adding that it will consult with the US, according to news reports. A “FLAWED” EQUATION? The reciprocal tariffs announced by President Trump from the White House Rose Gardens on 2 April appear to have been based on a “flawed” equation that has hit many countries, in particular the least-developed countries like Cambodia, Laos, Lesotho, and even inaccessible islands in the Pacific Ocean, with disproportionate force, said several people familiar with the development. According to several analysts, the reciprocal tariffs are allegedly based on “a dumb, stupid, irrational and unsustainable” equation. The reciprocal tariffs are structured on an equation whereby the US trade deficit with a particular country is divided by the total value of exports of the affected country to the US. Consider, for example, the US trade deficit with China, which currently stands at $291.9 billion, is divided by the total Chinese exports of $433.8 billion to the US ($291.9 billion divided by $433.8 billion equals 0.6728). In percentage terms, it would amount to 67%, which according to President Trump, is the tariff charged to US goods entering the Chinese market. Further, as part of the “discounted” reciprocal tariff that will be charged on Chinese goods entering the American market, the Trump team halved the 67% to arrive at a figure of 34%. This method of calculation for all countries, regardless of their specific economic conditions, has resulted in a disproportionate level of tariffs being imposed on the least-developed countries, said analysts. China, according to the latest calculation, would apparently be subjected to a total tariff of 65% on all its goods entering the US market (20% due to the fentanyl issue plus the 34% reciprocal tariff plus the 11% from the previous Biden administration), said an analyst who asked not to be quoted. The Trump administration has decidedly chosen to hit not only China but also several other countries like Thailand, Vietnam, Cambodia, Laos, and even Malaysia and Indonesia because of the likely prospect of the diversion of trade, said a trade official who asked not to be quoted. The “rushed job” by the Trump administration in constructing the reciprocal tariff regime has exposed how Washington is resorting to “irresponsible” unilateral measures that are seemingly undermining the global trading system, the trade official said. Consequently, using tariffs to adjust the trade balance is “inherently and strategically flawed,” the trade official argued, suggesting that the whole exercise might have carried some credibility if they only targeted five or six large countries. More worrisome is the fact that several African countries that are availing of the Generalized System of Preferences as well as the EU’s Everything but Arms initiative and the African Growth and Opportunity Act (AGOA), are being unilaterally targeted, said an African trade official. Effectively, the Trump administration has seemingly killed the preferential tariff schemes for the poorer countries, as well as the special and differential treatment (S&DT) architecture for developing countries, which are the building blocks for countries in the Global South to integrate into the global trading system, said people familiar with the development. Even in the case of New Zealand, which allows a zero tariff on farm and dairy products from the US while the US levies hefty duties on New Zealand’s dairy products, the Trump administration announced a reciprocal tariff of 10%, in addition to a baseline tariff of 10% on all countries, said a Northern trade official, who asked not to be quoted. UNRAVELLING WTO AGREEMENTS According to a trade policy expert, who had worked at the United Nations, “the imposition of new tariffs by the USA on imports from all countries not just violates its GATT commitments in the WTO but has the potential to unravel all the negotiated agreements at the WTO which have taken decades to conclude.” The expert suggested that “in the Uruguay Round, developing countries accepted binding commitments on most of their tariff lines and made significant commitments in new areas of interest to the developed world such as intellectual property and services, while developed countries, in exchange, agreed to open up areas of interest to developing countries, namely agriculture and textiles and clothing.” Many studies have shown that the gains to developed countries from the TRIPS and TRIMs agreements have outweighed many times the gains to developing countries from the Uruguay Round, the expert said. The TRIPS agreement limited developing countries’ flexibilities and raised their costs of using technologies or products patented in their territories, leading to a net flow of rents from the South to the North, the expert added. While developing countries’ obligations under the TRIPS agreement are enforceable and could be challenged under the dispute settlement mechanism, their rights to technology transfer were not enforceable, the expert said. The TRIPS agreement also provided a base to the developed world for all their future trade agreements, where they negotiated “TRIPS-plus” commitments. With broad recognition of this asymmetry, the Doha Development Round was launched in November 2001 with a development-focused agenda. However, it has not yet been concluded, sidelined in favour of plurilateral negotiations on issues of special interest to the advanced economies, said the expert. With the commitments on tariffs now also being withdrawn, there is an urgent need for developing countries to rethink their strategy towards this new development and have a collective response, the expert said. The expert emphasised that “the race to the bottom should be avoided at all costs, or else it will endanger the export interests of all developing countries in the long run.” One of the reasons for an advanced country to raise its tariffs on all countries is the expectation and assessment that the rapid advances in technologies, including large-scale production of industrial robots and generative AI will face excess capacity in their country if goods keep coming from low-cost countries, the expert said. In such a scenario, the increase in tariffs may not lead to trade diversion, so countries on which lower tariffs are imposed may not be able to gain market share at the cost of other countries facing higher tariffs, the expert said. The imposition of the carbon-border adjustment mechanism (CBAM) and de-risking of supply chains are also ways of protecting domestic markets in the rapidly digitalizing advanced countries, the expert said. “In such a scenario, developing countries should prepare a collective bargaining response,” the expert said, suggesting that “withdrawing their commitments under GATS (General Agreement on Trade in Services) and TRIPS could be used as a counter to the increase in tariffs.” Further, “removing the moratorium on customs duties on electronic transmissions and imposing customs duties on digital imports from the USA and other advanced countries could be another way to counter such actions,” the expert suggested. “This will also help in developing digital sectors in the developing countries and generating new sources of revenue for their digital transformation,” the expert concluded. +
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