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TWN
Info Service on WTO and Trade Issues (Feb26/17)
WTO: China’s $1.2 trillion trade surplus “unsustainable”,
warns DG Geneva, 16 Feb (D. Ravi Kanth) — The Director-General of the World Trade Organization, Ms. Ngozi Okonjo- Iweala, delivered a pointed message to Beijing at the Munich Security Conference on 13 February, stating that China’s $1.2 trillion trade surplus is unsustainable “because the rest of the world cannot absorb it,” while simultaneously downplaying the threat of unilateral tariffs imposed by the Trump administration. In her remarks in responding to questions from the moderator, Ravi Agrawal, the editor-in-chief of Foreign Policy, the DG suggested that China has “benefitted quite a bit from it [the trade surplus].” Ms. Okonjo-Iweala said, “At least, we are passing the message that the export-led growth model that drove China’s growth for the past 40 years cannot drive China’s growth for the next 40.” The DG continued: “And the $1.2 trillion trade surplus is not sustainable because the rest of the world cannot absorb it.” She noted that even though trade with the US dropped by 20%, “the trade is flowing to other places – Europe 8%, Africa is actually getting the largest flows, 26%, ASEAN 13%, Latin America 8%.” “It’s going everywhere,” she said. She issued a stark warning: “And if China does not act, we will see more barriers. So what we’re saying is [that] within the WTO rules, there are tools. They are not perfect, but they are tools that can be used to deal with this.” According to Ms. Okonjo-Iweala, “the EU [European Union] knows that also – or the EC [European Commission] – and they’re bringing some of it.” Asked by a participant what the EU should do regarding the alleged problems posed by China, and whether more regulation or deregulation was needed, the DG said: “So I’m not sure it’s your [the EU’s] regulation. I wouldn’t say more regulation. I think it’s dialogue, I think it’s agreements with China, plus using some of the multilateral tools at hand.” S&DT When the moderator asked if she had a message for China, Ms. Okonjo-Iweala said: “Never say never. China has benefitted from the multilateral system. It just got out of special and differential treatment after many years of resistance. There’s something at the WTO, sorry, if you call yourself a developing country, which China does, and by the way, they didn’t invent it.” However, the DG seemingly remained silent on the price China paid to join the WTO, especially the commitments it undertook – more than any other developing country to date – said a person familiar with the Munich Security Conference. China recently announced that it will not avail itself of special and differential treatment (S&DT) in current and future negotiations, while strongly supporting S&DT for other developing countries, the person added. US TARIFFS The DG’s remarks about China seemed particularly harsh in contrast to her comments concerning the United States. For example, when asked about the disadvantage caused to smaller countries by the US unilateral reciprocal tariffs – which allegedly breach Article I (most-favoured nation treatment) and Article II (binding tariff commitments) of the GATT 1994 – the DG appeared to downplay the concerns. She told the moderator: “We have to look carefully at the data. As the [Finnish] president said, not all small countries. It depends on what your trade is. You know, African countries, I say this is one time, maybe it’s good not to matter so much.” She added: “When we do the analysis, there is some impact. But it’s not as bad as one might expect. Less than 1% of GDP growth hit. But that’s also not a good thing because it means the continent is not so connected or integrated into world markets. I’m just using that as an example.” The DG suggested that the disruptions in the global trading system are not solely due to the US tariffs. “But the truth of it is this: if it is a power game, small countries are disadvantaged,” she said. “So, it’s not only about trade, it’s also about power and what you can be made to do or not made to do outside of the multilateral system.” Elaborating on the power dynamics, the DG said: “Now, let me say this: of my 166 members, about 140 have trade-to-GDP ratios north of 50%. So trade for them is an existential issue, whether it’s trade with the US or elsewhere. For the EU, for instance, the trade-to-GDP ratio is about 93%. For the US, 25%, China 38%. So there are some big, large countries that can maybe somehow make it on their own, but a whole host of others who may not.” As for the rhetorical question of “what should be done,” the DG responded: “And I think that what needs to be done is for those members and countries to have what I call agency. I would like to say that yes, the US has upended the rules-based order. Global trade rules are being undermined. But the US is 13% of world imports, 11% of world trade. What is happening to the other 89%? Can other countries please have agency?” Ms. Okonjo-Iweala said there is no point in constantly lamenting the current existential crisis. She called for middle-income countries to affirm that the multilateral trading system is valuable and to “support the rules-based system,” noting that “a lot is also broken that we need to fix.” The DG said: “The system is resilient, but it’s not robust. So we need to make it robust by doing the necessary reforms, and that is what we’re working on at the WTO.” The DG again underscored the need for “more agency.” She continued: “I’m tired of too much lamentation. Oh, the US has broken the world. Oh, the world has all come to an end. I’m sorry to say all this. But it would be better if people really sat up.” Stressing that the EU and middle-income countries must lead in the global trading system, she said: “Europe has the chance to lead the middle powers and support the system. And let us just do a little bit down with the lamentations and get going on trying to do the right thing.” When it was pointed out that the EU is following her advice on “agency”, she said “it’s great,” while also addressing the characterization of “Global North” and “Global South.” “This definition of Global South and Global North is also, we need to just also be careful about it because there are a lot of differences. But taking it as it is, in 1995, the Global North or developed countries contributed 60% of world GDP and the Global South 40%.” “Today,” she said, “those numbers are reversed. It is now the Global South that contributes 60% of global GDP and the North 40%. In 1995, South-South trade was 10% of world trade, today it’s 25%.” In short, the DG – who is an international civil servant as per paragraph four of Article VI of the Marrakesh Agreement – is apparently now telling sovereign governments what they should do, while attempting to minimize the damage caused by the world’s largest economy through its unilateral reciprocal tariffs, said people familiar with the development. +
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