US shortens its “developing countries” list
The US Trade Representative announced that the US has shortened its internal list of “developing countries”. Under current US law, countries defined as “developing countries” are entitled to special treatment for purposes for determining whether imports from those countries are harmful to US industries. The consequence is that there will be fewer “developing countries” whose products will qualify for the benefits afforded by the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures (SCM Agreement).
The WTO has, over the decades, instituted a number of preferential trade and subsidy policies for developing countries. These include the SCM Agreement. The aim of this preferential treatment is to help poorer countries reduce poverty, generate employment and integrate themselves into the global trading system. Interestingly, the WTO does not actually define “developing country”. Instead, member countries are able to declare themselves to be “developing” and in turn receive preferential trade terms. Herein lies the problem, for the US at least.
Unsurprisingly, large economies such as China and India have declared themselves as “developing countries” and consequently benefitted from the preferential treatment in terms of the US countervailing subsidy law, which gives effect to the SCM Agreement in US domestic law. It makes sense, therefore, for the US to boot China, the second largest economy in the world, off of its list of developing countries. The issue is, however, that the US did not stop with China and India. Worryingly for us is that South Africa too has fallen off this list.
It is certainly common cause that South Africa is not a developed country, so why does the US no longer consider us a developing country?
The US indicated that there were certain groups of countries that could not be classified as developing and seems to be taking a check-box approach to its classification. Simply put, the US shall not regard a country as developing if it is a member of the G20, is or seeks to be part of OECD, is classified as “high income” by the World Bank or accounts for no less than 0.5% of global merchandise. South Africa, for example, despite having a trade deficit, rampant poverty and unemployment, sits on the G20 and is a member of the OECD. Therefore, to the US, we are not a developing country.
So, what will be left in the wake of the US’ decision? Some countries, such as the industrious nation of South Korea, have opted to drop the designation of “developing”. No doubt other countries as reliant on US relations as South Korea shall follow suit. Naturally, though, the main targets of the US decision have refused. China still ranks itself as a developing country in need of the economic and trade benefits that accompany it. But what about the small outliers who have dropped off the list? The ramifications of this are potentially severe for a country like South Africa which relies on the export of agricultural and mined goods. This certainly cannot be good news for an already depressed mining sector. One would imagine that the most likely long-term result is that South Africa looks east for more trade.
According to the South African government, however, exports are likely to be unaffected by the US’ decision. While acknowledging that the new approach taken by the US in determining who is worthy of the “developing” designation will have to be more closely studied, the government is of the view that because it does not provide South African exporters with any subsidies that are prohibited in terms of WTO policies, we should see no direct impact from the decision. Whether or not this view proves to be optimistic remains to be seen.
While there are other preferential policies that may come to our aid, South Africa’s preferential US market treatment is already under review, making the latest decision of the US Trade Representative all the more concerning. It is perhaps too early to tell what may come, so for now we watch and wait.