The developing country status of China and India at the WTO is largely justified

Jacques Berthelot (jacques.berthelot4@wanadoo.fr), July 25, 2021

Summary

The present paper attempts to clarify the issue of self-determination of the WTO status of each Member as a developed country or developing country (DC), which has been challenged mainly by the US, followed by the EU, against China and India.

In her inaugural speech of 13 February 2021, the WTO new Director General, Dr Ngozi Okonjo-Iweala, said she wanted to take the WTO preamble seriously: "The preamble of the Marrakesh Agreement states that the objectives of the WTO are to raise living standards, ensure full employment, raise incomes… The WTO is about people! It’s about decent work!". And, on 26 April 2021, she said that one of her three priorities will be to tackle agricultural subsidies, mostly given by developed nations including the US and the EU. It is why this paper makes its comparisons on a per capita basis of six WTO Members: four Western Members – USA, EU28, Canada, Japan –, China and India in 2019 and 2020, on five issues: income and wages; social performance; environmental performance; trade performance and agricultural support.

On all these issues China and India are justified to claim their developing country status. In few words: 1) the US per capita income at PPP (purchasing power parity) was in 2019 3.6 times higher than that of China and 9.3 times higher than that of India; 2) the Inequality-adjusted Human Development Index of the US and EU was 22% larger than that of China and 44% larger than that of India; 3) the cumulative CO₂ emissions of the US was twice that of China and 8.3 times that of India while those of the EU were 1.8 times that of China and 7.7 times that of India; 4) per capita US exports of all products were 2.4 times larger than those of China in 2020 and 21.7 larger than those of India and per capita US food exports were 9.5 times higher than those of China and 17.3 times higher than those of India; 5) the total agricultural support per agricultural working unit (AWU) was 8.3 times that of China for the US and 2.3 times for the EU28, and it was 11.1 times that of India for the US and the 3.1 times that of India for the EU28.

However, this justification of China's and India's status of developing economies should not be seen as an endorsement of many other aspects of their policies both internally – particularly in terms of undemocratic regimes and the persecution of Muslims in China with Uighurs and in India since Narendra Mody – and externally, notably the development of Chinese economic imperialism with the Silk Roads, especially the risk of too large indebtedness of Africa to China.

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Introduction

The present paper attempts to clarify the issue of self-determination of the WTO status of each Member as a developed country or developing country (DC), which has been challenged mainly by the US, followed by the EU, against China and India, by comparing available official data of broad macroeconomic indicators and trade performance of six WTO Members: four Western Members – USA, EU28, Canada, Japan –, China and India in 2019 and 2020.

In her inaugural speech of 13 February 2021, the WTO new Director General, Dr Ngozi Okonjo-Iweala, said she wanted to take the WTO preamble seriously: "The preamble of the Marrakesh Agreement states that the objectives of the WTO are to raise living standards, ensure full employment, raise incomes, expand production and trade in goods and services, and seek the optimal use of the world's resources in accordance with the objective of sustainable development. The preamble says it all! The WTO is about people! It’s about decent work! Let's put its overarching objective at the forefront as the driving force behind everything we seek to achieve for the multilateral trading system… The WTO’s work in new or innovative areas does not mean that traditional topics such as agriculture are forgotten. Agriculture is particularly important for many developing and least developing countries. Improving market access for export products of interest to these countries is of paramount importance, as is dealing with trade distorting domestic support. The growing domestic support entitlements of Members
must be addressed to level the playing field, so as to provide opportunities for small
scale farmers"¹. And, in a videoconference organised by the European Commission on 26 April 2021), "Okonjo-Iweala said that one of her three priorities for this year will be to tackle agricultural subsidies, which are mostly given by developed nations including the US and the EU… She said Beijing wants to see progress on agricultural subsidies, which currently represent around €1 trillion and could double by 2030. "I would like to look at subsidies across the board” and see how “from all perspectives we are creating a level playing field” the WTO chief said"².

Taking Dr Ngozi Okonjo-Iweala seriously that WTO is about people, most comparisons will be made on a per capita basis. These analyses will cover five issues: levels of income and wages; social performance; environment performance; trade performance and agricultural support. On all these issues China and India are justified to claim their developing country status.

I – Macro-economic indicators of the US, EU28, Japan, Canada, China and India

As macroeconomic indicators for the EU28 are not available but only for the Eurozone, we use the data for the three main countries: Germany, France, United Kingdom (UK), together with the US, Japan, Canada, China and India. Table 1 shows that the US per capita income at PPP (purchasing power parity) was in 2019 3.6 times higher than that of China and 9.3 times that of India. In per capita nominal GDP the US level was 5.8 times higher than that of China and 31.2 times that of India. And the US average wage at PPP was 3.4 times higher in 2019 than in China and 8.1 times than in India.

The percentage of US employment in agriculture (without forestry and fishing) was 18.1 times lower than in China in 2019 and 30.4% lower than in India (25% lower than in Nigeria).

Those economic indicators justify the developing country status of China and India at the WTO.

Table 1 – Per capita income of main developed countries with China, India, Nigeria in 2019

Source: IMF 2021, WB 2020 and 2019; WB: https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS; https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=105; UN population data base 2019

II – Social performance

Table 2 rests mainly on the UNDP (United Nations Development Programme)'s Human Development Index (HDI) which is a statistic composite index of life expectancy, education and per capita income indicators, used to rank countries on human development. The Inequality-adjusted Human development index (IHDI) is the actual level of human development accounting for income inequality. The unweighted average HDI of the 6 developed countries of 0,926 in 2019 (which was also that of the US and of the three EU countries) was 21.7% larger than that of China and 43.6% larger than that of India. And the US IHDI was 26.4% higher than that of China and 70.1% than that of India. In fact the US income distribution is more unequal than those of China and India if we compare the income share of the 1% richest and of the 40% poorest: in the US the 1% richest gets 20.5% of national income while the 40% poorest get 15.4%, a gap of 5.1% between the two. In China the 40% poorest get 17.2% of national income and the 1% richest 13.9%, a gap of 3.3% between the two. And, if in India the 1% richest gets 21.3% of national income (more than in the US) against 18.8% for the 40% poorest, the gap between the two is of only 2.5%. Apart from the US these indicators are lower in the other 5 Western countries than in China and India.

Table 2 – Human development index of main developed countries with China and India in 2019

Source: UNDP

Even if the US life expectancy at birth and maternal and infant mortality rates are significantly higher than in the 3 EU countries, Canada and Japan, they are much lower than in China and India. Again these two sets of indicators on income and health inequalities justify their developing country status at the WTO.

III – Environmental performance

Table 3 shows first the amount and share of each country (and EU28) in global cumulative greenhouse gas (GHG) emissions in CO₂ equivalent since 1751 and then in total and from agriculture emissions in 2019. For cumulative emissions the US 24.82% share was twice that of China and 8.3 times that of India while the EU28 22.0% share was 1.8 times that of China and 7.7 times that of India.

For 2019 the US total GHG was of 49% that of China and twice that of India and, per capita, 2.3 times that of China and 9.6 times that of India. For the EU28 the total GHG was 35% that of China and 1.4 times that of India and, per capita, 92% that of China and 3.8 times that of India. For the GHG emissions of agriculture the US level was 57% of that of China and 60% that of India but, per capita, il was 2.5 times higher than that of China and India. For the EU28 the EU emissions were at 60% of those of China and 64% of those of India but, per capita, they were 1,7 times higher than those of China and India.

Clearly on climate change China and India can claim their developing country status.

Table 3 – Greenhouse gas emissions in million tonnes CO2 equivalent: total and from agriculture

Source: https://ourworldindata.org/contributed-most-global-co2; UNFCC for total GHG (https://di.unfccc.int/detailed_data_by_party), OECD for agriculture excluding land use, land-use change and forestry (LULUCF). UNFCC data are for 2019 except for 2014 for China and 2016 for India. OECD data are for 2018 except for 2017 for China and India. https://stats.oecd.org/OECDStat_Metadata/ShowMetadata.ashx?Dataset=AEI_OTHER&Coords=%5bINDICATOR%5d.%5bGHGAG%5d,%5bCOUNTRY%5d.%5bBGR%5d&ShowOnWeb=true&Lang=en;

IV – Trade performance of the US, EU28, Japan, Canada, China and India: 2019&2020

Table 4 compares the exports of the main Western countries with those of China and India in 2019 (and 2020) for total products, food products and agricultural raw materials, and derives them per capita. If the US total exports accounted for only 66% of those of China in 2019 and 55% in 2020, per capita they were 2.87 times and 2.40 times larger, and if they were 5.08 times larger than those of India in 2019 (5.19 times in 2020), per capita they were 21.11 times larger (21.65 in 2020). If the EU28 total exports accounted for only 91.6% of those of China in 2019 (81.6% in 2020), per capita they were 2.56 times and 2.29 times larger, and if they were 7.08 times larger than those of India in 2019 (7.67 times in 2020), per capita they were 18,86 times larger (20.64 times in 2020).

If the US food exports were twice higher than those of China in 2019 (2.08 times in 2020), per capita they were 8.3 times larger (9.5 times in 2020), and if they were 4.5 times larger than those of India in 2019 (as in 2020), per capita they were 17.0 times larger in 2019 (17.3 in 2020). If the EU28 food exports were 2.2 times higher than those of China in 2019 (2.3 times in 2020), per capita they were 6.1 times higher in 2019 (6.5 times in 2020), and if they were 4.73 times larger than those of India in 2019 (4.66 in 2020), per capita they were 12.6 times larger in 2019 (12.5 times in 2020).

Table 4 – Exports of all, food & ag. products of US, EU28, Japan, Canada, China, India:2019-20

Source: https://unctadstat.unctad.org/wds/TableViewer/dimView.aspx

If the US exports of food + agricultural raw materials were twice those of China in 2019 (2.2 times in 2020), per capita they were 8.8 times higher in 2019 (9.5 times in 2020), and if they were 4.5 times larger than those of India in 2019 (as in 2020), per capita they were 18.6 times larger (as in 2020). If the EU28 exports of food + agricultural raw materials were 2.2 times those of China in 2019 (2.4 times in 2020), per capita they were 6.3 times higher in 2019 (6.8 times higher in 2020), and if the EU food + agricultural raw materials were 5.0 times higher than those of India in 2019 (4.9 times in 2020), per capita they were 13.3 times higher in 2019 (13.2 times in 2020).

Table 5 compares the imports of the main Western countries with those of China and India in 2019 and 2020 for total products, food products and agricultural raw materials, and derives them per capita.

Table 5 – Imports of all, food and ag. products of USA, EU28, Japan, Canada, China, India:2019-20

Source: https://unctadstat.unctad.org/wds/TableViewer/dimView.aspx

If the US total imports were 1.24 times higher than those of China in 2019 (1.17 times in 2020), per capita they were 5.41 times higher in 2019 (5.09 times in 2020), and if they were 5.36 times higher than those of India in 2019 (6.54 times in 2020), per capita they were 22.3 times higher in 2019 (27.3 times in 2020). If the EU28 total imports were 1.24% higher than those of China in 2019 (1.13 times in 2020), per capita they were 3.47 times higher in 2019 (3.16 times in 2020), and if they were 5.37 times larger than those of India in 2019 (6.28 times in 2020), per capita they were 14,3 times larger in 2019 (16.9 times in 2020).

If the US food imports were 1.15 times higher than those of China in 2019 (1.01 times in 2020), per capita they were 5.03 times higher in 2019 (4.41 times in 2020), and if they were 8.23 times larger than those of India in 2019 (and in 2020), per capita they were 22.3 times larger (27.3 times in 2020). If the EU28 food imports were 1.24 times larger than those of China in 2019 (1.03 times in 2020), per capita they were 3.36 times higher in 2019 (2.89 times in 2019), and if the EU food imports were 3.2% higher than those of India in 2019 (8.19 times in 2020), per capita they were 22.8 times higher in 2019 (22.0 times in 2020).

If the US imports of food + agricultural raw materials were of 90.6% of those of China in 2019 (85.7% in 2020), per capita they were 3.95 times higher in 2019 (3.73 times in 2020), and if they were 6.50 times larger than those of India in 2019 (7.14 times in 2020), per capita they were 27 times larger (29.8 times in 2020). If the EU28 imports of food + agricultural raw materials were 97.6% of those of China in 2019 (88.2% in 2020), per capita they were 3.36 times higher in 2019 (2.89 times in 2019), and if the EU food imports were 8.56 times higher than those of India in 2019 (8.19 times in 2020), per capita they were 18.6 times higher in 2019 (19.8 times in 2020).

Table 6 on the trade balance (exports of table 4 minus imports of table 5) shows that China is the only of the 6 countries to have a large positive balance for all products in 2019 as for 2020 (Japan also in 2020). On the contrary China has the largest deficit in food imports (2.9 times that of the US in 2019 and 5 times in 2020).

Table 6 – Balance of all, food and ag. products of USA, EU28, Japan, Canada, China, India: 2019-20

Hence the US deficit for all products of $923bn in 2019 was 2.2 times larger than the China surplus of $430bn (and the US deficit of $975bn in 2020 was 1.8 higher than the China surplus of $530bn) but per capita the US deficit of $2,806 in 2019 ($2,946 in 2020) was 7.9 times higher than the China surplus of $300 and, in 2020, it was 7.9 higher than the China surplus of $371. With India the US deficit of all products was 5.9 times higher in 2019 (10.5 times higher in 2020) and, per capita, the US deficit was 24.6 times that of India (43.9 times in 2020!). The EU28 deficit of all products of $230bn in 2019 was 65% of the China surplus of $430bn (the EU deficit of $188bn in 2020 was 35% of the China surplus in 2020) and, per capita, the EU deficit of $545 in 2019 ($366 in 2020) was 82% higher that the China surplus of $300 (98.5% higher in 2010. The EU deficit was 56% higher than that of India in 2019 (twice higher in 2020) and, per capita, it was 4.8 times higher in 2019 (5.5 times higher in 2020).

For food products as well as for food + agricultural raw materials Canada and India were the only of the 6 countries to have a positive balance in 2019 and 2020 (the EU balance is negative because of fish and preparations). The larger food deficit of China ($65.2bn in 2019 and $89.8bn in 2020) than those of the US ($22.3bn in 2019 and 17.9 bn in 2020) implies it was 34.3% of that of China in 2019 (19.9% in 2020) but, per capita, the US food deficit was 1.5 times higher than that of China in 2019 (and 13.5% lower in 2020). Compared to India food surplus of $13.7bn in 2019 and $14.4bn in 2020 (despite its large number of undernourished people!), the US food deficit was 1.6 times lower than the India surplus in 2019 (1.3 times lower in 2020) and, per capita, it was 6.8 times lower in 2019 (5.27 times lower in 2020). The EU28 food deficit was only 12.5% that of China in 2019 (4.0% in 2020) but, per capita, it was 34.9% that of China in 2019 (11.2% in 2020). The EU28 food deficit was 6 times lower than the India food surplus in 2019 (29.5% lower in 2020) and, per capita, the EU food surplus was 59% higher than the Indian food surplus in 2019 (71.2 higher in 2020).

Finally, the US deficit in food + agricultural raw materials was of only 13.6% that of China in 2019 (10.5% in 2020) and, per capita, it was only lower by 59.1% in 2019 (45.7% in 2020). With India the US deficit was 1.63 times lower than that of China in 2019 (1.25 times lower in 2020). The EU balance of food + agricultural raw materials was 9.2% of that of China in 2019 24.5% lower in 2020) and, per capita, (2.2% in 2020) but, per capita, of 34.9% of that of China in 2019 (11.2% in 2020). It was 121.9% lower than that of India in 2019 (24.5% lower in 2020) and, per capita, it was 324.2% lower than that of India in 2019 (65.9% lower in 2020).

V – Comparison of the agricultural supports of the 6 countries in 2019

Despite the theoretical and operational limitations of OECD indicators of agricultural supports, as they are used worldwide let us compare their levels in the major Western economies – USA, EU28, Canada, Japan – with those of China and India.

The OECD most significant indicator is the TSE (total agricultural subsidies) per agricultural working unit (AWU), but the MPS (market price support) is excluded because it concerns essentially import protection, particularly since 2014 when all explicit export subsidies were eliminated. In 2019 the US TSE-MPS was at $92.966 billion (bn)³ which, divided by 2.363 million (mn) AWU, implied an average subsidy of $39,342 per AWU. At the same time the EU28 TSE-MPS was of $97.237 bn which, divided by 8.954 mn AWU, implied an average subsidy of $10,860 per AWU. And China TSE-MPS was of $93.386 bn which, divided by 211.780 mn AWU, implied an average subsidy of $4,747 per AWU. In other words the US subsidy per AWU was 8.3 times that of China and that of the EU28 2.3 times. And the TSE-MPS per AWU was 11.1 times that of India for the USA and 3.1 times higher that to India for the EU28.

We could argue that we should delete the US domestic food aid but in that case we must do the same for India but here we have a problem of inconsistency between the data of OECD and the notifications made to the WTO for the US as for India: if the US domestic food aid was notified at $94.618 bn in the WTO green box for 2018-19, the OECD data show that the US non-commodity specific transfers to consumers from taxpayers for domestic food aid were of $40.192 bn in 2019. And if India has notified to the WTO $17.212 bn of Public stockholding for food security purposes for 2019 in the green box (plus $5.004 bn of market price support to rice in the AMS), the OECD data show that the same non-commodity specific transfers to consumers from taxpayers were of $16.932 bn in 2019 (but jumped to $58.148 bn in 2020). But China notified only $1.149 bn of domestic food aid for 2016.

If we exclude from the US TSE-MPS the $40.192 bn the subsidy per AWU falls to $52.744 bn and the US (TSE-MPS)/AWU falls to $22,333 so that the US agricultural subsidy was still 4.7 times larger than that of China and 6.3 times that of India. In the same way if we exclude from the Indian TSE-MPS its domestic food aid of $16.932 its (TSE-MPS)/AWU falls to $2,730 so that the US agricultural subsidy was 8.2 times that of India. On the other hand the EU28 domestic food aid is very low because most EU members have large social security benefits (of which minimal wages) and, furthermore, most EU direct payments are not notified to the WTO as they are allegedly decoupled and non-trade distorting.

Table 7 – OECD per capita agricultural supports of Western countries, China and India in 2019

Source: OECD (https://www.oecd-ilibrary.org/agriculture-and-food/agricultural-policy-monitoring-and-evaluation-2021_2d810e01-en) and national sources; VOP: value of agricultural production; TSE: total support estimate (inflated for the US by domestic food aid); MPS: market price support (mainly by consumers); AWU: agricultural working units

Furthermore SOL has shown that the Agreement on Agriculture (AoA) methodology to assess the domestic food aid can be applied to the US instead of notifying all of it in the green box, so that, for 8 products only – three cereals (wheat flour, corn flour, rice), three meats (beef, pork, poultry), dairy in milk equivalent and eggs – the US should have notified to the WTO $12.785 bn in 2012 for its product-specific AMS of its domestic food aid. This would have been 5.5 times larger than the Indian corresponding AMS for rice plus wheat. Yet it is India which is condemned by the WTO rules while the US notifies all its domestic food aid in the green box!⁴

Conclusion

It is clear that on the five issues – levels of income and wages, social performance, environment performance, trade performance and agricultural support – China and India are entitled to claim a status of developing country availing of a special and differential treatment under WTO rules.

Many other reasons plead for this status, which can be seen in the following papers below.

However, this justification of China's and India's status of developing economies should not be seen as an endorsement of many other aspects of their policies both internally – particularly in terms of undemocratic regimes and of the persecution of Muslims in China with Uighurs and in India since Narendra Mody – and externally, notably the development of Chinese economic imperialism with the Silk Roads, and the risk of too large indebtedness of Africa to China.

- Do not abolish the WTO but its control by the US-EU duopoly, particularly on agricultural and food products, SOL, March 6, 2021: https://www.sol-asso.fr/wp-content/uploads/2020/01/Do-not-abolish-the-WTO-but-its-control-by-the-US-EU-duopoly-21-03-06.pdf

- The biased ruling of the WTO panel in the US-China case on Domestic Support for Agricultural Producers, SOL, August 5, 2020: https://www.sol-asso.fr/wp-content/uploads/2020/01/Biased-DSB-ruling-in-the-US-China-case-on-Domestic-Support-for-Agricultural-Producer-5-August-2020.pdf

- Rebuilding the WTO for a sustainable global development, SOL, July 12, 2020: https://www.sol-asso.fr/wp-content/uploads/2020/01/Rebuilding-the-WTO-for-a-sustainable-global-development-J.-Berthelot-July-12-2020.pdf

- Unifying the developing countries' stances on the Green and Blue Boxes, SOL, December 13, 2019: https://www.sol-asso.fr/wp-content/uploads/2019/12/Unifying-the-developing-countries-stances-on-the-Green-and-Blue-Boxes-SOL-12-13-2019.pdf

- From customs duties to total agricultural protection: the case of the European Union-West Africa trade, SOL, April 19, 2018: https://www.sol-asso.fr/wp-content/uploads/2019/01/From-customs-duties-to-total-agricultural-protection.-April-19-2018.pdf

- Lars Brink and David Orden at the rescue of the US claims that India and China have undernotified their market price support of rice and wheat, SOL, September 8, 2018: https://www.sol-asso.fr/wp-content/uploads/2017/01/L.-Brink-and-D.-Orden-at-the-rescue-of-the-US-proceeding-against-India-and-China-MPS-on-wheat-and-rice.pdf

- SOL's proposal to solve the Public Stockholding's impasse, SOL, December 13, 2017: https://www.sol-asso.fr/wp-content/uploads/2017/01/SOLs-proposal-to-solve-the-Public-Stockholdings-impasse-December-13-2017.docx.pdf