Malaysia files request for consultations with the European Union and Certain Member States on certain measures concerning palm oil and oil palm crop-based biofuels at the WTO on January 15

Malaysia filed the second request for consultations of 2021 on January 15, 2021. The request for consultations addresses the European Union, France and Lithuania and certain enumerated measures pertaining to palm oil and oil palm crop-based biofuels. See WT/DS600/1 (15 January 2021). France and Lithuania have already adopted laws and regulations implementing and EU provision which Malaysia views as violating a wide range of WTO obligations. As other EU members are working on possible implementing laws and regulations, Malaysia is keeping open the possibility of raising issues with additional EU members.

Because the dispute involves the interface of EU efforts to reduce greenhouse gases and trade restricting effects on certain biofuels that the EU views as not sufficiently promoting the reduction greenhouse gases, it will likely draw a lot of attention. The background part of the request for consultations lays out the Malaysian concerns.

A. Background

“1. Malaysia is the world’s second largest producer of palm oil. In 2019, Malaysia produced around 19.86 million metric tonnes of crude palm oil, accounting for 28% of world palm oil production and 33% of world palm oil exports.1 In 2019, Malaysia exported around 1.9 million metric tonnes of palm oil to the EU. The palm oil industry directly employs more than one million Malaysians and 40% of all palm oil plantations in Malaysia are owned or farmed by smallholder farmers, who have benefited from oil palm cultivation.2 Palm oil production and export has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today.

“2. As one of the biggest producers and exporters of palm oil and palm oil products, Malaysia recognises that it has an important role to play in fulfilling the growing global need for oils and fats in a sustainable manner. Malaysia is a responsible producer of palm oil and has long taken the lead in the continuous process of making palm oil production more sustainable and environmentally friendly. As of December 2020, nearly 90% of Malaysia’s total oil palm cultivation has obtained Malaysian Sustainable Palm Oil (MSPO) certification. Additionally, as at that date, 428 of Malaysia’s 452 oil palm mills, corresponding to around 95% of total milling capacity, received the MSPO certification. Most recently, on 1 January 2020, Malaysia made the MSPO certification mandatory.

“3. It is important to recall Malaysia’s commitment at the 1992 Rio Earth Summit, where it pledged to maintain at least 50% of the country’s landmass under forest cover. On the basis of data from 2018, about 55.3% of Malaysia’s 33 million hectares (ha) land areas are under forest cover, exceeding the country’s pledge made at the Rio Earth Summit.

“4. In the context of addressing the environmental risks posed by the extensive use of fossil fuels, the EU and its Member States have, since 2009, adopted a policy of promoting the use of biofuels by setting national targets for the use of renewable energy in various sectors, including the transport sector. This policy led to a rapid increase in the EU consumption of biofuels, produced mainly from food crops.

“5. While the measures taken by the EU and EU Member States under this policy pursue the reduction of greenhouse gas (‘GHG’) emissions and the achievement of commitments under international climate agreements, some of these measures contravene their WTO obligations. In 2018 and 2019, the EU adopted legislative measures that, in simple terms, define palm oil as an unsustainable feedstock for the production of biofuel. The EU further argues that only palm oil production entails a high risk of indirect land-use change (‘ILUC’). On that basis, oil palm crop-based biofuels cannot be counted towards EU renewable energy targets.3

“6. Generally speaking, the measures adopted by the EU, as well as the related measures adopted by EU Member States, confer unfair benefits to EU domestic producers of certain biofuel feedstocks, such as rapeseed oil and soy, and the biofuels produced therefrom, at the expense of palm oil and oil palm crop-based biofuels from Malaysia. These measures may also discriminate against Malaysian palm oil and oil palm crop-based biofuels in favour of ‘like products’ from third countries.

“7. Malaysia submits that the measures adopted by the EU and its Member States currently already limit and will increasingly limit the volume of Malaysian palm oil and oil palm crop-based biofuels that can be counted towards reaching EU renewable energy targets and, consequently, that will be sold in the EU market.

“fn1 Malaysian Palm Oil Council (MPOC), Malaysian Palm Oil Industry. Available at:
http://mpoc.org.my/malaysian-palm-oil-industry/. Malaysian Palm Oil Board, Production 2019. Available at
http://bepi.mpob.gov.my/index.php/en/production/production-2019/production-of-oil-palm-products-
2019.html.

“fn 2 Malaysian Palm Oil Council (MPOC). Available at http://theoilpalm.org/about/http://theoilpalm.org/about/.

“fn 3 See European Commission, Factsheet, Indirect Land Use Change, 17 October 2012, available at https://ec.europa.eu/commission/presscorner/detail/de/MEMO_12_787 (accessed 13 January 2021). See also Recitals 80 and 81 of the RED II.”

The full request for consultations is embedded below.

600-1

The Malaysian request for consultations raises similar allegations of WTO violations by the EU and member states as a case filed by Indonesia in late 2019 where a panel was finally composed on November 12, 2020. See European Union — Certain measures concerning palm oil and oil palm crop-based biofuels, WT/DS593/10 (composition of panel). Malaysia and many other countries are third parties in that dispute.

The WTO alleged violations in Malaysia’s request for consultations are the following for the EU, France, Lithuania and other EU members.

C. Legal basis for the complaint in respect of the EU measures

“31. With regard to the EU measures, as embodied and developed in the respective legal instruments as specified in para. 22 herein and as applied by the relevant authorities, Malaysia considers that these measures are inconsistent with the EU’s obligations under the GATT 1994 and the TBT Agreement. In particular, the measures are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, discriminate among ‘like’ feedstocks and derived biofuels originating in third countries;

“ii. Article III:4 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, accord less favourable treatment to imported palm oil and oil palm crop-based biofuels than they do to ‘like’ domestic feedstocks and derived biofuels, thereby modifying the conditions of competition to the detriment of the imported palm oil and oil palm crop-based biofuels, in particular from Malaysia;

“iii. Article X:3(a) of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, are administered in a manner that is not uniform, impartial and/or reasonable; and

“iv. Article XI:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, and which provide criteria for certifying low ILUC-risk biofuels, restrict the importation of palm oil and oil palm crop-based biofuels.

TBT Agreement

“v. Article 2.1 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, have a detrimental impact on the competitive conditions in the EU market of Malaysia’s imports of oil palm crop-based biofuels compared with ‘like products’ imported into the EU from other countries and compared with ‘like’ domestic products;
vi. Article 2.2 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are more trade-restrictive than necessary to achieve the objectives pursued by the measures;

“vii. Article 2.4 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are not based on the relevant international standards;

“viii. Article 2.5 of the TBT Agreement, because the EU, in preparing, adopting or applying the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, has failed, upon the request of Malaysia, to explain the justification for those measures in terms of Articles 2.2 to 2.4 of the TBT Agreement;

“ix. Article 2.8 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are based on an abstract and unsubstantiated high-ILUC risk concept instead of the performance of such biofuels;

“x. Article 2.9 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, were adopted without the required timely publication and notification of these measures and organising an adequate process for commenting;

“xi. Article 5.1.1 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, treats suppliers of oil palm crop-based biofuels from Malaysia less favourably than domestic suppliers of ‘like’ biofuels or suppliers from other WTO Members in a comparable situation;

“xii. Article 5.1.2 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, creates unnecessary obstacles to international trade;
xiii. Article 5.2 of the TBT Agreement, because the EU failed to make available the conformity assessment procedures to certify low ILUC-risk;

“xiv. Article 5.6 of the TBT Agreement, because the EU, with regards to the measures at issue, which provide criteria for certifying low ILUC-risk, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, neither notified nor enter into meaningful consultations, or allowed for comments on such conformity assessment procedures;

“xv. Article 5.8 of the TBT Agreement, because the EU neither promptly published nor otherwise made available the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement; and

“xvi. Articles 12.1 and 12.3 of the TBT Agreement, because the EU, in the preparation and application of the measures at issue referred to above, failed to take into account the circumstances specific to developing countries, in particular Malaysia, where palm oil and oil palm crop-based biofuels are produced.

D. Legal basis for the complaint in respect of the EU Member States’ measures

a. France

“32. The set of advantages granted by France for oil crop-based biofuels, as embodied and developed in the respective legal instruments, as specified in paragraphs 24 to 27 herein, and as applied by the relevant authorities, are inconsistent with the obligations of France under the GATT 1994 and the SCM Agreement. In particular, the set of advantages described above, as contained in the mentioned legal instruments, are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, discriminates against ‘like’ biofuels by granting an advantage, in the form of a tax reduction, to biofuels of some countries, that is not granted to all WTO Members, and in particular not to Malaysia, and

“ii. Article III:2 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, indirectly applies a tax on imported oil palm crop-based biofuels: (1) in excess to ‘like’ domestic biofuels; or (2) which is not similar to the tax on ‘directly competitive and substitutable’ domestic biofuels, and affords protection to the production of these domestic biofuels.

SCM Agreement

“iii. Articles 3 and 5 of the SCM Agreement, because the measures at issue, under which the French Government reduces the tax on petrol and diesel containing crop-based biofuel other than oil palm crop-based biofuels and excludes petrol and diesel containing oil palm crop-based biofuels from this tax reduction, amount to a subsidy within the meaning of Article 1 of the SCM Agreement which is: (1) a prohibited import substitution subsidy within the meaning of Article 3.1(b); and/or (2) an actionable subsidy causing an adverse effect on the interests of Malaysia within the meaning of Article 5(c) of the SCM Agreement.

b. Lithuania

“33. Concerning Lithuania’s measures (including any annexes thereto, amendments, supplements, replacements, renewals, extensions, implementing measures or any other related measures, and any exemptions applied), as implemented and/or applied by the latter in line with its obligations as a EU Member State regarding the transposition of the RED II, Malaysia claims that those measures are inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.

c. Other EU Member States

“34. Malaysia contends that to the extent that any other EU Member State transposes the RED II and further implement and/or apply any measure(s) according to its obligations as regards the limitation and/or phasing out of oil palm crop-based biofuels from being counted towards reaching renewable energy targets, regardless of whether the said measures are explicit or implicit in their treatment of oil palm crop-based biofuels, such measure(s) shall be inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.”

With the Indonesian case now in the briefing stage, a panel report could be available in late 2021 or in the front half of 2022 depending on delays flowing from the continued limitations imposed by the pandemic. The Malaysian case will likely trail the Indonesian case by six months or more.

Neither Indonesia nor Malaysia are signatories to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant To Article 25 Of The DSU. The EU has in at least one case where the party challenging EU actions was not a signatory opted to file an appeal into the void when it was dissatisfied with the panel report. See 28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7). Thus, whether reform of the Appellate Body moves forward in the next year to address U.S. concerns may be important to a final resolution of the two cases. The WTO is a long distance from resolving the current impasse on the Appellate Body, but perhaps there will be reengagement during the second half of 2021.

Comments

It is surprising that with the pressing importance of working to address climate change and the EU efforts at leadership that the EU appears not to have found a way to work with trading partners like Malaysia or achieve a common science-based understanding as to which biofuels help reduce greenhouse gases. For trade and environment issues to gain a greater role within the WTO (as Members need them to do), all Members working to achieve sustainable development objectives have to feel that the rules of trade will support their effort, provide guidance as to what more is needed and not close those Members out of the market of a trading partner.

The next Director-General of the WTO — USTR Lighthizer’s comments to the Financial Times

In an article in today’s Financial Times, Ambassador Robert Lighthizer, the outgoing U.S. Trade Representative, is reported as panning Dr. Ngozi Okonjo-Iweala for the position of Director-General of the World Trade Organization on the basis that she has no trade experience. Financial Times, Outgoing US trade chief says leading WTO candidate lacks experience, January 19, 2021, https://www.ft.com/content/baca66bb-5987-47e1-861d-3375a6f6d01b. The key quotes from Amb. Lighthizer in the article are copied below.

“’We need a person who actually knows trade, not somebody from the World Bank who does
development,’ said Mr Lighthizer, referring to Ms Okonjo-Iweala’s credentials.

“”We need a trade person with real trade experience,’ he added. “’And there are very few areas
where you would say, ‘here’s an organisation in very bad shape, let’s get someone who knows
nothing about its core mission’.’”

An early issue for the Biden Administration in its trade agenda will be whether the U.S. withdraws its refusal to join the consensus to appoint Dr. Okonjo-Iweala of Nigeria as the next Director-General. In an earlier post, I have indicated that such an action by the Biden Administration early in its term would be desirable. Without a Director-General, it is hard to imagine the WTO making progress on WTO reform. See, e.g., December 12, 2020, The Incoming Biden Administration and International Trade – Katherine Tai, nominee for U.S. Trade Representative, https://currentthoughtsontrade.com/2020/12/12/the-incoming-biden-administration-and-international-trade-katherine-tai-nominee-for-u-s-trade-representative/ (“On the World Trade Organization, the Biden Administration will have a potentially full docket but some important issues for early consideration. The first issue where an early action is important is who should be the next Director-General. The Trump Administration has indicated it did not agree to join a consensus on the candidate for the Director-General position who is the candidate with broadest and deepest support, Dr. Ngozi Okonjo-Iweala of Nigeria. Procedures adopted by the General Council in 2002 for selecting Directors-General was followed this year. The Chair of the General Council indicated he was prepared to recommend Dr. Okonjo to the General Council back in early November but has not done so in light of the U.S. position. Both Dr. Okonjo and Minister Yoo of Korea are well qualified candidates. While the Trump Administration may prefer Minister Yoo, in this writer’s view, either candidate will do an excellent job. U.S. refusal to join a consensus is contrary to procedures the U.S. and others agreed to. Because of the U.S. position and the failure of the Korean candidate to withdraw from the process, the WTO continues to operate without a new Director-General. The incoming Biden Administration should communicate with Korea that it intends to indicate the U.S. will join the consensus and then notify the Chair of the General Council. This can and should be done as quickly as possible by the Biden Administration to permit the WTO to get a new Director-General in place early in 2021.”).

While Dr. Okonjo-Iweala has argued that she has some trade experience, referring to the Nigerian customs service being under her jurisdiction when she was Finance Minister and having had some role apparently in Nigeria’s Trade Facilitation Agreement activities, there is little doubt that her background at the World Bank and in the Nigerian government were largely non-trade in nature. In comparison the Korea Trade Minister’s entire career in government has been in trade. So if deep trade experience is critical to performing the function of Director-General at the WTO, then someone other than Dr. Okonjo-Iweala would have been the logical choice for the membership. With the exception of the U.S. under Trump, Members do not have that concern about the qualifications of the next Director-General.

Indeed, deep trade experience has not been a requirement of former Directors-General nor of former senior trade officials in major countries. Peter Sutherland, who was brought in to complete the Uruguay Round in 1993, was not a trade person but rather had a background in banking and had been a prior EC Commissioner of Competition Policy. See Peter Sutherland, GATT and WTO Director-General, 1993 to 1995, https://www.wto.org/english/thewto_e/dg_e/ps_e.htm. Other Directors-General of the GATT and WTO had limited trade backgrounds. See, e.g., Supachai Panitchpakdi, WTO Director-General, 2002-2005, https://www.wto.org/english/thewto_e/dg_e/sp_e.htm. The view that individuals with political, diplomatic and other skills can step into an important trade function is not unique to the WTO. National governments, including the United States, often have trade ministries headed by people with little or no trade background prior to the individual’s appointment. Prior U.S. Trade Representatives Robert Strauss (1977-79), Michael Kantor (1993-96) and Ronald Kirk (2009-2013) would be examples. And at least some former U.S. Trade Representatives don’t view prior trade experience as critical to being an effective Director-General. See WITA, WITA Webinar: Three Former USTRs on the WTO in a Time of Change, 07/16/2020, https://www.wita.org/event-videos/wita-webinar-three-former-ustrs-on-the-wto-in-a-time-of-change (former USTRs Froman and Schwab). Dr. Ngozi Okonjo-Iweala has political and diplomatic stature and significant career accomplishments that make her an extremely well qualified candidate to be the next Director-General of the WTO regardless of the depth of her trade background.

Thus, while it has obviously been the Trump Administration’s view that a trade background is critical for the next Director-General, it is to be hoped that the incoming Biden Administration will take a different view, permit a consensus to be formed and let the WTO get back to having a Director-General and move towards much needed WTO reform on issues that the Trump Administration ably laid out as critical (dispute settlement, convergence vs. coexistence of different economic systems (and reforms of rules to address distortions flowing from non-market economic systems), role of Special and Differential Treatment, transparency, and addressing of critical issues like e-commerce, fisheries subsidies, etc.

Revisiting the need for MFN treatment for sectoral agreements among the willing

While most-favored-nation treatment is a cornerstone of the WTO, there is little doubt that trade liberalization is impeded in many situations because of the inability to get important trading nations to participate in liberalizing when those nations do not have an interest in liberalizing trade in a particular sector. MFN treatment to nonparticipants has long been viewed as a free-rider problem. Permitting non-MFN application of sectoral agreements but having agreements open to all who wish to join has been a topic of growing interest to some Members of the WTO as it would free Members to engage in tariff liberalization, subject to others joining when they were willing to assume comparable obligations, without being restrained by concerns over free riders. The change could help in many areas, including the currently being pursued Joint Statement Initiatives but also other areas that have been stalled for a period of years, such as the Environmental Goods Agreement talks.

I came across a piece I had posted on my firm website back in 2015 that dealt with this issue at a time that both the Information Technology Agreement II and the Environmental Goods Agreement were being negotiated. The ITA II concluded while the EGA did not. The number of FTAs has increased since my post and the problems of liberalization within the WTO continues to be bogged down by the lack of common interests among large parts of the Membership. Hence a new approach to encourage liberalization is needed. I copy my prior post from 2015 below.

Should WTO Members Consider Permitting Sectoral FTAs That Are Open to Membership?
April 16, 2015
Terence P. Stewart

One of the cornerstone principles of the World Trade Organization (“WTO”) (and the General Agreement on Tariffs and Trade (“GATT”) before it) is application of tariff bindings on a most-favored nation (“MFN”) basis. Indeed, while the WTO permits modifications to most provisions of the WTO agreements by three-fourths of the membership,[1] to change national treatment requires the consent of all Members.[2]

While MFN is an important rule (as is national treatment), the reality is that in 2015 the vast majority of trade for many nations is handled through bilateral or plurilateral free trade agreements or through preferential trade agreements. While there were only a relatively small number of regional trade agreements (“RTAs”) during most of the GATT years, the number of agreements has exploded in the last twenty years. The WTO’s page on RTAs states that “Regional trade agreements (RTAs) have become increasingly prevalent since the early 1990s. As of 7 April 2015, some 612 notifications of RTAs (counting goods, services and accessions separately) had been received by the GATT/WTO. Of these, 406 were in force. These WTO figures correspond to 449 physical RTAs (counting goods, services and accessions together), of which 262 are currently in force.”[3]

A WTO staff working paper from 31 October 2012, “Market Access Provisions on Trade in Goods in Regional Trade Agreements,” by Jo-Ann Crawford, reviews data for the year 2008 and finds rates of trade with RTA partners for many countries and regions running between 20% and 70% of imports or exports (for some countries as high as the low 90s%).[4] The EU (27) showed 23.2% of imports and 27.1% of exports; Canada was 60% of imports and 80.1% of exports; Mexico was 72.4% of imports and 91.5% of exports; the United States was 29.8% of imports and 40.5% of exports; and China was 24.8% of imports and 30.5% of exports.[5] Those percentages are likely much higher in 2015 and will only grow as some of the recently concluded agreements (e.g., Canada-EU) and ongoing negotiations (e.g., TPP and T-TIP) conclude and go into effect.

So the question isn’t really whether the WTO functions with a large portion of trade done on some sort of preferential basis in fact (obviously large parts of global trade are so conducted today), but whether a change to the rules to provide for an additional exception to MFN could help global economic growth by permitting trade liberalizing agreements that deal with a particular segment of production (or services) even if the current rules and conditions of GATT 1994 Article XXIV or GATS Article V are not satisfied.

At present, there are two sectoral negotiations that are ongoing – the second Information Technology Agreement (“ITA II”) negotiations and negotiations for an Environmental Goods Agreement (“EGA”). Both of these agreements are intended to comply with existing MFN rules by applying to all countries, but require buy-in from nearly all producers/trading nations for the products in question (typically a 90% coverage). ITA II holds the promise to liberalize trade in technology goods that are of a value equal to the fully implemented Trade Facilitation Agreement, which is in the process of undergoing adoption by the WTO membership.

However, ITA II has drifted now for more than a year and a half, first awaiting an improved offer position from China and now because of lack of agreement between Korea and China. Obviously having both China and Korea in ITA II is the desired result and would permit agreement on the package and application of the agreement’s duty reductions to all WTO Members. But if a sectoral agreement that doesn’t have 90% coverage of trade in the products could be adopted by those willing to adopt it, with the benefits flowing only to
signatories, with an open admission policy for other countries at such time as they are willing to accept the full package, with special consideration for least-developed countries (“LDCs”) (i.e., application to them even ahead of 90% coverage), and with an automatic conversion to all WTO Members at such time as 90% coverage is attained, wouldn’t the world trading system be benefitted? The answer would seem to be necessarily “yes”. So too, with the challenges the world faces environmentally, cooperation amongst the willing to liberalize trade in goods (and possibly services) sooner rather than later has enormous potential upsides. While there is agreement among the participants on a group of 54 product categories, a significantly larger group of products is being considered. It may be that the EGA is adopted and implemented in the next year or so. However, if ITA II is any indicator of things to come, significant delays may be the actual outcome before we
achieve progress. A simpler approach to achieve meaningful liberalization in real time (not over decades) seems to be a potential answer for these and other product sectors that may be of interest to significant trading countries or groups.

While the WTO membership is working to see if they can develop a work program by the end of July to complete the Doha Development Agenda (“DDA”), if such a work program and final package cannot be accomplished quickly, the WTO will once again be adrift in terms of its core negotiating function. Even if there is success on the DDA, deeper liberalization may be possible in particular sectors by the willing.

At a time when the WTO has just downgraded growth projections for 2015 and 2016, the WTO needs tools that will permit it to continue to contribute to expanded global trade and prosperity regardless of the internal challenges due to its growing membership and changing power structure. Adopting a provision to the GATT 1994 that would provide an exception (temporary in design and intent) to encourage sectoral liberalization could be an important tool for achieving improved results for the WTO membership.

[1] Marrakesh Agreement Establishing the World Trade Organization, Art. X:1.

[2] Id. at Art. X:2.

[3] World Trade Organization, Regional trade agreements, https://www.wto.org/english/tratop_e/region_e/region_e.htm (last visited April 15, 2015).

[4] Jo-Ann Crawford, World Trade Organization, Economic Research and Statistics Division, Market Access Provisions on Trade in Goods in Regional Trade Agreements, at 8, Chart 2 and Table 1, and 31-33, Annex Table A1, available at https://www.wto.org/english/res_e/reser_e/ersd201220_e.pdf.

[5] Id. at 31-33.

__________________________________________________________________________________________________________________

As WTO Members consider needed reforms to the organization, finding ways to permit liberalization to proceed among the willing on products or service sectors without the impediment of MFN benefits flowing to those unwilling to participate in the liberalization should be an important priority.


USTR on January 14, 2021 released its 2020 report to Congress on China’s WTO compliance

The Office of the United States Trade Representative last Thursday, January 14, 2021, released its 2020 Report to Congress on China’s WTO Compliance. As the report notes, it is the 19th report to Congress following China’s accession to the WTO. It is also the last report prepared under the Trump Administration. The report is significantly shorter than prior Trump Administration reports (70 pages vs. 192 pages for 2019 report, 183 pages for 2018 report, and 161 pages for 2017 report) while referencing details on specific U.S. concerns with China from the 2019 report appendix. The link to the report is as follows: https://ustr.gov/sites/default/files/files/reports/2020/2020USTRReportCongressChinaWTOCompliance.pdf.

The report provides an Executive Summary, a section entitled U.S. ASSESSMENT OF CHINA’S WTO MEMBERSHIP with four subsections (China’s WTO Accession, Expectations of WTO Membership,
China’s Record in Terms of Complying With WTO Rules, and China’s Record in Terms of Transitioning to a Market Economy), a section entitled U.S. STRATEGY FOR ADDRESSING TRADE DISTORTIONS CAUSED BY CHINA, a section entitled REVIEW OF TRADE MECHANISMS USED TO ENGAGE CHINA (with subsections on bilateral dialogues, multilateral fora, and enforcement (both U.S. laws and WTO litigation)) and the final section looking at KEY U.S. CONCERNS (five subsections — non-tariff barriers (24 topics), intellectual property rights (5 topics), agriculture (10 topics), services (16 topics) and transparency (4 topics)).

While the Key U.S. Concerns section provides the detail on U.S. concerns on specific topics on goods and services sectors, the section on U.S. Assessment of China’s WTO’s Membership provides a good overview of the fundamental concerns the U.S. has with the compatibility of China’s economic system with the WTO objective of market driven economic outcomes. The section on U.S. strategy for addressing trade distortions caused by China provides a review of the Trump Administration’s efforts in the 2017-2020 period for addressing concerns with the bilateral relationship and China’s practices. The Executive Summary (pages 2-3) gives a reasonable picture of what the problems with China are and the Trump Administration’s response.

“In prior reports, we provided this Administration’s assessment of China’s WTO membership, the unique and very serious challenges that China’s non-market policies and practices pose for the multilateral trading system and the effectiveness of the strategies that had been pursued to address the China problem over the years. We identified the critical need for new and more effective strategies – including taking actions outside the WTO where necessary – to address the challenges presented by China’s state-led, mercantilist approach to the economy and trade. We also described the positive outcomes to date of the Administration’s strategy for engaging China, which led to the signing of an historic trade agreement with China in January 2020. In this year’s report, we review and assess China’s progress in implementing that agreement to date, and we highlight the important issues that remain to be addressed in our trade relationship with China.

“As we previously documented, and as remains true today, China’s record of compliance with the terms of its WTO membership has been poor. China has continued to embrace a state-led, non-market and mercantilist approach to the economy and trade, despite WTO members’ expectations – and China’s own representations – that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO.

“At the same time, China’s non-market approach has imposed, and continues to impose, substantial costs on WTO members. In our prior reports, we identified and explained the numerous policies and practices pursued by China that harm and disadvantage U.S. companies and workers, often severely. It is clear that the costs associated with China’s unfair and distortive policies and practices have been substantial. For example, China’s non-market economic system and the industrial policies that flow from it have systematically distorted critical sectors of the global economy such as steel, aluminum, solar and fisheries, devastating markets in the United States and other countries. China also continues to block valuable sectors of its economy from foreign competition, particularly services sectors. At the same time, China’s industrial policies are increasingly responsible for displacing companies in new, emerging sectors of the global economy, as the Chinese government and the Chinese Communist Party powerfully intervene on behalf of China’s domestic industries. Companies in economies disciplined by the market cannot effectively compete with both Chinese companies and the Chinese state.

“For nearly two decades, a variety of bilateral and multilateral efforts were pursued by the United States and other WTO members to address the unique challenges presented by China’s WTO membership. However, even though these efforts were persistent, they did not result in meaningful changes in China’s approach to the economy and trade. We previously catalogued the United States’ persistent yet unsuccessful efforts to resolve the many concerns that have arisen in our trade relationship with China. We found that a consistent pattern existed where the United States raised a particular concern, China specifically promised to address that concern, and China’s promise was not fulfilled.

“Faced with these realities, in the 2017 USTR Report to Congress on China’s WTO Compliance, this Administration announced that it would be pursuing a new, more aggressive approach to the United States’ engagement of China. We explained that the Administration would defend U.S. companies and workers from China’s unfair trading practices and would seek to restore balance to the trade relationship between the United States and China. As part of these efforts, the United States would take all appropriate actions to ensure that the costs of China’s non-market economic system are borne by China, not by the United States. The United States also would continue to encourage China to make fundamental structural changes to its approach to the economy and trade consistent with the open, market-oriented approach pursued by other WTO members, which is rooted in the principles of non-discrimination, market access, reciprocity, fairness and transparency. If undertaken by China, these changes would do more than simply ease the growing trade tensions with its trading partners. These changes would also benefit China, by placing its economy on a more sustainable path, and would contribute to the growth of the U.S. economy and the global economy.

“The Administration based this new approach on several assessments. First, WTO membership comes with expectations that an acceding member not only will strictly adhere to WTO rules, but also will support and pursue open, market-oriented policies. Second, China has failed to comply with these expectations. Third, in recent years, China has moved further away from open, market-oriented policies and has more fully embraced a state-led, mercantilist approach to the economy and trade. Finally, China’s market-distorting policies and practices harm and disadvantage its fellow WTO members, even as China reaps enormous benefits from its WTO membership.

“Consistent with this Administration’s more aggressive approach to China, we have been using all available tools – including domestic trade remedies, bilateral negotiations, WTO litigation, and strategic engagement with like-minded trading partners – to respond to the unique and very serious challenges presented by China. But, the goal for the United States remains the same. The United States seeks a trade relationship with China that is fair, reciprocal and balanced.”

“Beginning in January 2020, the United States’ new approach to China began to demonstrate key progress with the signing of an historic trade agreement, known as the Phase One Agreement. This agreement requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. The agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years. Importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.

“The United States has been closely monitoring China’s progress in implementing its numerous commitments under the Phase One Agreement and has regularly engaged China using the extensive consultation processes established by the agreement to discuss China’s implementation progress and any concerns as they arise. Currently, the evidence indicates that China has been moving forward in good faith with the implementation of its commitments, making substantial progress in many areas.

“Because the Phase One Agreement does not cover all of the United States’ concerns, the United States will need to turn to Phase Two of its trade negotiations with China in order to secure resolutions to important outstanding issues. These discussions should focus on critical issues in areas such as subsidies, excess capacity, state-owned enterprises, state-sponsored cyber-enabled theft of intellectual property, standards, cybersecurity, data localization requirements, restrictions on cross-border data transfers, competition policy and regulatory transparency as well as certain issues in the areas of intellectual property, technology transfer and services market access that were not addressed in the Phase One Agreement.

“Going forward, it is the Administration’s hope that China will continue to take the United States’ concerns seriously and engage with the United States on a productive basis. If China does so and the two sides are able to finalize and implement a comprehensive Phase Two Agreement, it will benefit not only the United States, but also China itself and the rest of the WTO membership. It may also generate a willingness on the part of China to take on similar new disciplines at the WTO.”

The report is embedded below.

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For the incoming Biden Administration, there are many important issues relating to China in the trade arena that will be front and center. With an announced intention by the President-elect to have greater cooperation with trading partners, one can expect (a) greater focus on the U.S.-EU-Japan efforts at WTO reform on subsidies, state-owned enterprises and forced technology transfer (with outreach to other Members), (b) outreach to WTO Members to develop approaches to deal with other Chinese distortions, (c) continued efforts to achieve a meaningful e-commerce plurilateral agreement in the ongoing Joint Statement Initiative, and (d) a fisheries subsidies agreement by the time of the 12th Ministerial meeting later this year. On the bilateral front, continued monitoring (and where necessary enforcement) of the Phase 1 Agreement with China should be a priority as well as the start to a Phase 2 negotiation. The USTR under the Trump Administration has devoted significant resources to laying out the challenges posed by the differences in economic systems and pursuing actions to address some of the major distortions. Whether the Biden Administration agrees with all of the individual actions taken in the last four years, it is important that the problems flowing from different economic systems be addressed with all tools that are available and be an important topic in WTO reform talks.

While the Free Trade Agreements that China is party to do not address the problems of differing economic systems (market-oriented vs. state-directed), this issue is fundamental to the U.S. view of making the WTO system function moving forward. Deputy Director-General Alan Wolff has identified in a number of speeches what he believes are key principles undergirding the WTO. Convergence vs. coexistence is how he articulates a core challenge for the organization, and has listed convergence as a core principle. In his recent speech at the January 13 virtual meeting put on by Chatham House on possible issues for reform at the WTO, DDG Wolff said “WTO Members and their Secretariat will have to deal with a number of external problems because there is no choice. Do differing economic systems affect the bargained for conditions for trade? Is the WTO of the future to be about convergence more than coexistence?” WTO, DDG Wolff outlines possible responses to calls for WTO reform, January 13, 2021, https://www.wto.org/english/news_e/news21_e/ddgaw_13jan21_e.htm. China has taken the position that coexistence is all that can be expected, that the WTO is not the forum to look at different economic systems, and has opposed efforts to address the fundamental issue at the WTO. The U.S. has laid out the case for why convergence is a critical aspect of the WTO. While China was moving towards convergence in the early years after its accession to the WTO at the end of 2001, its path for the last decade has been away from convergence. The future of the WTO may very well depend on whether this core divide can be addressed in a manner that permits distortions of any economic system to be addressed and ensures results are based on market conditions and not government fiat.

Request for the establishment of a WTO panel by Hong Kong, China contesting the U.S. origin marking requirement

In a post on January 14, I noted that the first actions in the WTO dispute settlement system included Costa Rica’s request for consultations with Panama on various import restraints on agricultural products and the EU’s request for the establishment of a panel to examine its concerns with Indonesia’s export restraints on various raw materials used in stainless steel production. See January 14, 2021, First dispute settlement cases of 2021 at the WTO — Costa Rica requests consultations with Panama for various restrictions on agricultural products viewed as violating SPS obligations and more; EU requests establishment of a panel to address its concerns with Indonesia’s export restrictions on inputs for stainless steel, https://currentthoughtsontrade.com/2021/01/14/first-dispute-settlement-cases-of-2021-at-the-wto-costa-rica-requests-consultations-with-panama-for-various-restrictions-on-agricultural-products-viewed-as-violating-sps-obligations-and-more-eu-re/.

A third action has occurred, a request from Hong Kong, China, for the establishment of a panel contesting the United States origin marking requirements. The request was also filed on January 14 and was posted on the WTO website on January 15. See WT/DS567/5 (15 January 2021). The request for establishment of a panel is embedded below.

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The origin of the dispute is the actions of China in imposing national security legislation on Hong Kong that was viewed by the United States as rendering Hong Kong not sufficiently autonomous to justify it not being treated as part of China and posing national security concerns for the United States. The part of the request for establishment of a panel titled “Background” provides Hong Kong, China’s description of the developments leading to the dispute.

“On 11 August 2020, the United States Customs and Border Protection (USCBP) published a notice that, after 25 September 2020, goods produced in Hong Kong must be marked to indicate that their origin is ‘China’ for the purposes of the origin marking requirement set forth at Section 304 of the Tariff Act of 1930, 19 U.S.C. § 1304. By subsequent notice, the USCBP extended the date for compliance with this requirement to 10 November 2020.

“Section 304 of the Tariff Act of 1930 requires articles of non-United States origin imported into the United States to be marked ‘in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article’. Prior to the imposition of the revised origin marking requirement as announced in the notice published on 11 August 2020, the United States has required, and therefore permitted, goods produced in Hong Kong, China to be marked to indicate that their origin is ‘Hong Kong’. The United States’ prior treatment of goods of Hong Kong, China origin was consistent with the fact that the United States generally permits goods originating within the territory of other WTO Members, including separate customs territory Members, to be marked with the English name of that territory.

“The USCBP published the notice on 11 August 2020 pursuant to the ‘Executive Order on Hong Kong Normalization’ signed by the President of the United States Donald J. Trump on 14 July 2020. The Executive Order suspends the application of Section 201(a) of the United States-Hong Kong Policy Act of 1992, 22 U.S.C. § 5721(a), to a variety of United States statutes, including Section 304 of the Tariff Act of 1930.

“Under Section 201(a) of the United States-Hong Kong Policy Act of 1992, the laws of the United States apply to Hong Kong, China in the same manner as those laws applied to Hong Kong prior to the resumption of the exercise of sovereignty by the People’s Republic of China on 1 July 1997, unless the President of the United States determines and issues an Executive Order that Hong Kong, China ‘is not sufficiently autonomous to justify treatment under a particular law of the United States … different from that accorded the People’s Republic of China’. The suspension of Section 201(a) of the United States-Hong Kong Policy Act of 1992 as it applies to Section 304 of the Tariff Act of 1930 is the legal basis upon which the USCBP ordered that goods produced in Hong Kong ‘may no longer be marked to indicate ‘Hong Kong’ as their origin, but must be marked to indicate ‘China’.”

The Executive Order and U.S. Customs and Border Protection notices are embedded below.

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The Executive Order articulates the concerns of the U.S. Administration with the actions taken by China.

“In late May 2020, the National People’s Congress of China announced its intention to unilaterally and arbitrarily impose national security legislation on Hong Kong. This announcement was merely China’s latest salvo in a series of actions that have increasingly denied autonomy and freedoms that China promised to the people of Hong Kong under the 1984 Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the Question
of Hong Kong (Joint Declaration). As a result, on May 27, 2020, the Secretary of State announced that the PRC had fundamentally undermined Hong Kong’s autonomy and certified and reported to the Congress, pursuant
to sections 205 and 301 of the United States-Hong Kong Policy Act of 1992, as amended, respectively, that Hong Kong no longer warrants treatment under United States law in the same manner as United States laws were
applied to Hong Kong before July 1, 1997. On May 29, 2020, I directed the heads of executive departments and agencies (agencies) to begin the process of eliminating policy exemptions under United States law that give
Hong Kong differential treatment in relation to China.

“China has since followed through on its threat to impose national security legislation on Hong Kong. Under this law, the people of Hong Kong may face life in prison for what China considers to be acts of secession or
subversion of state power—which may include acts like last year’s widespread anti-government protests. The right to trial by jury may be suspended. Proceedings may be conducted in secret. China has given itself broad power to initiate and control the prosecutions of the people of Hong Kong through the new Office for Safeguarding National Security. At the same time, the law allows foreigners to be expelled if China merely suspects them of violating the law, potentially making it harder for journalists, human rights organizations, and other outside groups to hold the PRC accountable for its treatment of the people of Hong Kong.

“I therefore determine that the situation with respect to Hong Kong, including recent actions taken by the PRC to fundamentally undermine Hong Kong’s autonomy, constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States. I hereby declare a national emergency with respect to that threat.”

Certainly the actions of the Chinese government in organizing mass arrests in Hong Kong undermine the concept that Hong Kong is autonomous. See, e.g., Washington Post, ‘Total submission,’ With mass arrests, China neutralizes Hong Kong democracy movement, January 6, 2021, https://www.washingtonpost.com/world/asia_pacific/hong-kong-arrests-national-security-law/2021/01/06/c3ccc248-4fbe-11eb-a1f5-fdaf28cfca90_story.html; New York Times, With Mass Arrests, Beijing Exerts an Increasingly Heavy Hand in Hong Kong, January 8, 2021, https://www.nytimes.com/2021/01/06/world/asia/china-hong-kong-arrests.html (“The central Chinese government, which once wielded its power over Hong Kong with a degree of discretion, has signaled its determination to openly impose its will on the city.”); BBC News, National security law: Hong Kong rounds up 53 pro-democracy activists, 6 January 2021, https://www.bbc.com/news/world-asia-china-55555299.

Hong Kong, China lists seven claims of violation of WTO obligations by the United States requiring goods from Hong Kong, China to be marked as goods of China. These include:

“1. Article I:1 of the GATT 1994, because in respect of the rules and formalities of importation pertaining to marks of origin, the United States does not extend to products of Hong Kong, China origin immediately and unconditionally the same advantages, favours, privileges, or immunities that the United States extends to like products originating in the territory of other countries;

“2. Article IX:1 of the GATT 1994, because the United States does not accord to the products of Hong Kong, China treatment with regard to marking requirements no less favourable than the treatment that the United States accords to like products of other countries;

“3. Article X:3(a) of the GATT 1994, because the United States does not administer its origin marking requirements in a uniform, impartial, and reasonable manner;

“4. Article 2(c) of the Agreement on Rules of Origin, because in respect of products produced in Hong Kong, the United States requires the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin;

“5. Article 2(d) of the Agreement on Rules of Origin, because the United States discriminates between Hong Kong, China and other Members in respect of the rules of origin that it applies to imports;

“6. Article 2(e) of the Agreement on Rules of Origin, because the United States does not administer its rules of origin in a consistent, uniform, impartial, and reasonable manner;

“Article 2.1 of the Agreement on Technical Barriers to Trade, because the origin marking requirements that the United States applies to imports are technical regulations and, in respect of those technical regulations, the United States does not accord to products imported from Hong Kong treatment no less favourable than the treatment that it accords to like products originating in other countries.

“In addition, and as a consequence of the foregoing, the measures at issue appear to nullify or impair the benefits accruing to Hong Kong, China directly or indirectly under the cited agreements.”

The United States position on the various claims is not known as yet. Presumably, the United States will raise as a defense national security claims as it has in a host of other cases.

The dispute will presumably take years to move to a conclusion, and absent a resolution of the Appellate Body impasse could result in the matter being appealed into the existing void.

USTR releases report from Section 301 investigation on Vietnam’s currency valuation

USTR started two 301 investigations on actions by Vietnam, one of which dealt with Vietnam’s currency valuation and whether Vietnam’s actions violate Section 301. On January 15, 2021, USTR released a press release announcing the results of the investigation.

“The U.S. Trade Representative has issued findings in the Section 301 investigation of Vietnam’s acts, policies, and practices related to currency valuation, concluding that Vietnam ’s acts, policies, and practices including excessive foreign exchange market interventions and other related actions, taken in their totality, are unreasonable and burden or restrict U.S. commerce. In making these findings, USTR has consulted with the Department of the Treasury as to matters of currency valuation and Vietnam’s exchange rate policy. The findings in this investigation are supported by a comprehensive report, which is being published today on USTR’s website.

“‘Unfair acts, policies and practices that contribute to currency undervaluation harm U.S. workers and businesses, and need to be addressed,’ stated U.S. Trade Representative Robert E. Lighthizer. ‘I hope that the United States and Vietnam can find a path for addressing our concerns.’”

USTR press release, USTR Releases Findings in Section 301 Investigation of Vietnam’s Acts, Policies, and Practices Related to Currency Valuation, January 15, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-section-301-investigation-vietnams-acts-policies-and-practices-related.

The report and notice sent to the Federal Register are embedded below. USTR has not recommended action at this point, leaving resolution to the next Administration.

Vietnamcurrency301report

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As reviewed in a prior post, Vietnam’s currency practices have been found countervailable by the U.S. Department of Commerce, and Vietnam has been found to be a currency manipulator by the Department of the Treasury in the most recent semi-annual report. See December 21, 2020, Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report, https://currentthoughtsontrade.com/2020/12/21/vietnam-and-switzerland-found-to-be-currency-manipulators-in-latest-u-s-treasury-semiannual-report/.

Vietnam has had rapid export growth to the United States and through 11 months of 2020 had the third largest trade surplus with the U.S. at $63.68 billion, trailing only China and Mexico. The U.S. trade deficit with Vietnam has surged from a 2017 deficit of $38.34 billion (full year). Thus, problems of currency valuation to the extent it supports an artificially undervalued currency encourages exports to the U.S. and limits U.S. exports to Vietnam. U.S. imports for consumption for the first eleven months of 2020 from Vietnam were $71.21 billion, with sixteen 4-digit HS categories showing imports from Vietnam of more than $1 billion in 2020 (the largest being over $11 billion). Failure to resolve the matter bilaterally to the satisfaction of the U.S. could result in additional duties being applied to all imported goods from Vietnam.

While U.S. importers who have shifted supply from China to Vietnam for products are assuming additional duties will be imposed, the current USTR is taking no action, meaning whatever action occurs will be left to the incoming Biden team. Unlike many press releases, USTR Lighthizer has indicated that he hopes “that the United States and Vietnam can find a path for addressing our concerns.’” Considering the stakes, look for a resolution without additional duties during the first quarter of 2021.

Continued surge of COVID-19 cases results in extended restrictions in many countries affecting trade and economic growth

The latest data from the European Centre for Disease Prevention and Control (ECDC) show the global growth in new cases and deaths accelerating in many parts of the world with resulting extensions of restrictions on activities which harms international trade and global economic growth prospects. The control of the outbreak of new cases is being complicated by new strains in the U.K., South Africa and elsewhere that are proving to be more easily spread than initial strains and rapidly spreading around the world.

Specifically, the ECDC in a report released on January 14 covering data through the first week of 2021 (assumed to be through January 6), shows the last two weeks as generating 9,487,913 new reported cases of COVID-19 — the first time, more than nine million new cases has been found in a two week period. Data on global cases to this morning (January 15) show total global cases at 93.2 million with deaths at 2 million. These are up from the 89.8 million cases through the first week of 2021 and 1.94 million deaths. The world is likely to top 100 million COVID cases by the end of January.

The United States had its worst two weeks — 3,271,355 new cases (34.48% of global new cases) and 41,116 deaths (24.07% of last week global) — and its totals since the beginning of 2020 at 22.4 million cases and 374,442 deaths (24.97% and 19.30% of global totals) dwarf its 4.3% of global population.

Many countries in Europe are continuing to struggle with new cases and deaths and hence have extended restrictions. So, for example, the United Kingdom, has had the largest number of new cases in the last two weeks(742,619) it has ever recorded and the highest number of deaths since spring in the last two weeks (10,322). The result has been continued tightening of restrictions within the United Kingdom. See, e.g., BBC, Covid-19: UK daily deaths at record high and Scotland rules tightened, January 14, 2021, https://www.bbc.com/news/uk-55652431; BBC, Covid: What are the lockdown rules across the UK?, January 13, 2021, https://www.bbc.com/news/explainers-52530518.

In Italy, following a second surge in the fall, restrictions helped lower the number of new cases and deaths but there have been upward trends in new cases in recent weeks with potential increases in deaths likely, leading to the introduction of some new restrictions. See, e.g., The Local, Italy declares three regions red zones as restrictions tighten, January 15, 2021, https://www.thelocal.it/20210115/italy-declares-three-regions-red-zones-as-restrictions-tighten.

Other countries in Europe are also seeing rising cases after drops in cases and deaths following introduction of restrictions and are often imposing or maintaining restrictions to address recent increases. See, e.g., The Local, French government extends 6pm curfew to whole country as Covid cases rise, January 14, 2021 (updated January 15), https://www.thelocal.fr/20210114/latest-french-government-to-announce-extra-restrictions-as-covid-cases-rise; France 24, France introduces tougher Covid-19 restrictions for non-EU travellers, January 15, 2021, https://www.france24.com/en/france/20210115-france-introduces-tougher-covid-19-restrictions-for-non-eu-travellers; DW, Coronavirus: German Chancellor Angela Merkel urges ‘significantly’ tougher curbs — reports, January 15, 2021, https://www.dw.com/en/coronavirus-german-chancellor-angela-merkel-urges-significantly-tougher-curbs-reports/a-56230751; El Pais, Spain reports 35,878 new coronavirus infections and 201 deaths, as third wave progresses, January 15, 2021, https://english.elpais.com/society/2021-01-15/spain-reports-35878-new-coronavirus-infections-and-201-deaths-as-third-wave-progresses.html (“Simón is taking for granted that the epidemiological curve will continue to rise for several more days, but he is hoping that the more restrictive measures that have been put in place after the Christmas holidays will put the brakes on the rhythm of infections.”).

Even in parts of Asia where there have been relatively few COVID-19 cases, recent increases have led to restrictions imposed in particular areas. See, e.g., NPR, Millions In China Under New Restrictions Amid COVID-19 Spike Near Beijing, January 9, 2021, https://www.npr.org/sections/coronavirus-live-updates/2021/01/09/955298826/millions-in-china-under-new-restrictions-amid-covid-19-spike-near-beijing; the Japan Times, Japan bars entry for new arrivals and business travelers due to new COVID-19 strains, January 14, 2021, https://www.japantimes.co.jp/news/2021/01/14/national/japan-bars-new-arrivals-business-travelers/; japan-guide.com, Travel Alerts and Disaster Updates, updated January 15, 2021, https://www.japan-guide.com/news/alerts.html (“Domestic Situation Although the virus has not spread in Japan at a rate seen in Europe and North America, infection numbers have increased considerably in recent weeks, and a state of
emergency was declared in 11 of Japan’s 47 prefectures, including in the greater Tokyo, Osaka, Nagoya and Fukuoka regions, to last until February 7.”); NPR, South Korea Tightens Restrictions During Holiday Period, December 22, 2020, https://www.npr.org/sections/coronavirus-live-updates/2020/12/22/949155094/south-korea-tightens-restrictions-during-holiday-period (“The new measures, which will be in effect through Jan. 3, follow the capital Seoul’s ban earlier in the week on private assembly of five or more people. The capital area, which accounts for more than 70% of last week’s new infections in South Korea, upped the regional alert level three times in the past month. But case numbers have yet to demonstrate a downward trend.”).

In India, where the government has worked hard to bring down the number of new cases in recent months and has had some significant success, many restrictions remain in place. See GardaWorld, India: Authorities extend domestic coronavirus disease controls through Jan. 31, 2021; international travel restrictions continue, December 29, 2020, https://www.garda.com/crisis24/news-alerts/422756/india-authorities-extend-domestic-coronavirus-disease-controls-through-jan-31-2021-international-travel-restrictions-continue-update-33.

Some governments have reduced economic recovery projections for 2021 because of the second wave of cases in the fall of 2020. See, e.g., Euronews, What does 2021 hold for jobs and businesses in Europe?, December 16, 2020, https://www.euronews.com/2020/12/16/what-does-2021-hold-for-jobs-and-businesses-in-europe (“The second wave of lockdowns devastated businesses across Europe and led the European Commission to downgrade its economic growth forecast for 2021 for the Eurozone from 6.1% down to 4.2%. It’s expected to be two years until the European economy comes close to its pre-pandemic level.”).

While other government 2021 projections show greater growth than was projected in the fall of 2020, the rebound is built on assumptions about stimulus funding, timing and effectiveness of vaccines and other elements. See, e.g., CNBC, Fed raises its economic outlook slightly, sees 4.2% growth next year and 5% unemployment rate, December 16, 2020, https://www.cnbc.com/2020/12/16/fed-raises-its-economic-outlook-slightly-sees-4point2percent-growth-next-year-and-5percent-unemployment-rate.html#:~:text=The%20Federal%20Reserve%20expects%20real,to%204.2%25%20from%204.0%25; The Conference Board, The Conference Board Economic Forecast for the US Economy, January 13, 2021, https://www.conference-board.org/research/us-forecast (“Our base case forecast yields 1Q21 real GDP growth of 2.0 percent* (annualized rate), and an annual expansion of 4.1 percent for 2021, following an annual contraction of 3.5 percent for 2020. We view this scenario as the most probable. It assumes: a) new cases of COVID-19 peak in early 1Q21 but no widespread lockdowns are implemented, b) vaccines are deployed gradually in 1Q21 but volumes accelerate into 2Q21, c) the December 2020 stimulus package is fully deployed in 1Q21 and an additional stimulus package is deployed in 2Q21, d) labor markets and consumption weaken slightly in 1Q21 but rebound in 2Q21 and 3Q21, and e) the political transition does not result in a hit to consumer or business confidence. These assumptions yield a lull in the recovery in 4Q20 and early 1Q21, but a steady acceleration of economic activity that peaks in the summer months as consumers eagerly spend on services and goods that they had forgone in 2020. In this scenario US monthly economic output returns to pre-pandemic levels in August 2021.”).

Growing concern over new strains of the COVID-19 and mounting new cases will be putting strain on many governments and keeping downward pressure on trade in services which the WTO has estimated as being down 30% globally in 2020. Travel and tourism have been decimated in 2020 and will continue to face major hurdles for at least the first half of 2021. International arrivals are down 70% for the year and more than 90% for the period since April 2020. See UNWTO, TOURISM BACK TO 1990 LEVELS AS ARRIVALS FALL BY MORE THAN 70%, 17 December 2020, https://www.unwto.org/news/tourism-back-to-1990-levels-as-arrivals-fall-by-more-than-70.

In the EU, a $2.1 trillion budget and coronavirus recovery package has been approved. See KFF, E.U. Leaders Agree To $2.1T Budget, Pandemic Recovery Fund; Main Science Research Program Receives Less Than Expected, Jul 21, 2020, https://www.kff.org/news-summary/e-u-leaders-agree-to-2-1t-budget-pandemic-recovery-fund-main-science-research-program-receives-less-than-expected/; Politico, EU leaders back deal to end budget blockade by Hungary and Poland, December 10, 2020, https://www.politico.eu/article/deal-reached-to-unblock-eu-budget-and-recovery-fund/.

In the United States, the recent $900 billion stimulus package was viewed as a temporary measure that would need to be supplemented in 2021. President-elect Biden announced on January 14, 2021 that he will be seeking a $1.9 trillion additional stimulus package to address the human costs of the pandemic, provide funding for people and businesses, strengthen efforts at vaccine distribution and vaccinations and other purposes. See, e.g., New York Times, Biden Outlines $1.9 Trillion Spending Package to Combat Virus and Downturn, January 14, 2021 (updated January 15), https://www.nytimes.com/2021/01/14/business/economy/biden-economy.html.

The stimulus packages by the EU (and member governments) and U.S. and other countries have kept demand higher than would otherwise have been possible but at the cost of significant increases in national debt which will reduce national flexibilities in later years.

In prior posts, I pointed out that the vaccine rollout, while promising, was facing a series of problems both at producers and in the ability of many governments to ramp up vaccinations. Moreover, the rapidity of the global economic rebound would depend on the speed of global vaccinations. See January 3, 2021, 2021 – how quickly will COVID-19 vaccines bring the pandemic under control?, https://currentthoughtsontrade.com/2021/01/03/2021-how-quickly-will-covid-19-vaccines-bring-the-pandemic-under-control/; January 5, 2021,  Global economic rebound in 2021 will be affected by rate of vaccinations against COVID-19 – World Bank’s January 5, 2021 release of its World Economic Prospects report, https://currentthoughtsontrade.com/2021/01/05/global-economic-rebound-in-2021-will-be-affected-by-rate-of-vaccinations-against-covid-19-world-banks-january-5-2021-release-of-its-world-economic-prospects-report/.

There is also the question of whether variants of COVID-19 will be treatable as effectively by the currently approved vaccines. See, e.g., National Geographic, Existing vaccines should work against new coronavirus variants for now, January 15, 2021, https://www.nationalgeographic.com/science/2021/01/existing-vaccines-should-work-against-new-coronavirus-variants-for-now/; VOX, How the new Covid-19 variants could pose a threat to vaccination, January 7, 2021, https://www.vox.com/22213033/covid-19-mutation-variant-vaccine-uk-south-africa.

There continue to be problems with the rate of vaccinations in many countries who have access to vaccines although all governments area working on ways to speed up the vaccination process. There are also problems in terms of the ramp up of production and the slower than expected approval of some vaccines. See, e.g., Politico, Germans vexed as coronavirus vaccine rollout lags, January 12, 2021, https://www.politico.eu/article/coronavirus-story-kiel/; Politico, France rejects criticism of EU coronavirus vaccine procurement, January 10, 2021, ; Financial Times, Pfizer to limit vaccine deliveries temporarily to Europe, January 15, 2021,https://www.ft.com/content/e8177df6-04ae-4d20-8e62-ca76589c7653?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a; BBC News, Coronavirus: Dutch shocked to be EU vaccination stragglers, January 6, 2021, https://www.bbc.com/news/world-europe-55549656; USA Today, Tracking COVID-19 vaccine distribution by state: How many people in the US have received a shot?, January 14, 2021, https://www.usatoday.com/in-depth/graphics/2021/01/14/covid-vaccine-distribution-by-state-how-many-covid-vaccines-have-been-given-in-us-how-many-people/6599531002/ (“About 63.6% of the vaccines distributed haven’t been used yet.”).

Finally, while 49 countries have started to vaccinate their populations according to a recent article from Politico, the largest number of countries continue to wait for vaccines which will be helped when more vaccines are approved. See, e.g., Politico, Coronavirus vaccination in Europe — by the numbers, January 11, 2021, https://www.politico.eu/article/coronavirus-vaccination-europe-by-the-numbers/.

Conclusion

The COVID-19 pandemic continues to rage globally and is becoming more concerning because of faster spreading variants that are showing up around the world. Since many western countries continue to have very high numbers of new cases, hospitalizations and deaths, enormous pressure is on governments to get effective vaccines in large quantities as quickly as possible and get their populations vaccinated. Many countries with access to vaccines are having early problems in ramping up vaccinations. Some of the approved vaccinations are struggling with the production ramp up and being pressed to provide more volumes of vaccines in the absence of alternative vaccines from other producers. The main vaccines intended for broad distribution to many developing and least developed countries are either just starting to receive approvals for distribution or are still working through final trials. In a world quickly approaching 100 million reported cases and more than 2 million deaths and having suffered significant economic dislocations with services trade down an estimated 30 percent, with as many as 100 million people pushed into poverty, and 100-120 million people in the tourism sector having lost jobs, a global solution cannot occur soon enough. While 2021 will show significant improvements for many countries, the continuing challenges from COVID-19 will be with the world community for the foreseeable future.

U.S. Section 301 investigations on digital services taxes by trading partners — USTR releases additional reports on January 14, 2021

On January 8, 2021, I reviewed in a post the release of the first three of ten reports on investigations under Section 301 of the Trade Act of 1974, as amended, on countries’ digital services taxes (DSTs). See January 8, 2021, U.S. Section 301 investigations on digital service taxes by trading partners – an update, https://currentthoughtsontrade.com/2021/01/08/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-an-update/ (release of reports on India, Italy and Turkey). The release of the three reports was accompanied by a decision to postpone indefinitely the imposition of additional duties on France for its DST to permit a coordinated response on all eleven countries following the completion of all investigations. The Federal Register notices on the India, Italy and Turkey investigations and the postponement of imposition of duties on France for its DST were published on January 12. See 86 FR 2477-78 (Italy); 86 FR 2478-79 (India); 86 FR 249-80 (France); 86 FR 2480 (Turkey).

On January 14, USTR released three additional reports on the DSTs of Austria, Spain and the United Kingdom and released a status report on the remaining four investigations on Brazil, the Czech Republic, the European Union, and Indonesia. See USTR press release, USTR Releases Findings and Updates in DST Investigations,
01/14/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-and-updates-dst-investigations. The press release is embedded below but, similar to the earlier reports, found that “each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing
principles of international taxation, and burden or restricts U.S. commerce.”

USTR-Releases-Findings-and-Updates-in-DST-Investigations-_-United-States-Trade-Representative

The press release notes that “’The taxation of companies that engage in international trade in goods and services is an important issue,’ stated U.S. Trade Representative Robert E. Lighthizer. ‘The best outcome would be for countries to come together to find a solution.’” As noted in the January 8 post, there is an ongoing process through the OECD/G20 Integrated Framework to find a solution by mid-2021.

For the four investigations where USTR has not yet published reports, USTR released a status report yesterday, reflecting the reality that the Trump Administration is in its final week and such unfinished investigations and issuance of reports will await the incoming Biden Administration. See Office of the United States Trade Representative, Section 301 Investigations, Status Update on Digital Services Tax Investigations of Brazil, the Czech Republic, the European Union, and Indonesia, https://ustr.gov/sites/default/files/files/Press/Releases/StatusUpdate301InvestigationsBEUIndCR.pdf. The twenty page status report is embedded below.

StatusUpdate301InvestigationsBEUIndCR

The status update is organized as reviewed in the opening paragraph of the update.

“In this Status Update, USTR reports on the progress of the four investigations, offers brief descriptions of the four jurisdictions’ approach to digital services taxes, and describes our preliminary, high-level concerns. In the sections that follow, we address: the procedural developments in the four investigations (Section I); a description and preliminary analysis of Brazil’s DST proposal (Section II); a description and preliminary analysis of the Czech Republic’s DST proposal (Section III); a description and preliminary analysis of the EU’s
approach to digital services taxes (Section IV); and a description and preliminary analysis of Indonesia’s DST proposal (Section V).”

There is little doubt that when the four pending investigations are completed, there will be similar findings to those in the prior seven completed investigations.

As reviewed in the January 8 post, the OECD was to hold a virtual meeting on January 14-15, 2021 in an effort to obtain public input to refine the draft documents released in October and to help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

For the incoming Biden Administration, it will be facing in the early months of the new Administration critically important negotiations on the OECD/G20 proposals as well as the need to complete the investigations on the four unfinished 301 investigations on DSTs. The outcome and interplay of both will have significant implications for global trade and for fairness in international taxation.

Below are the reports on Austria, Spain and the United Kingdom and the notices sent to the Federal Register on each of the three investigations.

AustriaDSTSection301Report

AustriaDSTFRN

SpainDSTSection301Report

SpainDSTFRN

UKDSTSection301Report

UKDSTFRN

First dispute settlement cases of 2021 at the WTO — Costa Rica requests consultations with Panama for various restrictions on agricultural products viewed as violating SPS obligations and more; EU requests establishment of a panel to address its concerns with Indonesia’s export restrictions on inputs for stainless steel

Costa Rica’s request for consultations

Costa Rica has filed the first request for consultations at the WTO in 2021. Its request was filed on January 11, 2021 and posted on the WTO website on January 14. See PANAMA – MEASURES CONCERNING THE IMPORTATION OF CERTAIN PRODUCTS FROM COSTA RICA, REQUEST FOR CONSULTATIONS BY COSTA RICA, WT/DS599/1, G/AG/GEN/179, G/SPS/GEN/1873, G/L/1383 (14 January 2021). Costa Rica alleges a host of restraints imposed on various agricultural exports from Costa Rica including on “(i) strawberries; (ii) milk
products; beef; pork; processed poultry meat; cured beef, pork and poultry products (including ham, sausages, mortadella, bacon, chorizo made of pork, chicken and turkey, pâté, pepperoni, salami, legs, ribs, loin of pork, roast beef and beef loin); prepared beef, pork and chicken, chicken and turkey breast, pork rind and dry chorizo; and fish food; (iii) pineapples; and (iv) plantains and bananas.” (Page 1).

Costa Rica’s request for consultations reviews the lengthy efforts at communicating with Panama and the apparent failure of Panama to respond or to provide inspections of facilities in some cases. Costa Rica has been seeking resolution with Panama over the last two years without results. Costa Rica has raised some of the issues in the Committee on Agriculture during 2020. See WTO Committee on Agriculture, SUMMARY REPORT OF THE MEETING HELD ON 28 JULY 2020, NOTE BY THE SECRETARIAT, G/AG/R/95 (19 October 2020)(“The Committee adopted the agenda with the following additions: • Under Part 1.A: The Review Process, matters relevant to the implementation of Commitments under the reform programme raised under Article 18.6 of the Agreement on Agriculture: o Costa Rica raised matters relating to non-tariff barriers to agricultural trade during the COVID-19 pandemic by Panama”). The question from Costa Rica and Panama’s limited response are embedded below.

View-Question-Answer

Indeed press articles from the summer of 2020 reviewed the growing trade concerns that Costa Rica had with Panama’s restrictions on Costa Rica’s exports of agricultural products. See, e.g., MENAFN, Costa Rica protests Panama trade blockade to World body, 8/7/2020, https://menafn.com/1100601315/Costa-Rica-protests-Panama-trade-blockade-to-World-body (“A growing trade dispute between Costa Rica and Panama has landed on the world stage as Costa Rica notified the Agriculture Committee of the World Trade Organization (WTO) that Panama has blocked the entry of Costa Rican products of animal origin to the Panamanian market for over three months. In a statement, issued on Thursday, August 6, the Minister ofAgriculture and Livestock, Renato Alvarado Rivera, and the Minister of Foreign Trade, Dyalá Jiménez Figueres, said that the blockade constitutes ‘a serious commercial problem between both countries.'”); CentralAmericaData.com, Trade Dispute Between Panama and Costa Rica, August 7, 2020, https://www.centralamericadata.com/en/article/main/Trade_Dispute_Between_Panama_and_Costa_Rica.

The bulk of the alleged violations by Panama are to obligations under the Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”), with GATT 1994 Article violations (e.g., failure to provide most favored nation access) alleged as well. The request for consultations is embedded below.

599-1

Costa Rica will have a long road (likely measured in years) in pursuing its dispute with Panama and at present, has no second stage dispute settlement option. While Costa Rica has joined the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU, Panama is not a signatory. Hence, absent agreement on how to proceed after a panel report, Panama could file an appeal which could not be heard until such time as there is a resolution to the Appellate Body impasse.

The challenge Costa Rica is having with Panama on restraints based on claims of SPS problems has become increasingly common. For example, while most observers perceive that the wide range of import restrictions by China on goods from Australia flow from China’s unhappiness with Australia’s positions on unrelated matters, China has imposed restrictions often claiming SPS or other problems. See, e.g., 9news, Aussie cherries labelled ‘inferior’ by China, growers worried, January 14, 2021, https://www.9news.com.au/national/china-trade-dispute-cherry-exporters-targeted/9f734bf9-ba2f-4259-bce0-758ff0913cc3. For the more likely reason for Chinese restrictions see my prior post (December 22, 2020, China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/) and last week’s article (South China Morning Post, China-Australia relations: bans on Australian imports ‘beginning to bite’ as commodity exports fall, 8 January 2021, https://www.scmp.com/economy/china-economy/article/3116808/china-australia-relations-bans-australian-imports-beginning).

The EU’s request for establishment of a panel to address its concerns with export restraints on raw materials from Indonesia

The EU filed its request for establishment of a panel today, January 14, 2021. The European Commission’s Directorate of Trade issued a press release entitled “EU files WTO panel request against illegal export restrictions by Indonesia on raw materials for stainless steel” and the request for establishment of a panel is also available from the same website. Both documents are embedded below.

EU-files-WTO-panel-request-against-illegal-export-restrictions-by-Indonesia-on-raw-materials-for-stainless-steel-Trade-European-Commission

tradoc_159271

The EU request for establishment of a panel raise two issues where Indonesia’s actions are alleged to violate GAT 1994 Article XI:1 which provides, “No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.” The actions of Indonesia from the request are copied below.

“Indonesia has restricted exports of nickel ore to different extents and under different rules since at least 2014. In January 2014 nickel was excluded from the regime on the necessary processing and purification of mining commodities for export, which effectively outlawed exports of nickel ore. From January 2017 to December 2019 exports of nickel ore with a concentration below 1.7% were permitted subject to certain conditions, while those of nickel ore with a higher concentration remained prohibited. Since January 2020 all exports of nickel ore, regardless of its concentration, are banned.” (page 1 of request for establishment of a panel)

“Indonesia applies domestic processing requirements with regard to certain raw materials, notably nickel ore and iron ore, prior to them being exported. Domestic processing requirements oblige mining companies to enhance the value of the relevant raw materials through the conduct of certain processing and/or purification operations in Indonesia before exporting them.” (page 2)

While the EU is a signatory to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU but Indonesia is not. Should the EU be successful in its dispute with Indonesia at the panel stage, Indonesia could take an appeal to the Appellate Body which at least at present could not hear it. The EU would likely retaliate against Indonesia if an appeal were pursued where the Appellate Body is not functioning.

Conclusion

It is not surprising that new requests for consultations and new requests for the establishment of a panel continue despite the current inoperability of the second stage dispute settlement (the Appellate Body). As panels have been taking a long time in rendering panel reports, it is possible that reform of the Appellate Body will be accomplished before either the Costa Rica case against Panama or the EU case against Indonesia get to a panel decision. It is also obviously the case that the Dispute Settlement Understanding encourages parties to disputes to resolve them at any time, so neither case may reach a point where an appeal is considered. Alternatively, the parties could agree to not appeal from any panel report or otherwise find a mutually agreeable solution without appeal. However, if either or both cases get to a stage where an appeal is taken, either the case will sit awaiting the return of a functioning Appellate Body or the winning party may opt to take unilateral action and retaliate even though not authorized by WTO DSU provisions.

The following from the WTO webpage on Dispute Settlement, Appellate Body, provides a list of disputes where appeals have been taken but the Appellate Body is not in a position to resolve at the present time. The list and note are copied below (but don’t contain quote marks). There are presently 16 disputes where appeals have been filed where the Appellate Body is not currently working the appeals.

Current Notified Appeals (1)

  • 17 December 2020:  Notification of Appeal by Indonesia in DS484: Indonesia — Measures Concerning the Importation of Chicken Meat and Chicken Products (Article 21.5 — Brazil) (WT/DS484/25)
     
  • 26 October 2020:  Notification of Appeal by United States in DS543: United States — Tariff Measures on Certain Goods from China (WT/DS543/10)
     
  •  28 September 2020: Notification of Appeal by United States in DS533: United States — Countervailing Measures on Softwood Lumber from Canada (WT/DS533/5)
     
  •  28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7)
     
  •  28 July 2020: Notification of Appeal by Saudi Arabia in DS567: Saudi Arabia — Measures Concerning the Protection of Intellectual Property Rights (WT/DS567/7)
     
  •  18 December 2019: Notification of Appeal by the United States in DS436: United States — Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (Article 21.5 — India) (WT/DS436/21)
     
  • 6 December 2019: Notification of Appeal by the European Union in DS316: EC and certain member States — Large Civil Aircraft (Article 21.5 — EU) (WT/DS316/43)
     
  • 19 November 2019: Notification of Appeal by India in DS541: India — Export Measures (WT/DS541/7)
     
  • 9 September 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines II) (WT/DS371/30)
     
  • 15 August 2019: Notification of Appeal by the United States in DS510: United States — Certain Measures Relating to the Renewable Energy Sector (WT/DS510/5)
     
  • 4 June 2019: Notification of Appeal by Canada in DS534: United States — Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada (WT/DS534/5)
     
  • 25 January 2019: Notification of Appeal by the United States in DS523: United States — Countervailing Duty Measures on Certain Pipe and Tube Products from Turkey (WT/DS523/5)
     
  • 9 January 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines) (WT/DS371/27)
     
  • 14 December 2018: Notification of Appeal by India in DS518: India — Certain Measures on Imports of Iron and Steel Products (WT/DS518/8)
     
  • 20 November 2018: Notification of Appeal by Panama in DS461: Colombia — Measures Relating to the Importation of Textiles, Apparel and Footwear (Article 21.5 — Colombia)(Article 21.5 — Panama) (WT/DS461/28)
     
  • 21 September 2018: Notification of Appeal by the European Union in DS476: European Union and its member States — Certain measures Relating to the Energy Sector (WT/DS476/6)

Notes

  1. This refers to current cases in which notifications of appeal have been made. As indicated in the opening paragraphs, at the current time the Appellate Body is unable to review any of these notified appeals given the ongoing vacancies.  Back to text

U.S. trade policy under a Biden Administration and a Democratically-controlled Congress — how will a search for social justice and more equitable distribution of benefits affect trade laws and negotiations?

President-elect Biden’s pick for U.S. Trade Representative, Katherine Tai, spoke at a National Foreign Trade Council virtual conference yesterday and various press reports indicate that she identified two primary areas of focus of the incoming Administration in trade as being China and the USMCA. Ms. Tai is quoted as stating that the Biden Administration “will pursue trade policies that place the humanity and dignity of every American and all people at the heart of our approach” and will use trade policy “to create a more inclusive prosperity for Americans”. Inside U.S. Trade’s World Trade Online, Tai calls for more trade collaboration ‘across the entire spectrum,’ January 12, 2021,https://insidetrade.com/daily-news/tai-calls-more-trade-collaboration-%E2%80%98across-entire-spectrum%E2%80%99. See also Financial Times, What maiden speech of USTR-elect says about Biden’s trade policy, January 13, 2021, https://www.ft.com/content/f57fc73f-276f-470f-bffe-ab348fb13f16; Washington Trade Daily, January 13, 2021, Biden’s Worker-Centered Trade Policy, https://files.constantcontact.com/ef5f8ffe501/cfb23ebb-cdc6-4b55-adb5-3a5cbd7cfce6.pdf, (“’The President-Elect’s vision is to implement a worker-centered trade policy,’ Ms. Tai continued. ‘What this means in practice is that US trade policy must benefit regular Americans, communities, and workers. And that starts with recognizing that people are not just consumers – they are also workers, and wage earners.’”).

In an earlier post, I had reviewed the range of issues that an incoming U.S. Trade Representative will be facing. See December 12, 2020, The Incoming Biden Administration and International Trade – Katherine Tai, nominee for U.S. Trade Representative, https://currentthoughtsontrade.com/2020/12/12/the-incoming-biden-administration-and-international-trade-katherine-tai-nominee-for-u-s-trade-representative/.

In the area of trade negotiations, the USMCA reflects a greater focus on workers and has been cited by Democrats as having moved in the right direction to address the needs of working families. Enforcement is a major element of the new agreement on labor rights and how well the new agreement works in the labor enforcement area will be tested shortly after President-elect Biden is sworn is as the AFL-CIO will be filing a complaint on Mexico’s implementation then. Inside U.S. Trade’s World Trade Online, Trumka: AFL-CIO to launch labor case against Mexico soon after Biden takes office, January 12, 2021, https://insidetrade.com/daily-news/trumka-afl-cio-launch-labor-case-against-mexico-soon-after-biden-takes-office.

But there are many areas of trade law where a more worker-inclusive approach to trade policy could lead to significant changes in the approach pursued. For example, on the pending issue of renewal of the Generalized system of preferences (GSP expired on Dec. 31, 2020), Democrats in 2020 were looking for modifications to eligibility criteria to address issues like human rights, anti-corruption and the environment. See Inside U.S. Trade’s World Trade Online, Wyden: GSP changes needed to ‘raise the bar’ for U.S. trading partners, December 2, 2020, https://insidetrade.com/daily-news/wyden-gsp-changes-needed-%E2%80%98raise-bar%E2%80%99-us-trading-partners. These types of changes are likely to be pursued in 2021. But there are others that may be equally important to working men and women in the manufacturing sector. For many products produced in various GSP countries, the primary beneficiary is a local subsidiary of a major multinational company — companies that very likely don’t need the tariff advantage to be competitive against imports from other countries. Congress and a Biden Administration could examine whether eligibility within an eligible country would not apply to goods from subsidiaries of multinational companies. Such an approach would reduce the likely loss of jobs in the United States or encourage reshoring where the advantage is a tariff-based incentive.

Similarly, Congress has often considered miscellaneous tariff bills (MTBs) to provide waiver of duties on imports reportedly not produced in the United States. Many businesses are pushing for adoption of MTBs early in the Biden Administration. There can be literally thousands of such requests received and handled. There is no present process to review which products are simply inputs being shipped between subsidiaries of the same company, for which products maintaining the duty could lead to production starting in the United States, etc. A Biden Administration, if interested in ensuring that trade policy works for all Americans might view changes to the MTB process to be relevant.

In trade remedies, while U.S. law has permitted workers to bring petitions, the Biden Administration and Congress could look at self-initiation of cases of interest to workers where major producers in the U.S. are conflicted because of foreign operations and could seek funding (based on use of a small portion of trade remedy duties collected from other cases) for workers to be able to hire private counsel to pursue cases.

While the Trump Administration has bolstered action on imports made from forced labor, the Biden Administration has the ability to significantly increase the use of existing U.S. law against such imports and should explore additional documentation required for any goods from an area where forced labor is suspected to be used.

While one is not expecting significant new FTA negotiations by the Biden team in 2021, there are negotiations underway where labor, environment and other priorities for the Biden team could be addressed. The U.S.-U.K. negotiations would be one obvious one. If there is to be a comprehensive U.S.-Japan agreement, that would be a second one where achieving meaningful results on labor and environment should be doable. U.S.-Kenya would be more challenging but would be important. While a significant part of the business community is hopeful that the U.S. will reengage with the now CPTPP countries, it is unlikely that such an undertaking will be pushed in 2021.

While the U.S. will be reengaging with the EU and while the U.S. and EU should have broad areas of common interest on labor and environment in a Biden Administration, the immediate issues before both the U.S. and EU are resolution of the Airbus/Boeing disputes and retaliations, what path forward there is on global excess capacity in various sectors (including steel and aluminum where the U.S. has 232 tariffs in place and the EU has retaliated and also has safeguard duties in place on steel), the 301 investigations into the EU and various EU Members on digital service taxes and the ongoing OECD/G20 efforts to adopt broadbased agreed rules for taxation of the digital economy, and collaboration on efforts to deal with distortions caused by China’s policies.

On the important U.S.-China relationship, the U.S. should start a phase 2 negotiations with China. In addition to the remaining issues from the U.S. 301 investigation of China that remain unresolved, successes in the EU-China Comprehensive Agreement on Investments on services and selected goods areas where various issues were addressed on sustainability, transparency, subsidies, etc. could be useful as precedents for any phase 2 talks on similar issues.

On the WTO, reform is a key priority for the Members and may provide the U.S. with an opportunity to make trade rules work better for working men and women. There is considerable interest among many WTO Members on the effects of climate change and what role the WTO can play to address. Indeed, there is generally reasonable interest in a range of the UN Sustainable Development Goals, a number of which should be of interest to the Biden team and the Democratically led Congress. Historically, labor issues have been unwelcome by many developing and least developed countries at the WTo, and it is unclear that there has been any significant change, meaning such issues will likely be more fruitfully addressed in FTAs or in other venues (e.g., GSP legislation).

House Ways and Means Committee Democratic Policy Pillars and Priorities on Health and Economic Equity while generally not trade focused are consistent with likely direction of the Biden Administration

A recent document released by the House Ways and Means Committee Chairman Richard Neal entitled Policy Pillars and Priorities: A Bold Vision for a Legislative Pathway Toward Health and Economic Equity deals with the broad issue of changes needed to laws that are within the Ways and Means jurisdiction to address the challenges of unequal access to health care and economic opportunities experienced by many members of minority groups in the United States. The document is embedded below. Generally trade is not the primary focus of the different topics although there is reference to trade in a number of the sections.

HWMC-Pillars-and-Priorities-Pathway-toward-Health-and-Economic-Equity

Specifically, the paper identifies nine policy pillars, four that are part of the section on health equity pillars and five that are part of the economic equity pillars. Trade is not addressed in any of the health pillars as policy approaches but is included as one of the policy approaches for each of the economic equity pillars. Below is the pillar and the listed trade policy approach cited for each.

“ECONOMIC EQUITY POLICY PRIORITIES

“Economic Justice for Workers

“Ensure trade policies support and do not undermine economic justice for workers in the
United States and in trading partner countries

“Economic Justice for Children and Families

“Assess the impacts that trade policies have on the ability of families from marginalized
communities and children of color to access needed resources

“Retirement Security

“Assess the impacts that trade policies have on the ability of American families to plan for and
enjoy a secure and dignified retirement

“Investment in Communities from the Ground Up

“Assess the impacts trade policies have on communities and their access to economic
opportunity and justice

“Environmental Justice

“Promote environmental justice through U.S. trade policies, including trade agreements and
programs”.

The paper from Chairman Neal was accompanied by a majority staff report which is embedded below and from which the section on trade (pages 20-24) is copied after. What is clear from the report and the economic equity pillars is that Democrats will be looking for trade policies to support efforts to make global trade more beneficial to working people and less discriminatory in effect on minorities. While the bulk of the tools to achieve greater equity will be domestic laws and policies (e.g., substantial infrastructure projects could be of significant help both short-term and longer-term), trade policy that includes the concerns of labor and the environment will likely differ significantly from policy that is simply business-owner focused.

HWMC-Majority-Staff-Report

“Access to the Benefits of Trade for Individuals and Communities

“Commonplace discussions about the objectives of international trade policy generally identify and promote the interests of economic sectors – industrial, agricultural, and services, for example. Seldom have trade’s effects on individuals or communities been considered, much less prioritized as such, beyond in any but the most abstract terms. When trade policymakers have taken the time to make the interests of individuals and communities a priority, however, their efforts have generated substantial political support for those policies. 106 Consequential developments in recent years – and in 2020 in particular – are challenging policymakers to
investigate further the role that trade policy has played in either perpetuating or exacerbating unequal access to the benefits of trade for certain individuals and communities – both in the U.S. and worldwide. In 2020, the COVID-19 pandemic has highlighted the fact that these disparities in outcomes among different communities result from structural and systemic inequities U.S. laws and policies create – inequities that emerged as far back as some of the first U.S. international economic policies involving the exchange of goods and people.107

“Globally, the pandemic has also revealed the fragility of our international supply chains and the inequity in the treatment of workers in low-cost labor countries where manufacturing has become concentrated. Predominantly non-White workers from developing countries and former colonies across the world suffer compromised labor conditions while producing goods for U.S. and global consumers. Unequal contracting and employer relationships that have developed from the arbitrage that conventional trade policies enable have encouraged a spectrum of exploitative practices, including the prevalence of forced labor in certain regions.108 In their attempts to minimize financial losses related to COVID-19, U.S.- and European-based multinational companies have left already low-wage workers in developing countries – also struggling to survive the pandemic – without pay.109 In this way, COVID-19 revealed how globalization has incentivized supply chain models that depend on finding the lowest cost workforce for production, regardless of living or working conditions, with dire consequences for public health, supply chain resilience, and a disparate impact on those already bearing the heaviest burdens in the existing global economic order.110 Indeed, some have called on brands and global retailers to remedy inequitable purchasing practices and commit to support millions of garment workers of color around the world who have enabled substantial industry profits, particularly in light of recent corporate public actions to promote racial justice.111

“For the last 50 years, the U.S. has pursued a policy of aggressive trade liberalization and experienced
a painful decline in manufacturing and redistribution of jobs to the services sector. The loss of manufacturing jobs and the increase in service sector work has exacerbated income inequality more broadly because those manufacturing jobs often had union benefits and wages that supported middle- and working-class families, whereas service sector jobs generally did not.112 In recent years, U.S. service sector jobs have also faced the
pressures of globalization and losses to lower-labor-cost countries.113 Trade policies favoring financial and corporate interests over those of individuals and their communities have yielded lowered labor conditions and standards for American workers in the form of decades-long wage stagnation, weaker labor protections, limited options for quality jobs, and increased unemployment.114

“Black workers have faced even harsher obstacles to recover from globalization-related job losses due to systemic and pervasive racial disparities across the labor market and in accessing public services.115 The loss in manufacturing jobs disproportionately impacted Black workers in a multitude of ways, including negatively affecting their wages, employment, marriage rates, house values, poverty rates, death rates, single parenthood, teen motherhood, child poverty, and child mortality.116 In addition to increases in precarious work, the decline in union jobs has also been cited as a contributing factor to growing inequality. In fact, union jobs help reduce disparities Black workers suffer by enabling more equitable labor conditions that
help protect them from discriminatory practices.117 At the same time, trade liberalization has impacted immigrant and Latino workers in the U.S. who have also suffered job losses and wage stagnation.118, 119

“An examination of U.S. policies affecting agricultural production and trade, as well as the historical realities that helped shape them, reveals racial inequities in both their development and impacts. The production of
certain commodities in the U.S. can be traced back to the founding of the original colonies as part of trans-Atlantic trade when forced labor powered production and comprised a key element of the triangular trade flow. Those commodities continue to enjoy robust support through U.S. government policies – support that is often strategically sheltered from strict multilateral trade disciplines. U.S. policies and systemic inequities have over time restricted the rights and ability of Black Americans to acquire or retain land for farming; Black farmers currently make up less than two percent of all U.S. farmers.120 Furthermore, policies and practices have been documented that further restricted the ability of Black farmers to access the government support that other farmers receive.121 Taken together, it appears that benefits and prosperity that U.S. farmers and agricultural producers enjoy from trade and attendant policies lack inclusivity and reflect significant disparities between communities. Thus, such factors must be revisited to promote economic equity.

“Some have criticized the globalization resulting in large part from U.S. trade policies of the past decades for a redistribution of wealth that places costs disproportionately on those that are socially and economically disadvantaged in other countries as well.122 The current application of U.S. trade policies has contributed to imbalanced economic benefits in developing countries and broader unrealized development goals. The disproportionate benefits for corporate entities over individuals and local communities have dramatically impacted the economies and demographics of some developing countries. The resulting job losses in those foreign nations have in many cases spurred mass forced migration.123 Similarly, U.S. preference programs have historically benefitted a small set of developing countries and have largely left the least developed countries behind.124 A thoughtful, probing re-examination of the modes and objectives of U.S. trade policy in light of their domestic and international effects is necessary now more than ever before. Only then can reforms and new approaches be adopted to produce a sustainable and inclusive prosperity that prioritizes meaningful economic benefits for individuals and communities, and others who have been left out, overlooked, and exploited. also

“106 Guided by a focus on the effect of the trade agreement on individuals, in 2019, House Democrats engaged in a direct negotiation with the Trump Administration to correct serious deficiencies in the Administration’s attempted renegotiation of the North American Free Trade Agreement (NAFTA). House Democrats required significant changes to strengthen the standards and enforceability of worker rights and environmental protections, and to ensure people’s timely access to affordable medicines. The changes secured a level of bipartisan, bicameral support that U.S. trade policy had not seen in nearly 40 years.

“107 Danyelle Solomon et al., Systematic Inequality and Economic Opportunity, CTR. FOR AM. PROGRESS (Aug. 7, 2019), https://www.americanprogress.org/issues/race/reports/2019/08/07/472910/systematic-inequality-economicopportunity/.

“108 Elizabeth Paton and Austin Ramzy, Coalition Brings Pressure to End Forced Uighur Labor, N.Y TIMES (July 23, 2020), https://www.nytimes.com/2020/07/23/fashion/uighur-forced-labor-cotton-fashion.html; see also Vicky Xiuzhong Xu et al, Uyghurs for Sale, AUSTRALIAN STRATEGIC POLICY INST. (Mar. 1, 2020),
https://www.aspi.org.au/report/uyghurs-sale.

“109 Mark Anner, Abandoned? The Impact of Covid-19 on Workers and Businesses at the Bottom of Global Garment Supply Chains, PENNSTATE CENTER FOR GLOBAL WORKERS’ RIGHTS (Mar. 27, 2020),
https://www.workersrights.org/wp-content/uploads/2020/03/Abandoned-Penn-State-WRC-Report-March-27-
2020.pdf; see also Who Will Bail Out the Workers That Make Our Clothes?, WORKER RIGHTS CONSORTIUM (Mar. 2020), https://www.workersrights.org/wp-content/uploads/2020/03/Who-Will-Bail-Out-the-Workers-March-2020.pdf.

“110 Traditional payment structures for apparel orders heavily favor global brands and retailers over suppliers and workers in developing countries. See, Garment Workers on Poverty Pay are left without Billions of Their Wages During Pandemic, CLEAN CLOTHES CAMPAIGN (Aug. 8, 2020), https://cleanclothes.org/news/2020/garmentworkers-on-poverty-pay-are-left-without-billions-of-their-wages-during-pandemic; My Children Don’t Have Food: What the Crisis Means for the People Who Make Collegiate Apparel , WORKER RIGHTS CONSORTIUM (June, 2020), https://www.workersrights.org/wp-content/uploads/2020/06/My-children-dont-have-food_June-2020.pdf.

“111 Kalkidan Legesse, Racism is at the Heart of Fast Fashion—It’s Time for Change, THE GUARDIAN (June 11,
2020), https://www.theguardian.com/global-development/2020/jun/11/racism-is-at-the-heart-of-fast-fashion-itstime-for-change.

“112 Robert E. Scott, Trading Away the Manufacturing Advantage, ECONOMIC POLICY INST. (Sep. 30, 2013),
https://files.epi.org/2013/trading-manufacturing-advantage-china-trade.pdf; Daniella Zessoules, Trade and Race: Effects of NAFTA 2.0 and Other Low-Road Approaches to Trade on Black Communities, CTR. FOR AM. PROGRESS (June 18, 2019), https://www.americanprogress.org/issues/economy/reports/2019/07/18/471198/trade-and-race/;
Gerald D. Taylor, Unmade In America: Industrial Flight and the Decline of Black Communities, ALLIANCE FOR AM. MANUFACTURING (October 2016), https://s3-us-west-2.amazonaws.com/aamweb/uploads/researchpdf/
UnmadeInAmerica.pdf.

“113 Offshoring Security: How Overseas Call Centers Threaten U.S. Jobs, Consumer Privacy, and Data Security,
COMMUNICATIONS WORKERS OF AM. (Oct. 2013), https://files.cwa-union.org/national/offshoring-security.pdf.

“114 Sandra Polaski et al., How Trade Policy Failed U.S. Workers—and How to Fix It, BOSTON UNIV. GLOBAL
DEVELOPMENT POLICY CTR. (Sep. 14, 2020), http://www.bu.edu/gdp/files/2020/09/How-Trade-Policy-Failed-USWorkers-and-How-to-Fix-it-FIN.pdf; David H. Autor, The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade, NAT’L BUREAU OF ECONOMIC RESEARCH (2016), https://www.nber.org/papers/w21906.pdf.

“115 Robert E. Scott, Trading Away the Manufacturing Advantage, ECONOMIC POLICY INST. (Sep. 30, 2013),
https://files.epi.org/2013/trading-manufacturing-advantage-china-trade.pdf; Daniella Zessoules, Trade and Race: Effects of NAFTA 2.0 and Other Low-Road Approaches to Trade on Black Communities, CTR. FOR AM. PROGRESS (June 18, 2019), https://www.americanprogress.org/issues/economy/reports/2019/07/18/471198/trade-and-race/.

“116 Eric D. Gould, Torn Apart? The Impact of Manufacturing Employment Decline on Black and White Americans, THE MIT PRESS J. (Mar. 6, 2020), https://www.mitpressjournals.org/doi/pdf/10.1162/rest_a_00918. See also Sandra Polaski et al., How Trade Policy Failed U.S. Workers—and How to Fix It, BOSTON UNIV. GLOBAL DEVELOPMENT POLICY CTR. (Sep. 14, 2020), http://www.bu.edu/gdp/files/2020/09/How-Trade-Policy-Failed-US-Workers-and-How-to-Fix-it-FIN.pdf.

“117 Id.; see also Andrea Flynn et al, Rewrite the Racial Rules: Building an Inclusive American Economy, ROOSEVELT INST. (June 2016), https://rooseveltinstitute.org/wp-content/uploads/2016/06/RI-RRT-Race-201606.pdf; Natalie Spievack, Can labor unions help close the black-white wage gap?, URBAN INST. (Feb. 1, 2019), https://www.urban.org/urban-wire/can-labor-unions-help-close-black-white-wage-gap.

“118 Fracaso: NAFTA’s Disproportionate Damage to U.S. Latino and Mexican Working People , PUBLIC CITIZEN
(Dec. 3, 2018), https://www.citizen.org/article/fracaso-naftas-disproportionate-damage-to-u-s-latino-and-mexicanworking-people/.

“119 Trade Discrimination: The Disproportionate, Underreported Damage to U.S. Black and Latino Workers from U.S. Trade Policies, PUBLIC CITIZEN (Jan. 7, 2021), https://www.citizen.org/wp-content/uploads/PC_Trade-
Discrimination-Report_1124.pdf.

“120 Khalil G. Muhammad, The Sugar that Saturates the American Diet has a barbaric history and as the White Gold that Fueled Slavery, NY. TIMES (Aug. 14, 2019), https://www.nytimes.com/interactive/2019/08/14/magazine/sugarslave-trade-slavery.html.

“121 Nathan Rosenberg, USDA Gave Almost 100 Perfect of Trump’s Trade War Bailout to White Farmers, THE
COUNTER (July 29, 2019), https://thecounter.org/usda-trump-trade-war-bailout-white-farmers-race/ ; Paola Rosa-Aquino, Nearly 100 Percent of Trump Funds Designed to Help Farmers Went to White Farmers, GRIST (Aug. 1, 2019), https://grist.org/article/trump-trade-war-usda-farmer-subsidy-race-disparity/; and Chantal Thomas, Income Inequality and International Economic Law: From Flint, Michigan to the Doha Round, and Back, CORNELL LEGAL STUDIES RESEARCH (2019).

“122 Chantal Thomas, Income Inequality and International Economic Law: From Flint, Michigan to the Doha Round, and Back, CORNELL LEGAL STUDIES RESEARCH (2019).

“123 Both NAFTA and the U.S. Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) have
been criticized for contributing to increased migration of Mexican and Central American workers, respectively, into the U.S. See Andrew Chatzky, et. al., NAFTA and the USCMA: Weighing the Impact of North American Trade, COUNCIL ON FOREIGN RELATIONS (July 1, 2020), https://www.cfr.org/backgrounder/naftas-economic-impact; see also Mark Weisbrot et. al., Did NAFTA Help Mexico? An Assessment After 20 Years, CTR. FOR ECONOMIC & POLICY RESEARCH (Feb. 2014), https://cepr.net/report/nafta-20-years/; NAFTA at 20, AFL-CIO (Mar. 27, 2014), https://aflcio.org/reports/nafta-20.

“124 Generalized System of Preferences (GSP): Overview and Issues for Congress RL33663, CONG. RESEARCH SERV. (2019).”

Inserted material in boxes in report:

“We should be asking: why are Black and Latino people less likely to be working from home; less likely to be insured; less likely to live in unpolluted neighborhoods? The answer is racist policy… Will policymakers turn away as people of color suffer in their bedrooms, suffer on their hospital beds, suffer watching their loved ones lowered into their graves –all the while blaming them for their own suffering –all the while adding to the racist history of their suffering? Or will policymakers be antiracist? Meaning no longer blaming people of color for disparities. And focused on pushing policy that leads to equity and justice for all. Testimony of Dr. Ibram X Kendi, Hearing on The Disproportionate Impact of COVID-19 on Communities of Color, May 2020.”

“So climate change will lead to increased droughts, more frequent droughts. But, at the same time, it will also change precipitation patterns and lead to heavier downpours. The Great Plains, which are the breadbasket of America, are projected to experience drought conditions unprecedented in the last millennium. We expect to see the ranges of certain pests expanding, and changes in the growing seasons. And all of these things could have implications for agriculture and our food security. Testimony of Dr. Katherine Marvel, Hearing on The Economic and Health Consequences of Climate Change, May 2019.”

Conclusion

The United States is eight days from a new Administration. While trade is not the topic of first importance to the incoming Biden team, the desire to build back better and more equitably will have effects on Executive actions in all areas, including trade, and will over the next two years at least with the Democrats in charge of both the House and the Senate include legislative discussions of issues of health and economic equity that may have important trade policy implications as well.


U.S. Senate Finance Committee Chairman requests an investigation into foreign government censorship and how such censorship may adversely impact U.S. businesses and citizens — a focus on China but broader in reach

In 2020 the United States Senate Committee on Finance’s Subcommittee on Trade held a hearing on “Censorship as a Non-tariff Barrier” and received testimony from four witnesses. The main focus of the prepared testimony was on the actions of China, but the issue is broader than that. Some of the concerns of U.S. businesses are presumably being teed up by the United States and others in the plurilateral talks on e-commerce that are ongoing among more than 80 WTO Members. Since the draft text of the Joint Statement Initiative talks on e-commerce is not public, it is not clear what, if any, current draft provisions deal with the concerns of the U.S. business community. See December 14, 2020 listing of a consolidated negotiating text on e-commerce of 90 pages in INF/ECOM/62/Rev.1 on the WTO webpage (documents online)(document is restricted and hence not publicly available).

On January 4, 2021, the Chairman of the Senate Finance Committee, Senator Chuck Grassley, forwarded a request to the United States International Trade Commission for a fact finding investigation. The letter is embedded below but references the June 30, 2020 hearing and makes specific requests for the type of information to be provided in a report to be provided within 18 months:

“The report should provide detailed information on this important matter, including the following:

“1. Identification and descriptions of various foreign censorship practices, in particular any examples that U.S. businesses consider to impede trade or investment in key foreign markets. The description should include to the extent practicable:

“a. the evolution of censorship policies and practices over the past 5 years in key foreign markets;

“b. any elements that entail extraterritorial censorship; and

“c. the roles of governmental and non-governmental actors in implementation and enforcement of the practices.

“2. To the extent practicable, including through the use of survey data, an analysis of the trade and economic effects of such policies and practices on affected businesses in the United States and their global operations. The analysis should include to the extent practicable, quantitative and qualitative impacts of the identified policies, including by reference, where identifiable, to:

“a. impact on employment;

“b. direct costs (e.g., compliance and entry costs);

“c. foregone revenue and sales;

“d. self-censorship; and

“e. other effects the Commission considers relevant for the Committee to know.”

Jan.-4-2021-letter-from-SFC-Chairman-Grassley-to-USITC-re-332-investigation-on-censorship-as-a-non-tariff-barrier

While the letter from Senator Grassley does not limit the request to a review of practices of China, the testimony during the June 30, 2020 hearing at the Senate Finance Committee was tightly focused on the serious problems caused by China’s aggressive censorship practices and the resulting harm to U.S. businesses. While all of the prepared testimonies from the hearing are interesting, the most comprehensive in terms of actual negative effects experienced by U.S. businesses was the prepared statement of Nigel Cory, Associate Director, Trade Policy, Information Technology and Innovation Foundation. Mr. Cory had as one of his suggestions having the Senate Finance Committee request a Section 332 fact finding investigation by the U.S. International Trade Commission, which is what has happened. Mr. Cory’s prepared statement is embedded below.

ITIF-30JUN2020CORYSTMNT

A former Trump Administration official, Clete Willems, speaking in his personal capacity, reviewed the extensive censorship practiced by China and reviewed various reports by the U.S. Trade Representative’s Office or by the U.S.-China Economic and Security Review Commission on the extent of the problem for U.S. businesses.

“According to USTR’s 2019 Report to Congress on China’s WTO Compliance, ‘China currently blocks most of the largest global sites… and more than 10,000 sites are blocked, affecting billions of dollars in business, including communications, networking, app stores, news and other sites.’1 The report goes on to state that ‘[e]ven when sites are not permanently blocked, the often arbitrary implementation of blocking, and the performance-degrading effect of filtering all traffic into and outside of China, significantly impair the supply of many cross-border services, often to the point of making them unviable.’2

“Additionally, China controls the major press instruments in China – both on- and off-line – and suppresses views inconsistent with the Party’s objectives. The leading news agencies in China are unambiguous instruments of the government. As a result, the U.S. State Department’s recent decision to treat these agencies as foreign government functionaries, subject to similar rules as diplomats stationed in the United States, is entirely appropriate.3 Predictably, China’s response was not to provide the news agencies with more freedom, but to expel journalists from the Washington Post, New York Times, and Wall Street Journal from China, thereby further limiting the number of free voices in the country.

“This is just one recent example of China’s decision to double down on policies of suppression and control. The latest U.S. – China Economic and Security Review Commission Report highlighted China’s growing censorship of economic news, noting that ‘[i]n the past year, Beijing has directed media outlets to avoid stories on declining consumer confidence, local government debt risks, and other unwelcome economic news.’4 In December, China promulgated a new internet censorship law prohibiting online content providers from making, reproducing, or publishing information that could harm the nation’s honor and interests, disseminate rumors, or insult others, among other vaguely defined terms.5 And of course, too many sources to count have highlighted China’s suppression of information related to the coronavirus.6” [footnotes omitted]

30JUN2020WILLEMSSTMNT1

A number of the prepared statements reviewed whether the World Trade Organization provides a remedy for censorship under the GATS and the breadth of possible exceptions. The Cory and Willems prepared statements are embedded above. A third paper by Beth Baltzan is embedded below. See also Wu, Tim (2006) “The World Trade Law of Censorship and Internet Filtering,” Chicago Journal of International Law: Vol. 7: No. 1, Article 12, .https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=1243&context=cjil.

30JUN2020BALTZANSTMNT

Conclusion

The U.S. International Trade Commission will likely start the Section 332 investigation in the coming week or two but will not likely conclude the investigation and generate its report until mid-2022. The investigation should generate useful information for Congress to consider in future trade promotion authority legislation (post 2021) and for the Administration in terms of future trade negotiations. However, the report will come too late to be relevant to the ongoing plurilateral talks on an e-commerce agreement where 2021 is the likely year for an agreed text.

With a change of Administrations and change of control of the Senate in the United States in less than two weeks, it is likely but not certain that the Biden Administration will place a priority on ensuring that the ongoing plurilateral negotiations for rules on e-commerce address the major concerns on censorship, although China’s participation in those talks will make achieving meaningful results more challenging.

I assume that Senator Wyden, when he becomes Chairman of the Senate Finance Committee, will want to see the 332 investigation requested by Senator Grassley completed, though it is possible he could add to or modify the requested scope of the investigation.

It is also possible that the Biden Administration will decide to pursue China’s censorship practices in the context of a WTO dispute and/or will attempt to address the censorship concerns in a phase 2 negotiation with China.

What is not in doubt is that the issue of censorship as a non-tariff barrier will continue to be an important one for U.S. businesses and citizens, just as it is for businesses and members of the public around the world.

U.S.-China Phase 1 Trade Agreement — Data through November 2020; China has increased purchases of agricultural and energy products above 2017 levels but will not reach first year agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis

U.S. November export data were released earlier this week. While there are some improvements in some categories of merchandise exports in Nvember (particularly in major agricultural categories, liquefied natural gas and crude oil), China remains far behind its overall commitments in the U.S.-China Phase I Trade Agreement for first year purchases of U.S. goods. As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020, although recent comments from the Trump Administration indicate there are challenges in confirming changes in Chinese policy have been implemented in fact.

Prior posts on the U.S.-China Phase 1 Agreement can be found here: December 10, 2020, U.S.-China Phase I Trade Agreement – data through October 2020; while China has increased purchases of agricultural and some other products, China remains far behind on the agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2020/12/10/u-s-china-phase-1-trade-agreement-data-through-october-2020-while-china-has-increased-purchases-of-agricultural-and-some-other-products-china-remains-far-behind-on-the-agreed-purchases-in-2020-w/; November 13, 2020, U.S.-China Phase 1 trade agreement – Data through September 2020; USDA and USTR report on agriculture portion, https://currentthoughtsontrade.com/2020/11/13/u-s-china-phase-1-trade-agreement-data-through-september-2020-usda-and-ustr-report-on-agriculture-portion/; October 10, 2020,  U.S.-China Phase I Trade Agreement – first six months data on U.S. exports (March-August 2020) covered by the purchase commitments show China needing to triple purchases in next five months to meet first year commitments, https://currentthoughtsontrade.com/2020/10/10/u-s-china-phase-1-trade-agreement-first-six-months-data-on-u-s-exports-march-august-2020-covered-by-the-purchase-commitments-show-china-needing-to-triple-purchases-in-next-six-months-to-meet-fi/; September 12, 2020, U.S.-China Phase I Trade Agreement – How is China Doing to Meet Purchase Commitments for the First Year; a Review of U.S. Domestic Exports through July 2020, https://currentthoughtsontrade.com/2020/09/12/u-s-china-phase-1-trade-agreement-how-is-china-doing-to-meet-purchase-commitments-for-the-first-year-a-review-of-u-s-domestic-exports-through-july-2020/; August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

An unusual aspect of the Phase 1 Agreement is agreement by China to increase imports from the United States of various categories of goods and services during the first two years of the Agreement with 18 categories of goods grouped in three broad categories (manufactured goods, agriculture and energy) and five services categories. Chinese imports of goods and services from the United States under the Agreement are supposed to increase by $76.7 billion in the first year over levels achieved in 2017 and in the second year by $123.3 billion over 2017 levels. The categories and tariff items included in the goods categories are reviewed in Annex 6.1 of the Agreement and the attachment to Annex 6.1. In the confidential version of the agreement, growth levels are provided for each of the 23 categories of goods and services.

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, China continues to indicate its intention to honor the Phase I Agreement. Article 6.2 of the Agreement defines the time period for the purchase commitments as being January 1, 2020 through December 31, 2021. So the first year by agreement is calendar year 2020.

However, since the Agreement took effect in mid-February, my analysis has focused on the period since the agreement went into effect (for statistics, from March 1, 2020). This is consistent with the position that USTR and USDA took in an interim report released on October 23 looking at China’s compliance with its purchase commitments in agriculture. “It is worth noting that the Phase One Agreement did not go into effect until February 14, 2020, and March is the first full month of its effect. That means that we have seen seven months of agreement sales.” U.S. Trade Representative’s Office and U.S. Department of Agriculture, Interim Report on the Economic and Trade Agreement between the United States of America and the People’s Republic of China, AGRICULTURAL TRADE, October 23, 2020, Page 1.

For purposes of this post, I will look at the March-November data, but I will also reference January – November data.

Looking at U.S. domestic exports for the March – November period and projecting for full year 2020 shows China meeting 88.68% of first year agriculture commitments if the first year is measured from March 2020-February 2021 (a decrease from 91.57% when March-October data were examined last month). Total Phase 1 products are projected at only 58.60% (down from 59.83% through October) of first year commitments for the March-February year with manufactured goods at 52.65% (down slightly from 52.85% through October) and energy at 40.94% (down from 43.68% through October).

If calendar year 2020 is examined, then total Phase 1 goods are projected to meet 54.17% (up from 53.19% through October) with manufactured goods at 52.01% (down slightly from 52.10% through October), agricultural products at 75.59% (up from 69.97% through October) and energy goods at 34.36% (down from 35.51% through October).

Under either scenario, agricultural and energy product will exceed what was achieved in 2017 during the first year, though that will not be the case for manufactured goods. Under neither scenario do any of the three goods groupings meeting the first year agreed commitments.

To meet first year commitments, China would have to import monthly 3.743 times the product from the United States as was done in the first nine months in the next three months (December – February)(up from 3.55 times for data through October). If measured on a calendar basis, imports in December would need to exceed Phase 1 imports from the U.S. for the January-November period in total (i.e., December would need to be 11.67 times the monthly average for January – November.

Under the March-February analysis using data through November, the U.S. domestic exports of goods covered by Phase I to China would potentially exceed the actual 2017 U.S. exports ($88.301 billion projected vs. $86.795 billion 2017 actual). The calendar year projection is slightly below the 2017 actual at $86.795 billion. Moreover, since non-covered U.S. exports have declined in 2020 versus 2017, under neither scenario do total U.S. domestic exports reach the 2017 level of $120 billion ($115.601 for the March-February period; $108.458 for the calendar period).

U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. Total U.S. services exports to all countries are down 20.08% for the first eleven months of 2020. Services trade data with China for 2020 is available for the first nine months of 2020 and shows U.S. exports of services down 34.08% in the first three quarters of 2020 versus 2019. 2019 US exports of services to China were $56.537 billion, slightly higher than 2017 US exports of services to China of $54.981 billion. See U.S. Department of Commerce, U.S. Bureau of the Census, Bureau of Economic Analysis, U.S. International Trade in Goods and Services, November 2020 (January 7, 2021). The Phase 1 Agreement with China has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels). Thus, the limited data available indicate that U.S. services exports to China will likely miss 2017 levels by more than 32% and will obviously not show any gain above 2017.

Looking at total U.S. domestic exports of goods to China for the period March-November 2020, U.S. exports were $84.859 billion ($9.429 billion/month) compared to $89.039 billion in 2017 ($9.893 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For the January-November 2020 period total U.S. exports were $97.376 billion ($8.852 billion/month) compared to $107.399 billion in 2017 ($9.764 billion/month).

Total 2017 U.S. domestic exports of goods to China were $120.1 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Thus, the target for the first year of the U.S.-China Phase 1 Agreement is U.S. exports to China of $184 billion if non-subject goods are exported at 2017 levels.

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017 (full year). For the period March – November, non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 18.05%, and total exports to China are down 4.69%. Looking at January – November figures show other U.S. domestic exports (i.e., not covered by the Phase I Agreement) were down 19.49% from comparable levels in 2017.

Thus, the first nine months since the U.S.-China Phase 1 Agreement went into effect suggest that U.S. domestic exports of the Annex 6 goods will be $88.302 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $27.300 billion, for total U.S. domestic exports to China of $115.602 billion. This figure would be below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $177.516 billion with noncovered products at estimated 2020 levels) . The projected U.S. domestic exports to China would, however, be higher than the $109.72 billion in 2018 and the depresssed figure of $94.100 billion in 2019.

If one looks at January-November 2020, full year projections for 2020 exports of Annex 6 goods of $81.638 billion, other exports of $26.821 billion, for total domestic exports in 2020 of $108.459 billion even further behind 2017 and the year 1 target and also below 2018.

To achieve the target level of U.S. exports in the December 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $86.317 billion ($26.772 billion/month) an amount that is 3.743 times the monthly rate of exports of the 18 categories to China in the March – November 2020 period ($7.153 billion/month).

If one uses January-November for comparison and for other US exports, with only one month’s data remaining in 2020, U.S. exports of goods covered by Annex 6.1 would have to be $77.590 billion more than the total amount of domestic exports to China in the first eleven months of 2020.

Chinese data on total imports from all countries (in U.S. dollars) for January-November 2020 show a decline of 1.6% from the first eleven months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, November 2020 (in USD). China’s imports from the U.S. were up 6.1% during the same time period, but show imports from the U.S. substantially larger than U.S. domestic exports ($118.462 billion vs. $97.376 billion, though Chinese imports would be CIF value vs. FAS value for U.S. exports and may include U.S. exports to third countries or territories that end up in China).

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for March-September 2017, March-September 2020 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):

Product categoryMarch-November 2017March-November 2020% change 2017-2020 March-November$ Value needed in next three months to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery $8,115.7
$9,320.8

+14.85%
2. electrical equipment and machinery $3,211.2
$3,591.7
+11.85%
3. pharma- ceutical products $1,649.6 $2,395.3
+45.21%
4. aircraft (orders and deliveries) $11,789.6 $3,057.8 -74.06%
5. vehicles $7877.2
$4735.7
-39.88%
6. optical and medical instruments $2388.0
$2656.5
+11.24%
7. iron and steel
$910.9
$395.5
-56.57%
8. other manufactured goods $8,312.1 $10,275.7 +23.62%
Total for mfg goods
$44,254.2

$36,429.1

-17.68%
$54,840.3
Agriculture
9. oilseeds $7,908.8$10,185.8 +28.80%
10. meat $425.64 $2,384.2 +460.19%
11. cereals $1021.8 $2,283.4 +123.46%
12. cotton $555.4 $1379.7 +148.40%
13. other agricultural commodities $3,372.5
$3,417.0
+1.32%
14. seafood $1,028.6 $573.5 -44.24%
Total for agriculture$14,312.2 $20,223.6 +41.30% $13,128.1
Energy
15. liquefied natural gas
$276.6

$928.2

+235.53%
16. crude oil $3,221.7 $5430.2 +68.55%
17. refined products $1,657.4
$1291.2
-22.09%
18. coal $323.7 $37.6 -88.39%
Total for energy $5,479.4 $7,725.2 +40.99% $18,348.7
Total for 1-18 $64,045.8 $64,378.0 +053% $86,317.0

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries are down 1.5% in the first eleven months of 2020 while up 6.1% from the United States. Thus, the Phase 1 Agreement may have contributed to some improved U.S. export performance to China even if China is far away from meeting the year one commitments.

Conclusion

As reviewed in prior posts, the U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun. It is unclear when/if it will occur under the incoming Biden Administration.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement and some significant improvements in exports of U.S. agricultural goods, there has been very little forward movement in expanding total U.S. exports of goods to China in fact and a sharp decline in U.S. exports of services to China.

The differences in economic systems between China and the United States have made reliance on WTO rules less relevant to the Trump Administration as those rules presume market-based economies and presently don’t address the myriad distortions that flow from the Chinese state capital system. Thus, the Phase I Agreement was an effort to move the needle in trade relations with China to achieve greater reciprocity. It has had some limited success to date. It will be interesting to see the approach on trade with China taken by the incoming Biden Administration.

U.S. Section 301 investigations on digital service taxes by trading partners — an update

For all countries the question of tax base erosion and profit shifting during a period of tremendous growth in e-commerce has been important as countries struggle to secure funding sources in a rapidly changing global marketplace. Concerns about tax revenue sources has grown during the COVID-19 pandemic as e-commerce has surged and may countries tax revenues have shrunk which stimulus outlays have soured.

For a number of years the OECD and the G20 have been working with many other countries in what is called an integrated framework to examine how international taxation needs to change to reflect the changed economic environment. The U.S. unhappiness with many trading partners on the question of digital service taxes is the early adoption of taxes on digital services before the completion of international negotiations and, in particular, taxes which appear to the U.S. to discriminate against U.S. companies who often are major global players in e-commerce and digital services.

In a post from early June, I reviewed the actions of the United States in response to actions by trading partners to introduce digital services taxes (DST), including a first investigation under section 301 of the Trade Act of 1974, as amended (“section 301”) on France on their DST and the initiation of investigations under section 301 on nine other countries and the European Union. While USTR had identified additional tariffs of 100% on a variety of French products, the imposition of duties was postponed until January 6, 2021 to give negotiators time to reach an agreement within the OECD. See June 3, 2020:  Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union, https://currentthoughtsontrade.com/2020/06/03/digital-services-taxes-new-u-s-section-301-investigations-on-nine-countries-and-the-european-union/.

Earlier this week, USTR issued three reports on three countries from the 2020 investigations — on India, Italy and Turkey. Parts of the USTR press release are copied below and, similar to the report on France, found the DSTs of the three countries were discriminatory to U.S. companies, contrary to international tax principles and burden or restrict U.S. commerce. See USTR press release, USTR Releases Findings in DST Investigations,
01/06/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-dst-investigations.

“Washington, DC – The U.S. Trade Representative has issued findings in Section 301 investigations of Digital Service Taxes (DSTs) adopted by India, Italy, and Turkey, concluding that each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing principles of international taxation, and burden or restricts U.S. commerce.

“The findings on each of the DSTs are supported by comprehensive reports, which are being published today on USTR’s website.

“USTR is not taking any specific actions in connection with the findings at this time but will continue to evaluate all available options.

“The Section 301 investigations of the DSTs adopted by India, Italy, and Turkey were initiated in June 2020, along with investigations of DSTs adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom. USTR expects to announce the progress or completion of additional DST investigations in the near future.”

Similarly, on January 7, 2021, USTR announced that it was postponing introduction of tariffs on French products that were due to kick in on January 6 to provide the agency with the ability to coordinate its actions based on the results of the other ongoing investigations. See USTR press release, Suspension of Tariff Action in France Digital Services Tax Investigation, 01/07/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/suspension-tariff-action-france-digital-services-tax-investigation. The press release is copied below.

“Washington, DC – The U.S. Trade Representative has determined to suspend the tariff action in the Section 301 investigation of France’s Digital Services Tax (DST). The additional tariffs on certain products of France were announced in July 2020, and were scheduled to go into effect on January 6, 2021. The U.S. Trade Representative has decided to suspend the tariffs in light of the ongoing investigation of similar DSTs adopted or under consideration in ten other jurisdictions. Those investigations have significantly progressed, but have not yet reached a determination on possible trade actions. A suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations.

“The suspension of the France DST tariffs is set out in a notice sent for publication in the Federal Register.”

The three notices on the India, Italy and Turkey investigations were sent to the Federal Register on January 6 and will appear in the Federal Register next week. The same is true on the postponement of tariffs on France which was forwarded yesterday to the Federal Register and which should appear next week as well.

The three USTR reports released on January 6 and the four notices sent to the Federal Register by USTR on January 6 or 7 are embedded below.

Report-on-Indias-Digital-Services-Tax

Report-on-Italys-Digital-Services-Tax

Report-on-Turkeys-Digital-Services-Tax

IndiaDSTFRNJLB

ItalyDSTFRNJLB

TurkeyDSTFRNJLB

FRN-France-DST-Modification-2021.01.07

The OECD/G20 Integrated Framework talks

The OECD/G20 Integrated Framework negotiations on arriving at tax policies for an increasingly digitalized global economy have been ongoing for a number of years and include 137 countries.

The OECD/G20 Integrated Framework project released a series of reports on policy issues and approaches to address international taxation in the age of digitalisation in early October to address base erosion profit shifting (“BEPS”) and have moved the target date for completion from the end of 2020 to mid-2021. The reports released attempt to address at least some of the U.S. concerns. The OECD has sought public comments, received more than 270 comments and is holding a virtual meeting on January 14-15 in an effort to obtain public input to refine the draft documents and help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

A series of documents released in October that permit a better understanding of the complexities involved in seeking a way forward are listed next. For non-tax readers, the “Top 10 Frequently Asked Questions” is a good primer on the issues and challenges. See OECD/G20 Inclusive Framework on BEPS, Addressing the Tax Challenges Arising from the Digitalisation of the Economy, HIGHLIGHTS, October 2020, https://www.oecd.org/tax/beps/brochure-addressing-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising
from Digitalisation – Report on Pillar One Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-one-blueprint-beba0634-en.htm; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Report on Pillar Two Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-two-blueprint-abb4c3d1-en.htm; OECD/G20 Inclusive Framework on BEPS, PUBLIC CONSULTATION DOCUMENT, Reports on the Pillar One and Pillar Two Blueprints, 12 October 2020 – 14 December 2020, https://www.oecd.org/tax/beps/public-consultation-document-reports-on-pillar-one-and-pillar-two-blueprints-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Economic Impact Assessment, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-economic-impact-assessment-0e3cc2d4-en.htm; OECD, Tax Issues Arising from Digitalisation, Top 10 Frequently Asked Questions, October 2020, https://www.oecd.org/tax/beps/top-10-frequently-asked-questions-tax-challenges-digitalisation.pdf; Public consultation meeting on the Reports on the Pillar One and Pillar Two Blueprints (Date 14-15 January 2021), https://www.oecd.org/tax/beps/public-consultation-meeting-reports-on-the-pillar-one-and-pillar-two-blueprints.htm; 11th meeting of the OECD/G20 Inclusive Framework on BEPS (Date 27-28 January 2021 (Inclusive Framework plenary); 29 January 2021 (Tax and Development briefings)), https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-on-beps-meeting-january-2021.htm.

To understand some of the concerns of U.S. businesses or business groups with actions of particular trading partners, a review of several comments to the OECD/G20 may be useful. I embed below comments from the American Chamber of Commerce Ireland, Amazon and the Business Roundtable. The Amcham Ireland paper comments on non-discrimination, multilateralism, administrability and certainty, avoiding double taxation, durability, efficiency, scope, safe harbour, segmentation and the interaction with the US’s Global intangible low-taxed income (GILTI). Amazon explores issues in the two pillar blueprints dealing with segmentation, sourcing, user location/IP address, business-to-business sales, reasonable steps/evidence requirements, double tax relief, dispute prevention and resolution, marketing and distribution safe harbour, GILTI Co-existence, framework for implementation, double-tax relief, application of STTR, and additional areas for simplification. The Business Roundtable (BR) has an overview section in which they “affirm certain principles of international income taxation” as being critical to a strong and growing global economy. One of the principles is that taxation should be of net business profits, not gross revenue. BR also provides seven comments on specific aspects of Pillar One and/or Two which are similar to concerns raised by the other U.S. interests. Comment 4 states “An agreement on Pillar One must include repeal of existing unilateral measures and a commitment to refrain from imposing any new unilateral measures aimed at profit reallocation or the digital economy.” It is the unilateral actions of trading partners that are perceived to discriminate against U.S. companies, often base tax on revenue versus profit and deviate from other established international taxation principles that is causing concern in the U.S. business community and resulting in U.S. investigations under Section 301 of the Trade Act of 1974, as amended.

American-Chamber-of-Commerce-Ireland

Amazon

Business-Roundtable-BRT

Conclusion

With the Trump Administration in its last twelve days, it is unknown if USTR will be able to complete the remaining seven 301 investigations on Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom to accompany the three reports released on the 6th of January dealing with India, Italy, and Turkey and the earlier report and proposed action on France. My guess is that this will be a primary focus of USTR in the next week and a half so that a full set of reports is available and possibly a recommendation for action on all eleven reports. Whether the remaining investigations are completed by January 20 or not, the Biden Administration will be confronted with the ongoing OECD/G20 process with a target completion in the front half of 2021 and a host of governments implementing DSTs unilaterally ahead of any agreement among the Integrated Framework members. Action under 301 is an option should trading partners pursue approaches to DSTs that in fact discriminate against U.S. companies or deviate from what the OECD/G20 process is likely to generate as a final package.

Global economic rebound in 2021 will be affected by rate of vaccinations against COVID-19 — World Bank’s January 5, 2021 release of its World Economic Prospects report

The last forecast by the WTO for international merchandise trade for 2020 projected a decline of 9.2% for the world reflecting significant improvements in the 3rd quarter of 2020 after the sharp contraction in the second quarter. Services trade is trailing merchandise trade significantly as is reflected in the WTO ‘s December 4, 2020 press release, Electronics and automotive products lift global merchandise trade in Q3, services lag behind, https://www.wto.org/english/news_e/news20_e/stat_04dec20_e.htm. Two charts from the press release show data through the third quarter of 2020 for goods and services and are copied below.

The expected continued rebound in the fourth quarter of 2020 has likely been reduced in size by the large increase in COVID-19 cases in many countries, including the European Union, United Kingdom, the United States and some countries in Asia and reintroduction of restrictions on people in those countries, resulting in downward pressure on domestic consumption (and hence trade flows in both goods and services).

There is significant optimism about economic growth in 2021 in light of the progress on approval and production of COVID-19 vaccines. See my post from January 3, 2021, 2021 – how quickly will COVID-19 vaccines bring the pandemic under control?, https://currentthoughtsontrade.com/2021/01/03/2021-how-quickly-will-covid-19-vaccines-bring-the-pandemic-under-control/.

Today, January 5, 2021, the World Bank released its World Economic Prospects report. See World Bank, World Economic Prospects, January 2021, https://www.worldbank.org/en/publication/global-economic-prospects. The press release from the World Bank provides both an estimate for growth in 2021 for the world and for various regions of the world but also cautions that the economic rebound could be reduced significantly if there are problems with vaccinations in the developed world and various advanced developing countries. See World Bank, Global Economy to Expand by 4% in 2021; Vaccine Deployment and Investment Key to Sustaining the Recovery, January 5, 2021, https://www.worldbank.org/en/news/press-release/2021/01/05/global-economy-to-expand-by-4-percent-in-2021-vaccine-deployment-and-investment-key-to-sustaining-the-recovery. A large part of the press release is copied below (emphasis and italics in the original).

Development risks remain as economic activity, incomes likely to stay low for extended period

“WASHINGTON, Jan. 5, 2021 — The global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year. A recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms, the World Bank says in its January 2021 Global Economic Prospects.

“Although the global economy is growing again after a 4.3% contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period. Top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine deployment. To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt.

“‘While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges—in public health, debt management, budget policies, central banking and structural reforms—as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth,’ said World Bank Group President David Malpass. ‘To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance.’

“The collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China. In contrast, disruptions to activity in the majority of other emerging market and developing economies were more acute than expected.

“’Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed,’ Vice President and World Bank Group Chief Economist Carmen Reinhart said.

“The near-term outlook remains highly uncertain, and different growth outcomes are still possible, as a section of the report details. A downside scenario in which infections continue to rise and the rollout of a vaccine is delayed could limit the global expansion to 1.6% in 2021. Meanwhile, in an upside scenario with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5 percent.

“In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to a slow and challenging recovery. U.S. GDP is forecast to expand 3.5% in 2021, after an estimated 3.6% contraction in 2020. In the euro area, output is anticipated to grow 3.6% this year, following a 7.4% decline in 2020. Activity in Japan, which shrank by 5.3% in the year just ended, is forecast to grow by 2.5% in 2021.

“Aggregate GDP in emerging market and developing economies, including China, is expected to grow 5% in 2021, after a contraction of 2.6% in 2020. China’s economy is expected to expand by 7.9% this year following 2% growth last year. Excluding China, emerging market and developing economies are forecast to expand 3.4% in 2021 after a contraction of 5% in 2020. Among low-income economies, activity is projected to increase 3.3% in 2021, after a contraction of 0.9% in 2020.

“Analytical sections of the latest Global Economic Prospects report examine how the pandemic has amplified risks around debt accumulation; how it could hold back growth over the long term absent concerted reform efforts; and what risks are associated with the use of asset purchase programs as a monetary policy tool in emerging market and developing economies.

“’The pandemic has greatly exacerbated debt risks in emerging market and developing economies; weak growth prospects will likely further increase debt burdens and erode borrowers’ ability to service debt,’ World Bank Acting Vice President for Equitable Growth and Financial Institutions Ayhan Kose said. ‘The global community needs to act rapidly and forcefully to make sure the recent debt accumulation does not end with a string of debt crises. The developing world cannot afford another lost decade.’

“As severe crises did in the past, the pandemic is expected to leave long lasting adverse effects on global activity. It is likely to worsen the slowdown in global growth projected over the next decade due to underinvestment, underemployment, and labor force declines in many advanced economies. If history is any guide, the global economy is heading for a decade of growth disappointments unless policy makers put in place comprehensive reforms to improve the fundamental drivers of equitable and sustainable economic growth.  

“Policymakers need to continue to sustain the recovery, gradually shifting from income support to growth-enhancing policies. In the longer run, in emerging market and developing economies, policies to improve health and education services, digital infrastructure, climate resilience, and business and governance practices will help mitigate the economic damage caused by the pandemic, reduce poverty and advance shared prosperity. In the context of weak fiscal positions and elevated debt, institutional reforms to spur organic growth are particularly important. In the past, the growth dividends from reform efforts were recognized by investors in upgrades to their long-term growth expectations and increased investment flows.

“Central banks in some emerging market and developing economies have employed asset purchase programs in response to pandemic-induced financial market pressures, in many cases for the first time. When targeted to market failures, these programs appear to have helped stabilize financial markets during the initial stages of the crisis. However, in economies where asset purchases continue to expand and are perceived to finance fiscal deficits, these programs may erode central bank operational independence, risk currency weakness that de-anchors inflation expectations, and increase worries about debt sustainability.”

Whether the economic recovery in 2021 is as robust as projected or is dramatically smaller (worst case scenario) will obviously affect trade flows of both goods and services. As can be seen from the initial roll out of vaccines in the U.S., EU, U.K., Canada and other countries, there are significant goods and services involved with the production, distribution and utilization of vaccines globally and within markets. Thus, if there are problems with vaccinating large parts of populations, that will have a direct effect on both goods shipments and on various services. There are also the indirect effects on goods and services from the likely continued restrictions on travel and tourism if the pandemic is not brought under control, something that widespread vaccinations will assist in achieving. My post yesterday reviewed some of the early challenges with vaccinations occurring in the U.S., EU and India. Additional articles are appearing which suggest a lot of work needs to be done to in fact permit rapid vaccinations of populations. See, e.g., Politico, The EU’s coronavirus vaccine blame game. Why so slow?, January 5, 2021, https://www.politico.eu/article/the-vaccination-blame-game-is-it-all-the-eus-fault/; Politico, Sluggish coronavirus vaccination rollout poses risks for Macron, January 5, 2021, https://www.politico.eu/article/coronavirus-covid19-vaccine-campaign-fail-france-president-emmanuel-macron-election/; Wall Street Journal, Covid-19 Vaccine’s Slow Rollout Could Portend More Problems, January 1, 2021, https://www.wsj.com/articles/covid-19-vaccines-slow-rollout-could-portend-more-problems-11609525711/ And this comes against the backdrop of continued surges of new cases of COVID-19 in the U.S. and many other countries which will extend restrictions into the early months of 2021 at least and hence restrict economic recovery in at least the first quarter of 2021. See, e.g., Financial Times, Covid surges as UK rolls out mass vaccination programme, January 3, 2021, https://www.ft.com/content/71140ee7-8e47-4499-9fcf-2d23d5c7d94f; New York Times, The Lull Before the Surge on Top of the Surge, January 5, 2021, https://www.nytimes.com/2021/01/05/us/california-coronavirus.html

The World Bank report identifies a host of policy issues for governments and challenges flowing from the high level of debt that has been incurred during 2020 and the downward pressures on investment flows in many countries. Many countries will have trouble implementing the appropriate policy options because of existing debt issues (particularly many developing countries) or because of political gridlock, as is apparent in the U.S. even with a new Administration due to be sworn in on January 20. See, e.g., New York Times, $900 Billion Wonʼt Carry Biden Very Far (Despite new pandemic aid, he confronts an economic crisis unlike any since he last entered office in 2009. And political headwinds have only stiffened), January 4, 2021. Indeed, as reviewed in a recent Congressional Research Service updated report on the Global Economic Effects of COVID-19 (updated as of December 23, 2020), the level of debt incurred by developed and developing countries has surged during the pandemic with the level of fiscal deficit relative to GDP reflecting declining government revenues and increased expenditures to reduce the negative effects of the pandemic. See CRS, Global Economic Effects of COVID-19, updated December 23, 2020, page 13, https://fas.org/sgp/crs/row/R46270.pdf. The figure from the report is copied below. Obviously the levels of fiscal deficit incurred in 2020 are not sustainable. They also reduce flexibilities of countries in policy actions that can be taken to speed up the recovery of the national and global economies.

Conclusion

The world needs to return to a period of sustained economic growth that is more inclusive and more equitable. The arrival of vaccines (with more expected in the first quarter of 2021) and the ramp up of production, distribution and utilization of vaccines around the world can expand economic growth both directly through the goods and services involved and indirectly through permitting countries to ease restrictions imposed to try to control the pandemic. The first few weeks of the rollout of vaccines have not been without significant problems. As reviewed in yesterday’s post, production of the vaccines that have been approved by individual nations is running behind what was anticipated, in some cases (e.g., India) significantly. While distribution has been reasonably robust in the U.S. and some other countries, there is a significant lag in getting the vaccines utilized with a wide variety of problems identified in different markets.

As the World Bank’s report today makes clear, if countries are not able to achieve significant vaccinations in 2021 the projected growth of global GDP could be cut by more than half. A global economy that is not expected to return to 2019 levels until 2022 even if 2021 growth rates are achieved will be further retarded if vaccinations lag what is needed. That will reduce trade volumes of goods and services, leave tens of millions of people around the world unemployed or underemployed, and challenge the ability to achieve UN Sustainability Goals on a host of issues including poverty, food security and many more.

President-elect Biden and his team are focused on dramatically ramping up the response in the United States, but the challenges here are significant and complicated by a divided public many of whom still doubt there is a pandemic or that it is problematic or who are opposed to vaccinations. Challenges exist in many other countries as well.

If ever there were a time for people to come together and ensure the timely vaccinations of as many people as possible as quickly as possible, it is obviously now. Whether that can be achieved is the multi-trillion dollar question.

2021 – how quickly will COVID-19 vaccines bring the pandemic under control?

News accounts report many countries starting to receive at least some doses of vaccines. In the United States, two vaccines have received emergency use authorization (“EUA”)(the Pfizer/BioNTech and the Moderna vaccines). The Pfizer/BioNTech vaccine has received approval (emergency use or other) in a number of countries (EU, Canada, United Kingdom, Bahrain) and was the first vaccine to receive an EUA from the World Health Organization. See WHO press release, WHO issues its first emergency use validation for a COVID-19 vaccine and emphasizes need for equitable global access, December 31, 2020, https://www.who.int/news/item/31-12-2020-who-issues-its-first-emergency-use-validation-for-a-covid-19-vaccine-and-emphasizes-need-for-equitable-global-access. As the WHO press releases indicates, “The WHO’s Emergency Use Listing (EUL) opens the door for countries to expedite their own regulatory approval processes to import and administer the vaccine. It also enables UNICEF and the Pan-American Health Organization to procure the vaccine for distribution to countries in need.”

AstraZeneca will likely seek emergency use authorization in the United States in January and Johnson & Johnson in February. AstraZeneca has received an emergency use authorization in the United Kingdom. It has also been given EUA by India (along with a vaccine from Bharat Biotech). See New York Times, India Approves Oxford-AstraZeneca Covid-19 Vaccine and 1 other, January 3, 2021, https://www.nytimes.com/2021/01/03/world/asia/india-covid-19-vaccine.html.

A recent Financial Times article includes a graph showing the number of citizens in various countries who have received a first vaccination shot. See Financial Times, European leaders under pressure to speed up mass vaccination, January 1, 2021, https://www.ft.com/content/c45e5d1c-a9ea-4838-824c-413236190e7e. The countries shown as having started vaccinations include China, the U.S., the U.K., Kuwait, Mexico, Canada, Chile, Russia, Argentina, Iceland, Bahrain, Oman, Israel, and fourteen of the 27 members of the EU).

Similarly an article from CGTN on January 1, 2021 shows a number of countries who are buying COVID-19 vaccines from China including Hungary and a number of others while vaccines from China are in stage 3 trials in a number of countries. CGTN, 1 January 2021, Hungary to focus on EU, Chinese coronavirus vaccine purchases, https://news.cgtn.com/news/2021-01-01/Hungary-to-focus-on-EU-Chinese-coronavirus-vaccine-purchases-WHm11NYjni/index.html. “By the end of 2020, UAE became the first country to roll out a Chinese vaccine to the public. Pakistan also announced on Thursday that they will purchase 1.2 million COVID-19 vaccine doses from China’s Sinopharm after China officially approved the vaccine for general public use. Sinovac’s CoronaVac shot, another candidate vaccine in China, has been signed up for purchase deals with Brazil, Indonesia, Turkey, Chile, and Singapore. The company is also in supply talks with Malaysia and the Philippines.”

So the good news at the beginning of 2021 is that effective vaccines are starting to be distributed. Many others are in late stages of trials, giving hope to a significant number of vaccines approved for use in the coming months. The WHO’s list of vaccines in development and their status can be found on the WHO website at this cite. https://www.who.int/publications/m/item/draft-landscape-of-covid-19-candidate-vaccines. How quickly approved vaccines can be produced, distributed and vaccinations given globally will determine when the pandemic will be brought under control. There are many challenges that the world faces in getting to the hoped for situation of a pandemic that is in the past.

For example, even in developed countries, governments are finding that there are significant hurdles in getting production volumes up to promised levels, and much greater challenges in going from production to distribution to vaccinations. In the United States, the Trump Administration had aimed at having 20 million vaccinations accomplished by the end of 2020. Only 13.071 million doses were distributed by the end of the year according to the US CDC and only 4.2 million vaccinations (first shot of two shots) occurred. See Center for Disease Prevention and Control, COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (viewed Jan. 3, 2021). President-elect Biden is talking about an aggressive program to get 100 million vaccinations (as the current vaccines require 2 shots, this means 50 million people) vaccinated in the first 100 days of his Administration (by the end of April). To achieve this objective will require cooperation from Congress in providing sufficient funding to build up the capabilities at the state and local levels. Health care infrastructure has been reduced over the last dozen years with a reduction of some 50,000 health care workers in the U.S. The huge COVID-19 case load in the United States and record hospitalizations also have health care operations across the United States overextended. So despite having sufficient vaccines on order from four companies where EUAs have been or will likely be granted in the near future to permit vaccination of all Americans by fall, there are enormous practical challenges to making the vaccinations happen in fact. And that is before the challenges of convincing portions of the population of the safety of the vaccines and the need for the vast majority of people to be vaccinated to achieve herd immunity.

Similar challenges exist in many other parts of the world as well. For example, in both the EU and India the roll out of vaccines is proceeding slower than desired. See, e.g., The Guardian, BioNTech criticises EU failure to order enough Covid vaccine, January 1, 2021, https://www.theguardian.com/world/2021/jan/01/france-to-step-up-covid-jabs-after-claims-of-bowing-to-anti-vaxxers; Politico, France under pressure to speed up coronavirus vaccine rollout, January 3, 2021, https://www.politico.eu/article/france-under-pressure-to-speed-up-coronavirus-vaccine-rollout/; New York Times, India Approves Oxford-AstraZeneca Covid-19 Vaccine and 1 other, January 3, 2021, https://www.nytimes.com/2021/01/03/world/asia/india-covid-19-vaccine.html (“The Serum Institute, an Indian drug maker that struck a deal to produce the Oxford vaccine even before its effectiveness had been proven, has managed to make only about one-tenth of the 400 million doses it had committed to manufacturing before the end of the year.”).

The WHO/GAVI/CEPI effort to get vaccines to the world on a equitable basis has much of its vaccine commitments in products still in the testing stage although roughly one billion doses can be available for a vaccine currently approved on an emergency use basis in the U.K. and India (the AstraZeneca vaccine) through COVAX agreements with AstraZeneca directly and with an Indian producer who can be asked to produce one of two potential vaccines, including the AstraZeneca one. See WHO, COVAX Announces additional deals to access promising COVID-19 vaccine candidates; plans global rollout starting Q1 2021, 18 December 2020, https://www.who.int/news/item/18-12-2020-covax-announces-additional-deals-to-access-promising-covid-19-vaccine-candidates-plans-global-rollout-starting-q1-2021.

“Geneva/Oslo, 18 December 2020

“COVAX, the global initiative to ensure rapid and equitable access to COVID-19 vaccines for all countries, regardless of income level, today announced that it had arrangements in place to access nearly two billion doses of COVID-19 vaccine candidates, on behalf of 190 participating economies. For the vast majority of these deals, COVAX has guaranteed access to a portion of the first wave of production, followed by volume scales as further supply becomes available. The arrangements announced today will enable all participating economies to have access to doses in the first half of 2021, with first deliveries anticipated to begin in the first quarter of 2021 – contingent upon regulatory approvals and countries’ readiness for delivery.

“Given these are arrangements for 2 billion doses of vaccine candidates which are still under development, COVAX will continue developing its portfolio: this will be critical to achieve its goal of securing access to 2 billion doses of safe and effective, approved vaccines that are suitable for all participants’ contexts, and available by the end of 2021. However, today’s announcements offer the clearest pathway yet to end the acute phase of the pandemic by protecting the most vulnerable populations around the world. This includes delivering at least 1.3 billion donor-funded doses of approved vaccines in 2021 to the 92 low- and middle-income economies eligible for the COVAX AMC.

“The new deals announced today include the signing of an advance purchase agreement with AstraZeneca for 170 million doses of the AstraZeneca/Oxford candidate, and a memorandum of understanding (MoU) with Johnson & Johnson for 500 million doses of the Janssen candidate, which is currently being investigated as a single dose vaccine.. These deals are in addition to existing agreements COVAX has with the Serum Institute of India (SII) for 200 million doses – with options for up to 900 million doses more – of either the AstraZeneca/Oxford or Novavax candidates, as well as a statement of intent for 200million doses of the Sanofi/GSK vaccine candidate.

“In addition to this, COVAX also has – through R&D partnership agreements – first right of refusal in 2021 to access potentially more than one billion doses (based on current estimates from the manufacturing processes under development) that will be produced, subject to technical success and regulatory approval, by candidates in the COVAX R&D Portfolio.”

* * *

“The COVAX Facility currently has 190 participating economies. This includes 98 higher-income economies and 92 low- and middle-income economies eligible to have their participation in the Facility supported via the financing mechanism known as the Gavi COVAX AMC. Of the 92 economies eligible to be supported by the COVAX AMC, 86 have now submitted detailed vaccine requests, offering the clearest picture yet on actual global demand for COVID-19 vaccines.

“In addition to gathering detailed information on participating economies’ vaccine requests, COVAX, through Gavi, UNICEF,WHO, the World Bank, and other partners has been working closely with all countries in the Facility, particularly AMC-eligible participants, to help plan and prepare for the widespread roll out of vaccines. Conditions that determine country readiness include regulatory preparedness as well as the availability of infrastructure, appropriate legal frameworks, training, and capacity, among other factors.

“’Securing access to doses of a new vaccine for both higher-income and lower-income countries, at roughly the same time and during a pandemic, is a feat the world has never achieved before – let alone at such unprecedented speed and scale,’ said Dr. Seth Berkley, CEO of Gavi, the Vaccine Alliance, which leads on procurement and delivery for COVAX. ‘COVAX has now built a platform that offers the world the prospect, for the first time, of being able to defeat the pandemic on a global basis, but the work is not done: it’s critical that both governments and industry continue to support our efforts to achieve this goal’.

Early pledges towards 2021 fundraising targets

“To achieve this ambitious goal, COVAX currently estimates it needs to raise an additional US$ 6.8 billion in 2021 – US$ 800 million for research and development, at least US$ 4.6 billion for the COVAX AMC and US$ 1.4 billion for delivery support.

“Support for the COVAX AMC will be critical to ensuring ability to pay is not a barrier to access. Thanks to the generous support of sovereign, private sector, and philanthropic donors, the AMC has met its urgent 2020 fundraising target of US$ 2 billion, but at least US$ 4.6 billion more is needed in 2021 to procure doses of successful candidates as they come through the portfolio.”

In the United States and in the EU, governments are looking to expand volumes of proven vaccines while awaiting approval of other vaccine candidates. See Pfizer press release, PFIZER AND BIONTECH TO SUPPLY THE U.S. WITH100 MILLION ADDITIONAL DOSES OF COVID-19VACCINE, December 23, 2020, https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-supply-us-100-million-additional-doses; Pfizer press release, PFIZER AND BIONTECH TO SUPPLY THEEUROPEAN UNION WITH 100 MILLIONADDITIONAL DOSES OF COMIRNATY®, December 29, 2020, https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-supply-european-union-100-million; HHS, Trump Administration purchases additional 100 million doses of COVID-19 investigational vaccine from Moderna, December 11, 2020, https://www.hhs.gov/about/news/2020/12/11/trump-administration-purchases-additional-100-million-doses-covid-19-investigational-vaccine-moderna.html.

Conclusion

The world is anxiously awaiting the resolution of the pandemic through the approval and distribution of effective vaccines on a global basis in 2021. The good news is that a number of vaccines have been approved in one or more countries and billions of doses of approved vaccines will likely be produced in 2021. The efforts of the WHO, GAVI and CEPI and the generosity of many nations, private and philanthropic organizations will mean people in nearly all countries will receive at least some significant volume of vaccines in 2021. As most vaccines require two shots, the number of people vaccinated in 2021 in an optimistic scenario is probably less than two billion. The world population at the beginning of 2021 is 7.8 billion people. Thus, 2021, even under an optimistic scenario, will not likely result in the eradication of the pandemic around the world.

Even in countries like the United States, the United Kingdom and the 27 members of the European Union where advance purchases should result in sufficient doses being available to vaccinate all eligible members of society, there are massive challenges in terms of distribution and vaccinating the numbers of people involved and educating the populations on the safety and benefits of the vaccines. Thus, even in wealthier countries it will be optimistic to achieve the desired levels of vaccination by the end of 2021.

The Director-General of the WHO in his year-end message laid out the likely situation for the world in 2021, the availability of vaccines but the continued need to be vigilant and adhere to preventive measures to control the pandemic and the need to work collectively to ensure equitable and affordable access to vaccines for all. See WHO,COVID-19: One year later – WHO, Director-General’s new year message, December 30, 2020, https://www.who.int/news/item/30-12-2020-covid-19-anniversary-and-looking-forward-to-2021 (Dr Tedros Adhanom Ghebreyesus, WHO Director-General)

“As people around the world celebrated New Year’s Eve 12 months ago, a new global threat emerged.

“Since that moment, the COVID-19 pandemic has taken so many lives and caused massive disruption to families, societies and economies all over the world.

“But it also triggered the fastest and most wide-reaching response to a global health emergency in human history.

“The hallmarks of this response have been an unparalleled mobilization of science, a search for solutions and a commitment to global solidarity.

“Acts of generosity, large and small, equipped hospitals with the tools that health workers needed to stay safe and care for their patients.

“Outpourings of kindness have helped society’s most vulnerable through troubled times.

“Vaccines, therapeutics and diagnostics have been developed and rolled out, at record speed, thanks to collaborations including the Access to COVID-19 Tools Accelerator.

“Equity is the essence of the ACT Accelerator, and its vaccine arm, COVAX, which has secured access to 2 billion doses of promising vaccine candidates.

“Vaccines offer great hope to turn the tide of the pandemic.

“But to protect the world, we must ensure that all people at risk everywhere – not just in countries who can afford vaccines –are immunized.

“To do this, COVAX needs just over 4 billion US dollars urgently to buy vaccines for low- and lower-middle income countries.

“This is the challenge we must rise to in the new year.

“My brothers and sisters, the events of 2020 have provided telling lessons, and reminders, for us all to take into 2021.

“First and foremost, 2020 has shown that governments must increase investment in public health, from funding access to COVID vaccines for all people, to making our systems better prepared to prevent and respond to the next, inevitable, pandemic.

“At the heart of this is investing in universal health coverage to make health for all a reality.

“Second, as it will take time to vaccinate everyone against COVID, we must keep adhering to tried and tested measures that keep each and all of us safe.

“This means maintaining physical distance, wearing face masks, practicing hand and respiratory hygiene, avoiding crowded indoor places and meeting people outside.

“These simple, yet effective measures will save lives and reduce the suffering that so many people encountered in 2020.

“Third, and above all, we must commit to working together in solidarity, as a global community, to promote and protect health today, and in the future.

“We have seen how divisions in politics and communities feed the virus and foment the crisis.

“But collaboration and partnership save lives and safeguard societies.

“In 2020, a health crisis of historic proportions showed us just how closely connected we all are.

“We saw how acts of kindness and care helped neighbors through times of great struggle.

“But we also witnessed how acts of malice, and misinformation, caused avoidable harm.

“Going into 2021, we have a simple, yet profound, choice to make:

“Do we ignore the lessons of 2020 and allow insular, partisan approaches, conspiracy theories and attacks on science to prevail, resulting in unnecessary suffering to people’s health and society at large?

“Or do we walk the last miles of this crisis together, helping each other along the way, from sharing vaccines fairly, to offering accurate advice, compassion and care to all who need, as one global family.

“The choice is easy.

“There is light at the end of the tunnel, and we will get there by taking the path together.

“WHO stands with you – We Are Family and we are In This Together.

“I wish you and your loved ones a peaceful, safe and healthy new year.”

We all want to have the COVID-19 pandemic in the rearview mirror as 2021 progresses. There is hope for significant progress this year. How much progress will depend on the will of governments and peoples to focus on the eradication of the pandemic and to support the dramatic ramp up of production, distribution and vaccination of the world’s people.

WTO dispute settlement — Airbus-Boeing disputes have provided an additional end of year complication

With both the United States and the European Union authorized to retaliate against the other for failure to conform subsidy practices for large civil aircraft after WTO dispute settlement proceedings and with both parties having retaliated in fact, an additional complication arose on December 30 as the U.S. Trade Representative’s Office announced a recalculation of products to be retaliated against to account for a difference in time periods used by the EU and the U.S. for purposes of determining the value of retaliation on particular products. The U.S. had used data from 2019, a time period prior to the pandemic. The EU used a later period (August 2019-July 2020) when U.S. exports were significantly lower to the EU. The U.S. has announced that it has changed its time period basis for retaliation to the same period used by the EU which will increase the number of products that are subject to retaliation. The U.S. also has questioned the inclusion/exclusion of the United Kingdom from the data calculations by the EU (reflecting the withdrawal of the U.K. from the EU). The USTR press release is embedded below and is followed by the USTR notice of changes that will take effect on January 12, 2021. The Federal Register notice will presumably be published next week.

New product coverage focuses on products from France and Germany, the two EU countries with the largest subsidies covered by the dispute.

United-States-Modifies-Tariffs-on-EU-Products-in-Large-Civil-Aircraft-Dispute-_-United-States-Trade-Representative

USTR-FR-notice-of-modification-of-retaliation-in-Large-Civil-Aircraft

The magnitude of the difference in trade retaliation rights based on time period selected can seen from the following table which looks at U.S. imports for consumption and U.S. domestic exports for the EU (28) and EU (27, i.e. without the U.K.) for 2019 and for August 2019-July 2020 periods.

US imports for consumption from
EU 282019$513,449,346,890
Aug.2019-July 2020$473,458,093,801
EU 272019$450,201,525,558
Aug.2019-July 2020$417,877,196,969
U.S. domestic exports to
EU 282019$294,061,637,287
Aug.2019-July 2020$269,762,656,101
EU 272019$233,492,691,463
Aug.2019-July 2020$213,758,315,511

Obviously which numbers or combination of numbers one uses to measure retaliation against during a pandemic can make a significant difference in the level of products retaliated against in fact. The U.K.’s departure from the EU adds it own level of complexity to the situation. With the U.S. and EU reportedly engaged in looking for a resolution of the long running disputes, the upping of U.S. retaliation to match what the U.S. perceives was the approach pursued by the EU will complicate the search for an acceptable solution. It may also complicate the start of the Biden Administration’s trade efforts vis-a-vis the European Union.

European Union and China announce Comprehensive Agreement on Investment

The EU and China have been negotiating an investment agreement since 2014. Today, December 30, 2020, the parties announced reaching a deal in principle on the Comprehensive Agreement on Investment. The European Commission released a lengthy press release identifying the key elements of the agreement. European Commission – Press release, Key elements of the EU-China Comprehensive Agreement on Investment, Brussels, 30 December 2020, https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2542. The press release is embedded below.

12-30-2020-European-COmmission-press-release-Key-elements-of-the-EU-China-Comprehensive-Agreement-on-Investment

In a separate press release from the EC Directorate-General for Trade today, the following was stated:

“EU and China reach agreement in principle on investment

“The EU and China have today concluded in principle the negotiations for a Comprehensive Agreement on Investment (CAI). This deal follows a call between Chinese President Xi Jinping and European Commission President von der Leyen, European Council President Charles Michel and German Chancellor Angela Merkel on behalf of the Presidency of the EU Council, as well as French President Emmanuel Macron. China has committed to a greater level of market access for EU investors than ever before, including some new important market openings. China is also making commitments to ensure fair treatment for EU companies so they can compete on a better level playing field in China, including in terms of disciplines for state owned
enterprises, transparency of subsidies and rules against the forced transfer of technologies. For the first time, China has also agreed to ambitious provisions on sustainable development, including commitments on forced labour and the ratification of the relevant ILO fundamental Conventions.

“The Agreement will create a better balance in the EU-China trade relationship. The EU has traditionally been much more open than China to foreign investment. This is true as regards foreign investment in general. China now commits to open up to the EU in a number of key sectors.

“President of the European Commission, Ursula von der Leyen said: ‘Today‘s agreement is an important landmark in our relationship with China and for our values-based trade agenda. It will provide unprecedented access to the Chinese market for European investors, enabling our businesses to grow and create jobs. It will also commit China to ambitious principles on sustainability, transparency and non-discrimination. The agreement will rebalance our economic relationship with China’.

“Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis, said: ‘This deal will give European businesses a major boost in one of the world’s biggest and fastest growing markets, helping them to operate and compete in China. It also anchors our values-based trade agenda with one of our largest trading partners. We have secured binding commitments on the environment, climate change and combatting forced labour. We will engage closely with China to ensure that all commitments are honoured fully.’

“The rules negotiated in this Agreement set a high benchmark in terms of transparency, level playing field, market access commitments and sustainable development. The EU’s work on planned autonomous measures in areas such as subsidies or due diligence will continue as a matter of priority.

“Today’s conclusion in principle of the negotiations is a first step in the process; deliberations for the adoption and ratification of the agreement are yet to take place and will be conducted in full transparency.

“During today’s call, the leaders also addressed climate change, the COVID-19 pandemic, Hong Kong and human rights. They took stock of the overall EU-China agenda, recording important progress on a number of key issues, while serving to underline the EU’s continued expectations and concerns in other areas. The EU also raised the negotiations for the Strategic Agenda for Cooperation 2025, and proposed that negotiators from both sides should resume their work now that significant progress has been made in the CAI negotiations. The EU side recalled its invitation for President Xi to join an EU-China Leaders’ meeting with the participation of the Heads of State and Government of the EU member states to be held in Brussels in 2021.”

European Commission, Directorate-General for Trade, Press release, 30 December 2020, EU and China reach agreement in principle on investment, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2233.

Level playing field and sustainable development issues

As noted in my post of yesterday, the “level playing field” and sustainable development interests of the EU that were contained in the EU-UK Trade and Cooperation Agreement are likely to become part of more bilateral, plurilateral and multilateral agreements. Indeed some of these interests are also reflected in the Comprehensive Agreement on Investment with China. While the text of the agreement is not yet available, the embedded press release above contains the following discussion of level playing field and sustainable development issues:

Improving level playing field – making investment fairer

State owned enterprises (SOEs) – Chinese SOEs contribute to around 30 percent of the country’s GDP. CAI seeks to discipline the behaviour of SOEs by requiring them to act in accordance with commercial considerations and not to discriminate in their purchases and sales of goods or services. Importantly, China also undertakes the obligation to provide, upon request, specific information to allow for the assessment of whether the behaviour of a specific enterprise complies with the agreed the CAI obligations. If the problem goes unresolved, we can resort to dispute resolution under the CAI.

Transparency in subsidies – The CAI fills one important gap in the WTO rulebook by imposing transparency obligations on subsidies in the services sectors. Also, the CAI obliges China to engage in consultations in order to provide additional information on subsidies that could have a negative effect on the investment interests of the EU. China is also obliged to engage in consultations with a view to seek to address such negative effects.

Forced technology transfers – The CAI lays very clear rules against the forced transfer of technology. The provisions consist of the prohibition of several types of investment requirements that compel transfer of technology, such as requirements to transfer technology to a joint venture partner, as well as prohibitions to interfere in contractual freedom in technology licencing. These rules would also include disciplines on the protection of confidential business information collected by administrative bodies (for instance in the
process of certification of a good or a service) from unauthorised disclosure. The agreed rules significantly enhance the disciplines in WTO.

Standard setting, authorisations, transparency – This agreement covers other longstanding EU industry requests. China will provide equal access to standard setting bodies for our companies. China will also enhance transparency, predictability and fairness in authorisations. The CAI will include transparency rules for regulatory and administrative measures to enhance legal certainty and predictability, as well as for procedural fairness and the right to judicial review, including in competition cases.

Embedding sustainable development in our investment relationship

“In contrast to other agreements concluded by China, the CAI binds the parties into a value based investment relationship grounded on sustainable development principles. The relevant provisions are subject to a specifically tailored implementation mechanism to address differences with a high degree of transparency and participation of civil society.

“China commits, in the areas of labour and environment, not to lower the standards of protection in order to attract investment, not to use labour and environment standards for protectionist purposes, as well as to respect its international obligations in the relevant treaties. China will support the uptake of corporate social responsibility by its companies.

“Importantly, the CAI also includes commitments on environment and climate, including to effectively implement the Paris Agreement on climate.

“China also commits to working towards the ratification of the outstanding ILO (International Labour Organisation) fundamental Conventions and takes specific commitments in relation to the two ILO fundamental Conventions on forced labour that it has not ratified yet.” (Emphasis in original).

Fact Sheet on the EU and China Comprehensive Agreement on Investment

The European Commission posted today a one page fact sheet reviewing sectors where EU companies have invested in China and summarizing some of the major achievements from the EC perspective. The fact sheet is embedded below.

201229_China_investment_factsheet_final.pdf

Early reactions to the announcement

Early press accounts identify pluses and minuses of the agreement in principle with Chinese media indicating China has continued to protect some of its sectors while securing some improved access to EU manufacturing sectors. The western press have outlined sectors where there are specific improvements and have flagged potential negative reactions from the incoming Biden Administration in the U.S. which has expressed interest in coordinating with the EU on addressing issues with China. There are also questions about whether the European Parliament will find the efforts to address human rights issues in China sufficient to obtain the support of Parliament in the ratification process. See, e.g., South China Morning Post, China-EU investment deal: draft text shows Beijing to broadly open market to European firms, but some sectors remain off limits, 30 December 2020, https://www.scmp.com/economy/global-economy/article/3115842/china-eu-investment-deal-draft-text-shows-beijing-broadly; Financial Times, EU and China agree new investment treaty, 30 December 2020, https://www.ft.com/content/6a429460-4bfb-42d4-9191-73ba97dde130; Bloomberg, EU, China Give Political Nod to Market-Opening Investment Pact, December 30, 2020, https://www.bloomberg.com/news/articles/2020-12-30/eu-and-china-seal-investment-agreement-to-open-chinese-market; New York Times, China and E.U. Leaders Strike Investment Deal, but Political Hurdles (The agreement, which would roll back restrictions on investment, faces some opposition in Europe and objections from the Biden camp), December 30, 2020, https://www.nytimes.com/2020/12/30/business/china-eu-investment-deal.html.

Conclusion

It has been a busy December for the European Union as they have worked to complete both the Trade and Cooperation Agreement with the United Kingdom and to get to an agreement in principle on the Comprehensive Agreement on Investment with China. The investment agreement with China appears from the press releases to move forward on a range of issues that are important to other trading partners including the United States and which may be used by some in ongoing or future negotiations with China. How important the agreement proves to be if ratified will depend on the difference between agreed language and actual practice in China and in the effectiveness of the dispute settlement system that is provided should problems arise with implementation.

Of particular interest to me was the ability of the European Union to achieve both level playing field and sustainability provisions in the agreement. These are core elements of the EU’s negotiating agenda. The acceptance by China holds hope that similar provisions can work in WTO reform.

Are “level the playing field” provisions of the EU-UK Trade and Cooperation Agreement a harbinger of possible reforms at the WTO?

Title XI of Part Two of the Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, on the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part (“TCA”) is entitled “LEVEL PLAYING FIELD FOR OPEN AND FAIR COMPETITION AND SUSTAINABLE DEVELOPMENT”. The Title occupies 38 pages of the TCA (pages 179-217) and is in addition to the trade defense measures of antidumping, countervailing duty and safeguard investigations which are part of Title I of Part Two (Article GOODS.17, Trade Remedies, page 24). The inclusion of Title XI was very important for the EU if it was going to agree to tariff free/quota free access to the United Kingdom and to agree to U.K. freedom from EU laws and regulations and European Court of Justice review in areas like environment, climate, labor and subsidies. The Title is discussed in an article in today’s Financial Times, Keeping a level head about Brexit’s level playing field, December 29, 2020, https://www.ft.com/content/77bed4ae-0f8c-40bb-9f8f-a355e6f865a1.

In a press release from the European Commission entitled EU-UK Trade and Cooperation Agreement: protecting European interests, ensuring fair competition, and continued cooperation in areas of mutual
interest, Brussels, 24 December 2020, https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2531, the following was said about the level playing field provisions:

“Both parties have committed to ensuring a robust level playing field by maintaining high levels of protection in areas such as environmental protection, the fight against climate change and carbon pricing, social and labour rights, tax transparency and State aid, with effective, domestic enforcement, a binding dispute settlement mechanism and the possibility for both parties to take remedial measures.”

The U.K.’s summary of the Trade and Cooperation Agreement includes the following lengthy description of Title XI and how the Title meets U.K. negotiating objectives. See UK-EU Trade and Cooperation Agreement, Summary, December 2020, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948093/TCA_SUMMARY_PDF.pdf.

“Title XI: Level playing field for open and fair competition and sustainable development

“81. The Agreement’s provisions in this area, implementing commitments made in the 2019 Political Declaration, were the subject of considerable controversy during the negotiations. The EU was forced to drop its ambitious demands for dynamic alignment and for the UK to be legally required to maintain equivalent legislative systems to the EU’s in some areas. The system that has been agreed upon does not compromise the UK’s sovereignty in any area, does not involve the European Court of Justice in any way, and is reciprocal.
Both sides have the right to set their own laws, subject to the broad constraints of this Agreement in this area as in any other. And both sides have the right, in certain constrained ways, and subject to arbitration, to take
countermeasures if they believe they are being damaged by measures taken by the other Party in subsidy policy, labour and social policy, or climate and environment policy. If such measures are used too frequently either side can trigger a review of these provisions and the trade aspects of the Treaty more broadly, aiming to end with a different balance of rights and obligations.

“Chapter 1: General Provisions

“82. The Chapter sets out some principles and objectives for this title. It recognises the right of each Party to set its own policies and priorities and determine the levels of protection it deems appropriate in its laws.

“Chapter 2: Competition

“83. The Agreement commits both Parties to maintain their high standards of competition law, including enforcing these laws, maintaining their independent competition authorities, and applying competition law on a procedurally fair, transparent and non-discriminatory basis. The Chapter enables further cooperation between the UK and EU competition authorities.

“Chapter 3: Subsidies

“84. The Agreement ensures that each Party will have in place its own independent system of subsidy control and that neither Party is bound to follow the rules of the other. It includes some broad principles which shape
the design of both sides’ systems, aiming to ensure that the granting of subsidy does not have detrimental effects on trade between the Parties. It also includes some specific principles on subsidies that are particularly
distortive, such as those prohibited by the WTO. The Agreement makes clear that it is for each Party to determine how these principles will be implemented in its domestic law. There is a separate joint declaration that provides nonbinding guidance on additional sectors which either side may take into consideration in their respective systems of subsidy control.

“85. he Agreement requires both sides to be transparent about the subsidies they grant and to establish or maintain an independent body with an appropriate role in their respective subsidy systems, while retaining full discretion over any functions that body may have. The Agreement includes provisions on the role of domestic courts in reviewing domestic subsidy decisions. For the UK, this reflects existing practice under the UK’s system of judicial review. The UK and EU have also agreed that, in certain circumstances, domestic courts should have the power to order recovery of subsidies that have been granted illegally under domestic law.

“86. Finally, the UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid action where a subsidy granted by the other Party is causing or is at serious risk of causing significant harm to its industries. These measures can be challenged using an accelerated arbitration procedure and there is the possibility of compensation if a Party has used these measures in an unnecessary or disproportionate manner.

“Chapter 4: State owned enterprises, enterprises granted special rights or privileges and designated monopolies

“87. The Chapter commits both parties to additional disciplines on their State owned enterprises, designated monopolies and enterprises granted special rights or privileges and to make best use of international standards when regulating them, in line with provisions in other FTAs.

“Chapter 5: Taxation

“88. The Agreement commits both Parties to uphold global standards on tax transparency and fighting tax avoidance (which the UK has played a leading role in developing and implementing through the G20 and OECD). It contains commitments to specific tax standards as they stand at the end of the transition period, including the international standards on exchange of information, anti-tax avoidance, as well as relevant standards in legislation on public country by country reporting by credit-institutions and investment firms.

“89. The commitments on tax between the UK and the EU are also captured in a stand-alone Joint Political Declaration on Countering Harmful Tax Regimes. This is a political commitment to the principles of countering harmful tax regimes, and reflects the work done by the OECD in this area.

“90. There are no provisions constraining our domestic tax regime or tax rates.

“Chapter 6: Labour and social standards

“91. The Agreement includes reciprocal commitments not to reduce the level of protection for workers or fail to enforce employment rights in a manner that has an effect on trade. This is very much in line with similar ‘non-regression’ clauses in other FTAs and with international norms. The provisions are clear that both Parties have the freedom and ability to make their own decisions on how they regulate – meaning that retained EU law will not have a special place on the UK’s statute books. This Chapter is not subject to the Agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.

“Chapter 7: Environment and climate

“92. In a similar way, the Agreement includes reciprocal commitments not to reduce the level of environmental or climate protection or fail to enforce its laws in a manner that has an effect on trade. This includes reciprocal commitments to cross-economy greenhouse gas emission reduction targets. The Agreement gives both Parties the freedom to set their own climate and environmental policies in the way most appropriate to achieve our world leading domestic aims. The domestic supervisory bodies of the UK and EU will cooperate to ensure effective enforcement of their respective environmental and climate laws. Once again, this chapter is not subject to the Agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.

“93. The Agreement makes clear both parties will have their own effective systems of carbon pricing in place to help fulfil our respective climate goals. The Parties have agreed to cooperate on carbon pricing in future and consider linking their respective systems, although they are not under any obligation to do so.

“Chapter 8: Other instruments for trade and sustainable development

“94. The Agreement affirms the Parties’ existing commitments to a range of international conventions and other commitments in the area of labour, environment, and climate, in a way that is standard in FTAs. This includes committing the Parties to the effective implementation of the Paris Agreement.

“Chapter 9: Institutional provisions

“95. The Agreement sets out tailored provisions for dispute settlement for Chapters 6-8 involving a Panel of Experts. Any recommendations made by the Panel of Experts are not binding on the Parties.

“96. The Agreement provides for a rebalancing mechanism which allows the Parties to formally review the balance of the Agreement over time and enter into a negotiation on amendments to the economic provisions of the Agreement at the request of one Party. It also provides for Parties to take strictly limited and proportionate rebalancing measures on a more short-term basis, subject to the approval of an independent arbitration panel.”

Will WTO reform efforts see some or many of these areas of interest for “leveling the playing field” become plurilateral or multilateral approaches?

There have been deep concerns among many WTO Members about the lack of disciplines on industrial subsidies for countries like China which have used massive subsidies to state-champions to flood markets and create massive global excess capacity. The EU, Japan and the United States have been working on possible proposals to address some of these issues. See, e.g., European Commission, Directorate-General for Trade, Washington, DC; 14 January 2020, EU, U.S. and Japan agree on new ways to strengthen global rules on industrial subsidies, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2101.

The United States has spent a great deal of time during 2018-2020 identifying areas where it believes the WTO and Member obligations do not address distortions that exist and don’t establish conditions of fair trade. Convergence vs. coexistence of differing economic systems, obsolete provisions permitting self-selection of developing country status regardless of economic development and “entitlement” to permanent special and differential treatment, and others. In a recent post, I reviewed the U.S. draft Ministerial Decision which if adopted would permit Members to treat weak and unenforced environmental laws and regulations as a countervailable subsidy. See December 26, 2020, U.S. proposed draft Ministerial Decision – making weak or unenforced environmental standards potentially countervailable, https://currentthoughtsontrade.com/2020/12/26/u-s-proposed-draft-ministerial-decision-making-weak-or-unenforced-environmental-standards-potentially-countervailable/.

An increasing number of free trade agreements include labor and environment chapters, some with enforcement provisions. See, e.g., Congressional Research Service, updated December 18, 2020, Worker Rights Provisions in Free Trade Agreements (FTAs), https://fas.org/sgp/crs/misc/IF10046.pdf.

A number of WTO Members are pressing for greater focus on sustainable development as part of WTO negotiations, using the UN Sustainable Development Goals as the objectives. And, of course, the WTO has been struggling to complete multilateral negotiations on fisheries subsidies to fulfill UN SDG 14.6.

While the shape, breadth and direction of WTO reform is unknown at the present time, it is clear that at least some major trading nations are pushing ahead with their own plans for promoting sustainable development and addressing the climate crisis. Carbon taxes are one tool being used or developed. Using FTAs to broaden sustainable development objectives and ensure a “level playing field” for producers living with higher environmental, labor and other standards is already happening in some FTAs. And certainly we will see a major effort to have WTO rules better address the distortions to competition from current economic systems and policies.

The EU and U.K. TCA’s Part Two Title XI may go no broader than the unique circumstances of the split of the United Kingdom from the European Union. However, the historic champions of liberalized trade have longstanding and growing interests in ensuring the trading system works on a “level playing field” basis. From my perspective, there is a fair amount of the Title XI concepts that could be expanded in application to other trading nations and that should be of interest in the WTO if, as hoped, the organization is able to regain relevance through greater “like mindedness”. Thus, how Title XI works in practice and what lessons are learned for improving or expanding its application will be of great interest not only to the EU and the U.K. but also to other WTO Members.

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The December 24, 2020 Trade and Other Agreements Between the European Union and the United Kingdom — The Price and Rewards of Brexit

With the United Kingdom’s interim arrangement with the European Union after the January 2020 departure from the EU coming to an end at the end of December, negotiators for the two sides reached a series of agreements and declarations on December 24th that will take effect provisionally on January 1, 2021 upon actions by the EU and the U.K. and awaiting ratification.

The trade agreement provides, inter alia, for duty free/quota free access for goods for both sides. While each side has declared victory in the negotiations and expressed the view that the agreements are good for both parties, all independent analyses that have appeared to date note that there will be costs for both sides from the unraveling of the U.K.’s membership in the EU — not surprising but the reality of any breakup of a longstanding integrated relationship of members. Stated differently, while the agreements are unusual in the sense that they deal with relations between nations formerly participating in a single market upon separating, inefficiencies are added to the operation of markets in both the U.K. and in the EU as trade in goods will face at least customs clearance, potentially different standards, rules of origin as to what constitutes qualifying product of either the U.K. or the EU, and services will be restricted (e.g., air transport in terms of number of destinations within the trading partner; lorry drivers in the number of permitted stops to unload or load cargo, work permits in the other’s territory, etc.). The likely cost to the U.K. over the next 15 years has been estimated at a reduction of GDP of 4 percentage points by 2035 from levels likely achieved if the U.K. remained part of the EU. There will be costs as well for the EU, though likely smaller as a percent of GDP because of the smaller share of EU trade with the U.K. than vice versa.

For the United Kingdom, Brexit was about regaining control of the laws and regulations under which its businesses and citizens operate and eliminating the role of the European Court of Justice. It was also about regaining control of its waters for fishing.

For the EU, the objective was to minimize the damage from the U.K.’s departure, maintain unity among EU members and ensure that any agreement with the U.K. did not result in anticompetitive results from changes in environmental, labor or subsidy practices by the U.K. It seems fair to say that each side accomplished most of its core objectives.

Consider the statement of the U.K.’s Prime Minister Boris Johnson on December 24 on the agreement with the EU, https://www.gov.uk/government/speeches/prime-ministers-statement-on-eu-negotiations-24-december-2020:

“It is four and a half years since the British people voted to take back control of their money, their borders, their laws, and their waters and to leave the European Union.

“And earlier this year we fulfilled that promise and we left on Jan 31 with that oven-ready deal.

“Since that time we have been getting on with our agenda.

“Enacting the points based immigration system that you voted for and that will come into force on Jan 1.

“And doing free trade deals with 58 countries around the world.

“And preparing the new relationship with the EU.

“And there have been plenty of people who have told us that the challenges of the Covid pandemic have made this work impossible.

“And that we should extend the transition period.

“And incur yet more delay.

“And I rejected that approach precisely because beating Covid is our number one national priority and I wanted to end any extra uncertainty and to give this country the best possible chance of bouncing back strongly next year.

“And so I am very pleased that this afternoon that we have completed the biggest trade deal yet, worth £660 billion.

“A comprehensive Canada style free trade deal between the UK and the EU, a deal that will protect jobs across this country.

“A deal that will allow UK goods and components to be sold without tariffs and without quotas in the EU market.

“A deal which will if anything should allow our companies and our exporters to do even more business with our European friends.

“And yet which achieves something that the people of this country instinctively knew was doable.

“But which they were told was impossible.

“We have taken back control of laws and our destiny.

“We have taken back control of every jot and tittle of our regulation.

“In a way that is complete and unfettered.

“From Jan 1 we are outside the customs union, and outside the single market.

“British laws will be made solely by the British Parliament.

“Interpreted by UK judges sitting in UK courts.

“And the jurisdiction of the European Court of Justice will come to an end.

“We will be able to set our own standards, to innovate in the way that we want, to originate new frameworks for the sectors in which this country leads the world, from biosciences to financial services, artificial intelligence and beyond.

“We will be able to decide how and where we are going to stimulate new jobs and new hope.

“With freeports and new green industrial zones.

“We will be able to cherish our landscape and our environment in the way we choose.

“Backing our farmers and backing British food and agricultural production.

“And for the first time since 1973 we will be an independent coastal state with full control of our waters with the UK’s share of fish in our waters rising substantially from roughly half today to closer to 2/3 in five and a half years’ time after which there is no theoretical limit beyond those placed by science or conservation on the quantity of our own fish that we can fish in our waters.

“And to get ready for that moment those fishing communities we will be helped with a big £100m programme to modernise their fleets and the fish processing industry.

“And I want to stress that although of course the arguments with our European friends and partners were sometimes fierce this is, I believe a good deal for the whole of Europe and for our friends and partners as well.

“Because it will not be a bad thing for the EU to have a prosperous and dynamic and contented UK on your doorstep.

“And it will be a good thing – it will drive jobs and prosperity across the whole continent.

“And I don’t think it will be a bad thing if we in the UK do things differently, or a take a different approach to legislation.

“Because in so many ways our basic goals are the same.

“And in the context of this giant free trade zone that we’re jointly creating the stimulus of regulatory competition will I think benefit us both.

“And if one side believes it is somehow being unfairly undercut by the other, then subject to independent third party arbitration and provided the measures are proportionate, we can either of us decide – as sovereign equals – to protect our consumers.

“But this treaty explicitly envisages that such action should only happen infrequently and the concepts of uniformity and harmonisation are banished in favour of mutual respect and mutual recognition and free trade.

“And for squaring that circle, for finding the philosopher’s stone that’s enabled us to do this I want to thank President von der Leyen of the European Commission and our brilliant negotiators led by Lord Frost and Michel Barnier, on the EU side Stephanie Rousseau as well as Oliver Lewis, Tim Barrow, Lindsay Appleby and many others.

“Their work will be available for scrutiny, followed by a parliamentary vote I hope on Dec 30.

“This agreement, this deal above all means certainty.

“It means certainty for the aviation industry and the hauliers who have suffered so much in the Covid pandemic.

“It means certainty for the police and the border forces and the security services and all those that we rely on across Europe to keep us safe.

“It means certainty for our scientists who will be able to continue to work together on great collective projects.

“Because although we want the UK to be a science superpower, we also want to be a collaborative science superpower.

“And above all it means certainty for business from financial services to our world-leading manufacturers – our car industry – certainty for those working in high skilled jobs in firms and factories across the whole country.

“Because there will be no palisade of tariffs on Jan 1.

“And there will be no non-tariff barriers to trade.

“And instead there will be a giant free trade zone of which we will at once be a member.

“And at the same time be able to do our own free trade deals as one UK, whole and entire, England, NI, Scotland and Wales together.

“And I should stress this deal was done by a huge negotiating team from every part of the UK, and it will benefit every part of our United Kingdom, helping to unite and level up across the country.

“And so I say again directly to our EU friends and partners, I think this deal means a new stability and a new certainty in what has sometimes been a fractious and difficult relationship.

“We will be your friend, your ally, your supporter and indeed – never let it be forgotten – your number one market.

“Because although we have left the EU this country will remain culturally, emotionally, historically, strategically and geologically attached to Europe, not least through the four million EU nationals who have requested to settle in the UK over the last four years and who make an enormous contribution to our country and to our lives.

“And I say to all of you at home.

“At the end of this toughest of years.

“That our focus in the weeks ahead is of course on defeating the pandemic.

“And on beating coronavirus and rebuilding our economy.

“And delivering jobs across the country.

“And I am utterly confident that we can and will do it.

“By today we have vaccinated almost 800,000 people and we have also today resolved a question that has bedevilled our politics for decades.

“And it is up to us all together.

“As a newly and truly independent nation.

“To realise the immensity of this moment and to make the most of it.

“Happy Christmas to you all.

“That’s the good news from Brussels – now for the sprouts.”

On the same day, December 24, 2020, the European Union President Ursula von der Leyen provided these comments at the press conference in Brussels on the outcome of the EU-UK negotiations, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_2534:

“Good afternoon,

“We have, finally, found an agreement.

“It was a long and winding road. But we have got a good deal to show for it.

“It is fair and balanced. And it is the right and responsible thing to do for both sides

“The negotiations were very tough.

“But with so much at stake, for so many, this was a deal worth fighting for.

“We need to avoid major disruptions for workers, companies and travellers after 1 January 2020.

“It will protect European interests.

“It is also – I believe – in the UK’s interests.

“It will lay a solid foundation for a new beginning with a long-term friend.

“And it means that we can finally put Brexit behind us.

“Europe will be able to move on.

“Throughout this period, the European Union has demonstrated great unity, drawing on the strength
of 450 million people and the largest single market in the world.

“The Agreement we have reached clearly shows how much this matters.

“Chapter by chapter, line by line.

“Let me give you three examples.

“First:

“Competition in our Single Market will be fair and remain so.

“The EU´s rules and standards will be respected.

“We have effective tools to react if fair competition is distorted and impacts our trade.

“Secondly:

“We will continue cooperating with the UK, in all areas of mutual interest.

“For example in the fields of climate change, energy, security and transport.

“Together we still achieve more than we do apart.

“And thirdly:

“We have secured five and a half years of full predictability for our fishing communities and strong
tools to incentivise it to remain so.

“Of course, this whole debate has always been about sovereignty.

“But we should cut through the soundbites and ask ourselves what sovereignty actually means in the
21st century.

“For me, it is about being able to seamlessly do work, travel, study and do business in 27 countries.

“It is about pooling our strength and speaking together in a world full of great powers.

“And in a time of crisis it is about pulling each other up – instead of trying to get back to your feet
alone.

“The European Union shows how this works in practice.

“And no deal in the world can change reality or gravity in today’s economy and today’s world. We are
one of the giants.

“The EU is well prepared for Brexit.

“We know this deal will not stop disruption altogether.

“We have been working closely with authorities and businesses to make sure they are ready.

“We have set aside EUR 5 billion in our new budget to support all of the people, regions and sectors
affected by Brexit.

“So now is the time to turn the page and look to the future.

“The United Kingdom is a third country.

“But it remains a trusted partner.

“We are long standing allies.

“We share the same values and interests.

“Whether it be the COP26 summit in Glasgow or the upcoming UK G7 and Italian G20 presidencies:

“The European Union and the United Kingdom will stand shoulder to shoulder to deliver on our
common global goals.

“This moment marks the end of a long journey.

“I would like to thank our Chief Negotiator, Michel Barnier, and his team, and Stéphanie Riso for their
tireless efforts, their endurance, their professionalism.

“I also want to thank David Frost and Tim Barrow for having been tough but fair negotiating partners.

“And I am grateful to all our Member States and the European Parliament for their trust and their
support. I will now convene the College.

“Ladies and Gentlemen,

“At the end of successful negotiations I normally feel joy.

“But today I only feel quiet satisfaction and, frankly speaking, relief.

“I know this is a difficult day for some.

“And to our friends in the United Kingdom I want to say: parting is such sweet sorrow.

“But to use a line from TS Eliot: What we call the beginning is often the end. And to make an end is
to make a beginning.

“So to all Europeans I say: It is time to leave Brexit behind.

“Our future is made in Europe.

“Thank you so much.”

Because of the shortness of time from the conclusion of the negotiations until the agreements should take effect, the EU is looking at adopting the agreements provisionally until February 28, 2021. As reviewed in a press release on December 24:

“The Commission proposes to apply the Agreement on a provisional basis, for a limited period of time until 28 February 2021.

“The Commission will swiftly propose Council decisions on the signature and provisional application, and on the conclusion of the Agreement.

“The Council, acting by the unanimity of all 27 Member States, will then need to adopt a decision authorising the signature of the Agreement and its provisional application as of 1 January 2021. Once this process is concluded, the Trade and Cooperation Agreement between the EU and the UK can be formally signed.

“The European Parliament will then be asked to give its consent to the Agreement.

“As a last step on the EU side, the Council must adopt the decision on the conclusion of the Agreement.”

Press Release, European Commission, 24 December 2020, EU-UK Trade and Cooperation Agreement: protecting European interests, ensuring fair competition, and continued cooperation in areas of mutual interesthttps://ec.europa.eu/commission/presscorner/detail/en/IP_20_2531.

EU ambassadors gave provisional approval to the agreements on December 28 in Brussels. Financial Times, December 28, 2020, EU ambassadors give green light to Brexit deal,https://www.ft.com/content/8e4d5aa2-5851-4bea-8d4f-b880376f8413 The U.K.’s House of Commons is expected to approve the agreements on December 30, 2020.

The list of agreements and declarations agreed on December 24 is provided below.

Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, of the One Part, and the United Kingdom of Great Britain and Northern Ireland, of the Other Part, https://ec.europa.eu/info/sites/info/files/draft_eu-uk_trade_and_cooperation_agreement.pdf (1246 pages).

Agreement Between the European Union and the United Kingdom of Great Britain and Northern Ireland Concerning Security Procedures for Exchanging and Protecting Classified Information, https://ec.europa.eu/info/files/eu-uk-security-information-agreement_en (8 pages).

Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the European Atomic Energy Community for Cooperation on the Safe and Peaceful Uses of Nuclear Energy, https://ec.europa.eu/info/files/eu-uk-civil-nuclear-agreement_en (18 pages).

draft EU-U.K. declarations, https://ec.europa.eu/info/sites/info/files/draft_eu-uk_declarations.pdf (embedded below).

draft_eu-uk_declarations

As stated at the beginning, the early analyses of the EU-U.K. agreements have identified many concerns for the increased inefficiencies and uncertainties of trade in goods and services that will face producers and service providers in both the U.K. and in the EU. See, e.g., Wall Street Journal, December 24, 2020, How the Brexit Deal Alters Relations Between the U.K. and European Union, https://www.wsj.com/articles/how-the-brexit-deal-alters-relations-between-the-u-k-and-european-union-11608836744?mod=searchresults_pos9&page=1; Politico, December 27, 2020, 10 key details in the UK-EU trade deal, https://www.politico.eu/article/10-key-details-uk-eu-brexit-trade-deal/. Indeed, there are lots of issues still to be negotiated, or rights and obligations to be tested over time and significant bureaucracies to be added to address commitments made in the agreements.

So unlike other trade agreements entered in 2020 that portend more liberalized trade at least among the signatories, the reality of Brexit was always going to require agreements which reduced market access to some extent. The key is how minimum the disruptions and increased inefficiencies will prove to be versus the greater flexibility that the United Kingdom feels to shape laws, regulations and policies to meet its own needs and preferences (and whether the increased flexibility proves to be more limited by the agreements than perhaps desired) and whether the remaining EU members will feel a greater sense of unity on the forward direction of the EU. Time will tell whether the “success” of Christmas eve proves to be a positive for the EU and the U.K. in fact moving into 2021.

U.S. proposed Draft Ministerial Decision — making weak or unenforced environmental standards potentially countervailable

As reviewed in prior posts, there is ongoing interest in reducing domestic subsidies for agricultural producers and an interest in revising rules for industrial subsidies to address the problem that has arisen in the last several decades of massive subsidization creating global excess capacity in products or sectors. Moreover, there are no rules on subsidies in the services area despite the issue having been of ongoing interest to many Members at the start of the WTO with ongoing talks provided for within the GATS. See, e.g., November 24, 2020, Responding to a comment received on yesterday’s post, WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/24/responding-to-a-comment-received-on-yesterdays-post-wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/; November 23, 2020, WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/23/wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/; February 22, 2020: WTO Reform – Addressing The Disconnect Between Market and Non-Market Economies, https://currentthoughtsontrade.com/2020/02/22/wto-reform-addressing-the-disconnect-between-market-and-non-market-economies/.

The WTO Members have struggled for 19 years on trying to limit fisheries subsidies to achieve one of the UN Sustainable Development Goals (SDG 14.6) by stopping overfishing and illegal fishing practices that are harming wild fish stocks. While an agreement was due to be completed in 2020, the negotiations will continue into 2021. See, e.g., December 16, 2020, The fisheries subsidies negotiations – U.S. comments from December 2 meeting add clarity to the inability to achieve an agreement and the lack of “like-mindedness” among Members, https://currentthoughtsontrade.com/2020/12/16/the-fisheries-subsidies-negotiations-u-s-comments-from-december-2-meeting-add-clarity-to-the-inability-to-achieve-an-agreement-and-the-lack-of-like-mindedness-among-members/; December 15, 2020, The fisheries subsidies negotiations – failure by WTO Members to deliver an agreement by the end of 2020, https://currentthoughtsontrade.com/2020/12/15/the-fisheries-subsidies-negotiations-failure-by-wto-members-to-deliver-an-agreement-by-the-end-of-2020/.

At the latest General Council meeting held on December 16-18, the United States, in its second intervention on the topic of the importance of market-oriented conditions to the world trading system (agenda item 10, WT/GC/W/813), alerted Members that it would be filing a new paper on the topic of sustainability dealing with treating weak or unenforced environmental laws and regulations as being potentially countervailable under the Agreement on Subsidies and Countervailing Measures.

“The United States would like to thank all the Members who took the floor to provide their
comments. We look forward to continuing this important conversation in future meetings.

“On another subject, let me now take this opportunity to inform colleagues that the United States
will be circulating a draft Ministerial Conference Decision shortly entitled, ‘Advancing
Sustainability Goals through Trade Rules to Level the Playing Field.’

“We look forward to submitting this proposal for consideration during the upcoming Structured
Discussions on Trade and Sustainability.

“The draft Ministerial Conference Decision aims to reinforce our view that failure to adopt,
maintain, implement and effectively enforce laws and regulations that ensure environmental
protections at or above a threshold of fundamental standards constitutes an actionable subsidy
under the Agreement on Subsidies and Countervailing Measures.”

Meeting of the WTO General Council, December 16-17, 2020, U.S. Statements delivered by Ambassador Dennis Shea, page 7, https://geneva.usmission.gov/wp-content/uploads/sites/290/AmbassadorShea-WTOGeneralCouncil-Dec2020.pdf.

The United States draft Ministerial Decision was submitted and circulated to WTO Members on December 17 and is embedded below.

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While the current definition of subsidy contained in Art. 2 of the ASCM (Agreement on Subsidies and Countervailing Measures) does not appear to cover distortions that flow from the level of environmental protection an/or the lack of enforcement of such requirements, there is little doubt that in the coming years, a number of countries will likely be imposing taxes or taking other action to support sustainable development and prevent competition being determined by production of products in countries that are not moving rapidly to sustainable development. The EU is pushing its producers to become dramatically more environmentally responsible. and is committed to introducing a tax on products not meeting the desired environmental standards. Under the Biden Administration, it is likely the U.S. will be looking for ways to push a similar sustainable trade policy by neutralizing “false” advantages for products produced less environmentally responsibly.

In that context, the U.S. paper of December 17 provides an additional path to pursuing sustainable development and ensuring that responsible production methods are not penalized by competition from producers using less environmentally responsible approaches. WTO Members have not indicated an interest in doing a broad review of subsidy disciplines to ensure the rules reflect current economic realities and address all significant types of distortions found in the trade of goods and services. Such a review is long overdue in my view and would permit an evaluation of a host of issues not presently covered by the ASCM including the issue raised in the Draft Ministerial Decision.

While historically many developing nations would oppose proposed actions like the U.S. draft Ministerial Decision on the theory of limited existing capacities in developing countries or a perceived “entitlement” to develop in manners not significantly different than current developed countries, the climate crisis, UN Sustainable Development Goals and the reality of the potential destruction facing many countries from climate warming and rising oceans essentially make a decades-long approach to achieving sustainable development self-defeating. Whether the U.S. proposal will garner support and/or becomes an additional tool to help Members move to sustainable development is obviously unknown at the present time.

The WTO has proven itself unable in its first 25 years to modernize the rules of international trade to keep pace with global developments and with the pressing needs for more sustainable approaches to international trade. 2021 provides the WTO with the opportunity to change course and reestablish its role in developing rules that address the needs of Members, businesses, workers and the global population in international trade. Hopefully, the WTO will have a new Director-General early in 2021. Hopefully, Members can come together on the pressing needs of relevancy and sustainability by agreeing on core principles of the WTO. A comprehensive reform initiative is desperately needed and could be agreed to, though agreement on reform is unlikely based on current differences among Members. Yet even if a comprehensive reform program is agreed to, without a change in how the WTO operates, the organization and its Members will be unable to be nimble enough to make a timely difference. Leadership and a joint willingness to move forward have been missing. Let’s hope that 2021 will be different.