Postponement of the WTO’s 12th Ministerial Conference, continued efforts to increase vaccinations

With the discovery of a new COVID-19 variant in Africa last week, a designation by the World Health Organization that the new variant (“Omicron”) was a “variant of concern”, surging infections in Europe, and reintroduced travel restrictions and quarantine requirements for visitors from certain countries, it was not surprising that the WTO Members decided to postpone the 12th Ministerial Conference which had been set to start on November 30 in Geneva. See World Health Organization, Classification of Omicron (B.1.1.529): SARS-CoV-2 Variant of Concern, 26 November 2021, https://www.who.int/news/item/26-11-2021-classification-of-omicron-(b.1.1.529)-sars-cov-2-variant-of-concern; WTO News Release, General Council decides to postpone MC12 indefinitely, 26 November 2021, https://www.wto.org/english/news_e/news21_e/mc12_26nov21_e.htm.

The spate of new travel restrictions ranged from restrictions on countries in southern Africa where early cases had been identified or where transborder movement was likely, to blanket blockage of entry of foreign travelers from any country (e.g., Israel, Japan and Morocco). Countries from Australia to Canada to various countries in Europe including the United Kingdom as well as Israel, Hong Kong and some countries in Africa have confirmed cases of the new Omicron variant. See, e.g., New York Times, Tracking Omicron and Other Coronavirus Variants, updated November 29, 2021, https://www.nytimes.com/interactive/2021/health/coronavirus-variant-tracker.html (” So far it has been detected in South Africa and Botswana, as well as in travelers to Australia, Austria, Belgium, Britain, Canada, Czech Republic, Denmark, Germany, Israel, Italy, the Netherlands, Portugal and Hong Kong.”). Government official in South Africa called the restriction unwarranted. See, e.g., BBC, Covid: US joins EU in restricting flights from southern Africa over new coronavirus variant, 27 November 2021, https://www.bbc.com/news/world-59427770 (“South African Health Minister Joe Phaahla told reporters that the flight bans against the country were ‘unjustified’.”). Many pointed to the continued inequitable access of vaccines in Africa as the cause of the development of a new variant. See, e.g., The Guardian, Larry Elliott, The Omicron variant reveals the true global danger of ‘vaccine apartheid’, 28 November 2021, https://www.theguardian.com/business/2021/nov/28/the-omicron-variant-reveals-the-true-global-danger-of-vaccine-apartheid.

The WHO on November 29, 2021 is reported to have indicated that the Omicron variant poses a “very high” risk. See, e.g., New York Times, The W.H.O. says Omicron poses a ‘very high’ risk globally as questions about the variant remain. November 29, 2021, https://www.nytimes.com/live/2021/11/29/world/omicron-variant-covid#the-who-says-omicron-poses-a-very-high-risk-globally (“The World Health Organization warned on Monday that global risks posed by the new Omicron variant of the coronavirus were ‘very high,’ as countries around the world rushed to defend against its spread with a cascade of border closures and travel restrictions that recalled the earliest days of the pandemic.”). One can expect continued international efforts to limit the spread of the Omicron variant until greater information is known on the variant and whether it reduces the effectiveness of existing vaccines.

With the postponement of the 12th Ministerial Conference, there will likely be a slowdown in fact in negotiations by WTO Members on topics such as the fisheries subsidies agreement, an outcome on trade and health including any resolution of the proposed waiver of TRIPS obligations to address the COVID-19 pandemic, ongoing agriculture negotiations, various Joint Statement Initiatives (a number of which appear completed already), actions on climate change, an agenda for discussing WTO reform, etc. While the Director-General and the Chair of the General Council have urged continued work and WTO Members have indicated a desire to continue to work to reduce differences, it is hard to imagine that any existing momentum doesn’t get lost at least until Members are approaching the date of the rescheduled Ministerial (which has not yet been announced). See, e.g., WTO News Release, General Council decides to postpone MC12 indefinitely, 26 November 2021, https://www.wto.org/english/news_e/news21_e/mc12_26nov21_e.htm (“WTO members were unanimous in their support of the recommendations from the Director-General and the General Council Chair, and they pledged to continue working to narrow their differences on key topics like the WTO’s response to the pandemic and the negotiations to draft rules slashing harmful fisheries subsidies. The Director-General and Amb. Castillo urged delegations to maintain the negotiating momentum that had been established in recent weeks. ‘This does not mean that negotiations should stop. On the contrary, delegations in Geneva should be fully empowered to close as many gaps as possible. This new variant reminds us once again of the urgency of the work we are charged with,’ the DG said.”).

Much government attention will return to expanding production and distribution of vaccines to countries with low vaccination rates while governments and the WHO seek answers to the questions surrounding the Omicron variant — is it more easily transmissible? Is it more severe in its consequences to those who become infected? How effective are existing vaccines in protecting people from the new variant? And many developed countries will continue to push booster shots to those who are already vaccinated in light of the declining efficacy after six months for the main vaccines used in Europe and the U.S.

In prior posts, I have reviewed some of the challenges in understanding vaccine equity in light of different levels of vaccination in countries of similar economic development. See, e.g., November 23, 2021:  WTO-IMF COVID-19 Vaccine Trade Tracker provides useful information in analyzing vaccine equity, https://currentthoughtsontrade.com/2021/11/23/wto-imf-covid-19-vaccine-trade-tracker-provides-useful-information-in-analyzing-vaccine-equity/; November 22, 2021:  Trade and Health at the WTO’s 12th Ministerial Conference, https://currentthoughtsontrade.com/2021/11/22/trade-and-health-at-the-wtos-12th-ministerial-conference/. Many actions have been taken which are increasing the volume of vaccines available around the world, including adding capacity for at least fill and finish in Africa and other parts of the world. Greater efforts at donations and filling contracts with COVAX are happening and will increase in 2022.

Interestingly, on November 29, 2021, there was a joint statement from the African Union, Africa Centres for Disease Control and Prevention, CEPI, GAVI, UNICEF and the WHO on one aspect of getting vaccines to low income countries and others — donations from other countries. See Joint Statement on Dose Donations of COVID-19 Vaccines to African Countries, 29 November 2021, https://www.who.int/news/item/29-11-2021-joint-statement-on-dose-donations-of-covid-19-vaccines-to-african-countries. While donations to date have been a small part of total vaccine doses available throughout the world, there are a series of challenges to ensuring donations provide the maximum benefit going forward. See UNICEF, COVID-19 Vaccine Market Dashboard, visited November 29, 2021, https://www.unicef.org/supply/covid-19-vaccine-market-dashboard (8.856 billion total doses delivered to countries and territories around the world, including 4.535 billion through bilateral/multilateral agreements; 163.3 million from donations; 560.1 million through COVAX and 3.574 billion unknown (but appearl largely from internal production for particular countries). The UNICEF data also looks at donations more granularly and the data are significantly larger than the summary data above (701.8 million donated doses of which 381.3 million are facilitated doses and 470.5 million are delivered doses).

The Joint Statement is copied below because of the importance of donated doses for low income countries in 2022.

“Building on lessons learned from our collective experience with dose donations over the past several months, the African Vaccine Acquisition Trust (AVAT), the Africa Centres for Disease Control and Prevention (Africa CDC) and COVAX wish to draw the attention of the international community to the situation of donations of COVID-19 vaccines to Africa, and other COVAX participating economies, particularly those supported by the Gavi COVAX Advance Market Commitment (AMC).

“AVAT and COVAX complement each other’s efforts to support African countries to meet their immunisation targets, recognising the global goal of immunising 70% of the African population. Dose donations have been an important source of supply while other sources are stepping up, but the quality of donations needs to improve.

“AVAT and COVAX are focused on accelerating access to and rollout of COVID-19 vaccines in Africa. Together we are rapidly expanding supply to the continent, and providing countries with the support to be able to utilise the doses they receive. To date, over 90 million donated doses have been delivered to the continent via COVAX and AVAT and millions more via bilateral arrangements.

“However, the majority of the donations to-date have been ad hoc, provided with little notice and short shelf lives. This has made it extremely challenging for countries to plan vaccination campaigns and increase absorptive capacity. To achieve higher coverage rates across the continent, and for donations to be a sustainable source of supply that can complement supply from AVAT and COVAX purchase agreements, this trend must change.

“Countries need predictable and reliable supply. Having to plan at short notice and ensure uptake of doses with short shelf lives exponentially magnifies the logistical burden on health systems that are already stretched. Furthermore, ad hoc supply of this kind utilises capacity – human resources, infrastructure, cold chain – that could be directed towards long-term successful and sustainable rollout. It also dramatically increases the risks of expiry once doses with already short shelf-lives arrive in country, which may have long-term repercussions for vaccine confidence.

“Donations to COVAX, AVAT, and African countries must be made in a way that allows countries to effectively mobilise domestic resources in support of rollout and enables long-term planning to increase coverage rates. We call on the international community, particularly donors and manufacturers, to commit to this effort by adhering to the following standards, beginning from 1 January 2022:

Quantity and predictability: Donor countries should endeavour to release donated doses in large volumes and in a predictable manner, to reduce transaction costs. We acknowledge and welcome the progress being made in this area, but note that the frequency of exceptions to this approach places increased burden on countries, AVAT and COVAX.

Earmarking: These doses should be unearmarked for greatest effectiveness and to support long-term planning. Earmarking makes it far more difficult to allocate supply based on equity, and to account for specific countries’ absorptive capacity. It also increases the risk that short shelf-life donations utilise countries’ cold chain capacity – capacity that is then unavailable when AVAT or COVAX are allocating doses with longer shelf lives under their own purchase agreements.

Shelf life: As a default, donated doses should have a minimum of 10 weeks shelf life when they arrive in-country, with limited exceptions only where recipient countries indicate willingness and ability to absorb doses with shorter shelf lives.

Early notice: Recipient countries need to be made aware of the availability of donated doses not less than 4 weeks before their tentative arrival in-country.

Response times: All stakeholders should seek to provide rapid response on essential information. This includes essential supply information from manufacturers (total volumes available for donation, shelf life, manufacturing site), confirmation of donation offer from donors, and acceptance/refusal of allocations from countries. Last minute information can further complicate processes, increasing transaction costs, reducing available shelf life and increasing risk of expiry.

Ancillaries: The majority of donations to-date do not include the necessary vaccination supplies such as syringes and diluent, nor do they cover freight costs –  meaning these have to be sourced separately – leading to additional costs, complexity and delay. Donated doses should be accompanied with all essential ancillaries to ensure rapid allocation and absorption.

“AVAT, Africa CDC and COVAX remain committed to collaborate with donor countries, vaccine manufacturers and partners on ensuring these standards are upheld, as we continue to work together towards achieving Africa’s vaccination goals.”

The challenge of improving global vaccination rates is complicated. Supply is certainly a major issue. But countries who receive vaccines may also have problems ramping up administration of doses to their populations. While Africa has many low income countries (as classified by the World Bank), it also has countries at higher levels of income. For example, South Africa is an upper-middle income country according to the World Bank criteria but has a very low vaccination rate for an upper-middle income country. A recent New York Times article reviews that there have been significant increases in supplies to South Africa recently such that it has five months of doses on hand but is having trouble getting shots to people in need quickly enough. See New York Times, South Africa, where Omicron was detected, is an outlier on the least vaccinated continent. November 28, 2021, https://www.nytimes.com/live/2021/11/28/world/covid-omicron-variant-news (“South Africa has a better vaccination rate than most countries on the continent: Just under one-quarter of the population has been fully vaccinated, and the government said it has over five months’ worth of doses in its stores. But they are not being administered fast enough. Vaccinations in South Africa are running at about half the target rate, officials said last week. To prevent vaccines from expiring, the government has even deferred some deliveries scheduled for early next year.”).

Thus, as the world reacts to the discovery of a new variant and struggles to understand its implications, the WTO will struggle ahead in the hope of narrowing differences ahead of a further delayed Ministerial Conference, and the world will continue to pursue improved vaccine equity while dealing with increased uncertainty flowing from the Omicron variant.

The answer to the issue of vaccine equity is complex and, at least for the COVID-19 pandemic, not really dependent on a temporary waiver of TRIPs obligations for vaccines which would have no meaningful effect on supply availability through at least 2022. Production has been ramped up in many countries. The volumes available in 2022 should permit meeting the global objective of getting 70% of the world’s people vaccinated by next fall. But challenges remain in terms of internal capacities in many poorer countries to get their populations vaccinated, as well as misinformation on vaccines, the large level of vaccine hesitancy in developed countries and in developing countries, and the rise of new variants and what effect on existing vaccines they will have. Cooperation is needed in addressing all aspects of the issue. Time will tell whether improved cooperation is likely as we close out 2021 and start 2022.

WTO-IMF COVID-19 Vaccine Trade Tracker provides useful information in analyzing vaccine equity

On November 22, 2021, the WTO and IMF announced and released their COVID-19 Vaccine Trade Tracker. See WTO News Release, WTO, IMF launch Vaccine Trade Tracker, 22 November 2021, https://www.wto.org/english/news_e/news21_e/covid_22nov21_e.htm. While the data on access to vaccines is not as granular as the UNICEF COVID Vaccine Dashboard, the new tracker provides data under six topics: summary, exports (options being by producing economy or by supply arrangement type), imports (options being by income group or by continent), total supply (options being by producing economy or by vaccine type), supply to continents (Africa, Asia, Europe, North America, Oceania, South America) and vaccination status (options being by income group and by continent). Data in the initial release are through October 31, 2021. Income groups are the World Bank’s groupings — Low income, lower-middle income, upper middle income and high income.

In recent posts I have noted that much of the discussion on vaccine equity focuses on access and affordability but doesn’t necessarily help understand widely different outcomes for countries or territories that are at the same stage of economic development. See November 22, 2021:  Trade and Health at the WTO’s 12th Ministerial Conference, https://currentthoughtsontrade.com/2021/11/22/trade-and-health-at-the-wtos-12th-ministerial-conference/. The WTO-IMF Tracker doesn’t include the identification of countries/territories within income groups but rather reports on the entire grouping. The World Bank’s 2020 listing is the most recent. See World Bank, GNI per capita, Atlas method (current US$), https://data.worldbank.org/indicator/NY.GNP.PCAP.CD; November 15, 2021:  The folly of self-selection as a developing country at the WTO, https://currentthoughtsontrade.com/2021/11/15/the-folly-of-self-selection-as-a-developing-country-at-the-wto/.

Of the listed producing countries involved in exports of COVID-19 vaccines all are WTO Members. The EU, USA, Japan and Republic of Korea are listed as high income countries by the World Bank though Korea has treated itself as a developing country at the WTO. China, the Russian Federation and South Africa are included as upper middle income countries by the World Bank based on per capita GNI, though both China and South Africa claim developing country status at the WTO. India is listed as a lower-middle income country by the World Bank and claims developing country status at the WTO. There is a small amount of exports from other countries not broken out by individual country n the WTO-IMF tracker.

On total supply (“Total supply contains both exported and domestically delivered doses), China is the largest producing country with a total supply of 4.0811 billion doses of which 1.3294 billion doses have been exported. The European Union is the second largest producer with a total supply of 1.7077 billion doses producers of which 876.5 million have been exported. India is the third largest producers with total supply of 1.3608 billion doses of which just 66.0 million doses have been exported. The United States is fourth with total supply of 941.1 million doses and exports of 300.8 million doses. Others have much smaller total supplies and exports.

The vast majority of exports have been through bilateral deals (77.5%). The second largest source of exports has been doses contracted via COVAX (8.1%). Because of several major problems COVAX experienced from suppliers — the largest being the shut down of exports from India for much of 2021 — COVAX has been unable to supply the large volume of vaccine doses in 2021 to low income and lower middle income countries that had been planned on. The third largest source of exports was donations via COVAX (7.5%), followed by direct donations from producing countries to receiving countries (6.1%) and supply via the African Vaccine Acquisition Trust (“AVAT”)(0.8%).

The vaccination status data (item six in the Tracker) is helpful in identifying regions with the greatest needs as well as the breakout by World Bank income level. However, because of the lack of granularity to the individual country or territory, the data don’t help understand the large differences between members in the same continent or in the same income grouping.

By continent, all continents except Africa have received more than 50 courses of doses per 100 people (with North America the highest at 81.4 and Europe at 76.2). Africa was just 11.2 courses per 100 people. All but Africa have more than 50% of the population with at least one dose administered. Africa was just 8.7%. And all but Africa have more than 40% of the population fully vaccinated. Africa was only 5.8%. Thus, there is a need to expand availability of vaccine doses to most African countries

When vaccination status is examined by income level, high income and upper middle income countries and territories have much larger vaccination rates than lower middle income and low income. On courses of vaccines per 100 people, high income countries were at 89.5, upper middle income countries averaged 74.8, lower middle income countries were at just 34.8 and low income countries were at just 7.0. Similar discrepancies exist on percent with at least one dose administered and percent fully vaccinated. The inability of COVAX to receive the volumes of doses contracted for in 2021 and the slowness of donations for richer countries are certainly core reasons for the differences in doses for lower middle income and low income countries.

Yet there are major discrepancies among countries or territories in the same continent or same income grouping. I identified a few in yesterday’s post. See November 22, 2021:  Trade and Health at the WTO’s 12th Ministerial Conference, https://currentthoughtsontrade.com/2021/11/22/trade-and-health-at-the-wtos-12th-ministerial-conference/. For example, Morocco is classified as a lower middle income country by the WTO but had the highest level of administered vaccines/100 people in Africa (136.5 (assumed to be 68.25 courses of doses/100 people)) while South Africa, classified as an upper middle income country had a rate of administered vaccine doses less than 1/3 that of Morocco (41.4 (assumed to be 20.7 courses of doses/100 people). Similarly, two low income countries as classified by the World Bank have drastically different administered doses despite nearly identical per capita GNIs and both being countries in Africa. Specifically, Zimbabwe’s per capital GNI in 2020 was $1,090 and yet they had administered 42.3 COVID vaccine doses/100 people. Cameroon, with a per capita GNI in 2020 of $1,100, had COVID vaccines administered of only 2.4/100 people.

Conclusion

The WTO-IMF COVID-19 Vaccine Trade Tracker provides very useful information, although much is at a continent or income group level. It appears likely that the tracker will be updated only monthly. If not being considered, the designers of the new tracker should provide a link to a data base that provides the type of data shown in the aggregate for each country or territory. Such data would permit a better understanding of differences within continents and within income groups and potentially improve the ability to improve vaccine equity moving forward. It is also possible to update the tracker more frequently than once a month, though some charts, etc. are fine with monthly updates. .

Trade and Health at the WTO’s 12th Ministerial Conference

An area of focus the last two years at the WTO has been addressing the COVID-19 pandemic. This has included various statements from Members, monitoring by the Secretariat of export and import actions either impeding or expediting the flow of medical goods and services, and various proposals for actions to address the pandemic or for future preparation. The proposal for a waiver from various TRIPS obligations from India and South Africa (and now supported by a range of countries) is one proposal. A number of countries (Ottawa Group) have put forward a proposal for a trade and health initiative to permit a more rapid response by WTO Members in the future. See COVID-19 AND BEYOND: TRADE AND HEALTH, COMMUNICATION FROM AUSTRALIA, BRAZIL, CANADA, CHILE, THE EUROPEAN UNION, JAPAN,
KENYA, REPUBLIC OF KOREA, MEXICO, NEW ZEALAND, NORWAY, SINGAPORE AND SWITZERLAND, 24 November 2020, WT/GC/223; November 27, 2020:  The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/. The WTO Director-General and the Members have engaged in a number of meetings with other multilateral organizations and the private sector exploring options for expanding production of COVID-19 vaccines and expanding distribution to countries in need.

Amb. David Walker of New Zealand has been tasked to work with Members to see if a declaration on trade and health can be agreed to at the 12th WTO Ministerial Conference that starts on November 30.

A former Deputy Director-General of the WTO, Alan Wolff, provided his thoughts on likely outcomes at the 12th Ministerial during a WITA virtual event on November 18th and opined that a declaration on trade and health was likely only if there was some resolution of the waiver proposal for vaccines. See PIIE, Alan Wm. Wolff, Defining Success for MC12, 18 November 2021, Presented at WITA, slides 5, 7, 10-11. Slide 10 is presented below.

I have written before on the challenges of the waiver of TRIPs obligations proposal put forward by India and South Africa. See, e.g., November 2, 2020:  India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/.

The EU and some others have not agreed to a waiver but have focused on making compulsory licensing more effective. See, e.g., DRAFT GENERAL COUNCIL DECLARATION ON THE TRIPS AGREEMENT AND PUBLIC HEALTH IN THE CIRCUMSTANCES OF A PANDEMIC, COMMUNICATION FROM THE EUROPEAN UNION TO THE COUNCIL FOR TRIPS, 18 June 2021, IP/C/W/681.

Thus, the outcome on trade and health heading into the Ministerial is uncertain. See WTO News Release, Members to continue discussion on a common COVID-19 IP response up until MC12, 19 November 2021, https://www.wto.org/english/news_e/news21_e/trip_18nov21_e.htm.

A driver behind the waiver proposal has been the limited availability of vaccines to least developed and some developing countries. Vaccine equity is the shorthand term for the concerns about availability and affordability of vaccines for all people. While the issue of availability and access is complicated and beyond just WTO competence, the world’s vaccine manufacturers have ramped up capacity and production, governments have belatedly gotten involved in expanding donations and some of the major bottlenecks to getting vaccines to COVAX in 2021 appear to be resolved going forward, though many LDCs and developing countries will not get large volumes of vaccines until 2022.

The pandemic and the challenges of ramping up production and ensuring access to all people has been the subject of dozens of my prior posts. See, e.g., October 12, 2021: See WTO Information Notes on COVID-19 Vaccine Production and Potential Bottlenecks, https://currentthoughtsontrade.com/2021/10/12/wto-information-notes-on-covid-19-vaccine-production-and-potential-bottlenecks/; September 27, 2021:  Global efforts to expand COVID-19 vaccine production and distribution — an all hands on deck effort being led by the U.S. and EU with active support of many governments and others, https://currentthoughtsontrade.com/2021/09/27/global-efforts-to-expand-covid-19-vaccine-production-and-distribution-an-all-hands-on-deck-effort-being-led-by-the-u-s-and-eu-with-active-support-of-many-governments-and-others/; May 6, 2021:  COVID-19 vaccines — role of WTO and developments at May 5-6, 2021 General Council meeting on TRIPS Waiver, https://currentthoughtsontrade.com/2021/05/06/covid-19-vaccines-role-of-wto-and-developments-at-may-5-6-2021-general-council-on-trips-waiver/.

Prior to 2021, global capacity for all vaccines was estimated at 5 billion doses/year. In 2021, COVID-19 vaccine production alone will be around 10 billion doses. As of November 20, 2021, UNICEF’s COVID Vaccine Market Dashboard shows 8.624 billion doses delivered to countries and territories of which COVAX deliveries were 524 million (and 565 million delivered or cleared for shipment). https://www.unicef.org/supply/covid-19-vaccine-market-dashboard (visited on November 20, 2021).

Administration of vaccine doses to populations has been less than doses delivered. Data from Blomberg’s COVID Vaccine Tracker as of November 19, 2021 9:34 a.m., shows 7.63 billion doses administered. https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/ (visited November 20, 2021). From the Vaccine Tracker data, there are a large number of countries or territories (95) that have administered 100 or more doses to every 100 people in the country. As major vaccines like Pfizer and Moderna need two shots, and as some countries have started supplying boosters, data are not necessarily comparable across countries in terms of percentage of people vaccinated. But the doses administered per 100 people is a reasonable measure of equitable distribution. A review of the data do show large differences in administration of doses. However, which countries or territories have administered large numbers of doses/100 people is not tied to a country or territory having vaccine production capacity, nor is it tied to level of income in the country or territory.

For example, the top ten countries or territories for administering doses of COVID-19 vaccine in the Bloomberg report were:

Gibraltar, 279.2 doses/100 people

Cuba, 244.2 doses/100 people

Chile, 207.5 doses/100 people

Maldives, 204.8 doses/100 people

UAE, 201.6 doses/100 people

Bahrain, 191.7 doses/100 people

Uruguay, 190.7 doses/100 people

Malta, 185.9 doses/100 people

Cayman Islands, 183.7 doses/100 people

Seychelles, 182.7 doses/100 people

China ranked 16th at 172.1 doses/100 people; the United States ranked 66th at 134.0/100 people; EU members were generally greater than 100 doses/100 people but had several member states below that (Bulgaria at 45.4 doses/100 people; Romania at 73.0 doses/100 people) and had an overall average of 138.7. Morocco had the most doses/100 people for a country from Africa — 136.5.

Twenty-eight countries or territories have administered between 75 and 99.4 doses/100 people (including India at 84.6 doses/100 people); twenty-three countries or territories have administered between 50 and 73 doses/100 people (including Rwanda at 65.2 doses/100 people and Botswana at 52.8 doses/100 people); twenty-two countries or territories have administered between 25 and 47.1 doses/100 people (including South Africa at 41.4 doses/100 people); thirty-three countries or territories have administered between 0.2 and 18.7 doses/100 people.

Obviously, there are a large number of countries (including some developed countries) where vaccines administered are far too limited. For many developing and LDC countries with low numbers of doses administered, the failure of supplies to be delivered to COVAX for shipment is certainly a significant cause. India’s need to keep vaccine doses at home was a major cause of the shortfall to COVAX in 2021, but not the only reason.

Belatedly larger volumes of vaccine doses are making it to those in greatest need. The increases flow from a combination of increased production volumes globally, India resuming exports, increases in donations from a number of countries and more. For example, the UNICEF data on deliveries shows that there have been some significant increases in doses available to the countries or territories with very low doses administered levels. For example, Nigeria shows only 4.6 doses/100 people administered in the Bloomberg vaccine tracker data. The UNICEF vaccine market dashboard shows roughly three times the number of doses delivered to Nigeria as are reported administered (29.689 million vs. 9.254 million). Benin has 1.968 million doses delivered and just 0.347 million administered (2.9/100 people). It is also true for countries receiving doses from COVAX with higher existing doses administered. For example, Zimbabwe which had 42.3 doses administered per 100 people in the Bloomberg data showed nearly twice as many doses delivered in the UNICEF data as had been administered (11.322 million doses delivered vs. 6.31 million doses administered).

What the two reports suggest is that while vaccine equity is a real issue, the causes of the very different experiences of different countries or territories in the same general area are complex and not easily or completely understood by the current discussion. For example, Zimbabwe’s per capital GNI in 2020 was $1,090 and yet they had administered 42.3 COVID vaccine doses/100 people. Cameroon, with a per capita GNI in 2020 of $1,100, had COVID vaccines administered of only 2.4/100 people. Similarly, Morocco had a 2020 per capita GNI of $2,980 and COVID vaccines administered of 136.5/100 people. In comparison, South Africa with a much higher per capita GNI in 2020 ($5,410) had COVID vaccines administered at less than 1/3rd the rate of Morocco – 41.4 vs.136.5/100 people. Nigeria, with a 2020 per capita GNI of $2,000 had administered only 4.6 COVID vaccines/100 people.

Thus, those working on improving vaccine equity need to identify and address the other causes besides vaccine production and availability through COVAX in the coming months.

I paste below the data from the Bloomberg COVID Vaccine Tracker ranked in descending order of COVID vaccine doses administered per 100 people as of November 19, 2021.

Countryvaccines

Will there be another extension of the WTO Moratorium on customs duties on e-commerce — expanding global trade or creating additional barriers

WTO Members have engaged for years in debate over the wisdom of extending the temporary moratorium on customs duties on e-commerce. Each Ministerial Conference has resulted in Members agreeing to an extension of the moratorium until the next Ministerial Conference along with an extension of a moratorium on non-violation TRIPs disputes. While Members have agreed to a draft extension of the moratorium on non-violation TRIPs disputes for the upcoming 12th WTO Ministerial, there is no agreement as yet on extending the moratorium on customs duties on e-commerce. See WTO News Release, Members agree on recommendation to extend moratorium on IP “non-violation” cases, 5 November 2021, https://www.wto.org/english/news_e/news21_e/trip_05nov21a_e.htm; Inside U.S. Trade’s World Trade Online, India, South Africa question WTO e-commerce moratorium ahead of MC12, November 9, 2021, https://insidetrade.com/daily-news/india-south-africa-question-wto-e-commerce-moratorium-ahead-mc12.

In recent years, India and South Africa have cited to information from UNCTAD to support their concern that the moratorium is costing developing countries tax revenues as well as their concern that the moratorium is limited to transmission and not content and doesn’t apply to services. See WORK PROGRAMME ON ELECTRONIC COMMERCE, THE MORATORIUM ON CUSTOMS DUTIES ON ELECTRONIC TRANSMISSIONS: NEED FOR CLARITY ON ITS SCOPE AND IMPACT, 8 November 2021, WT/GC/W/833 (communication from India and South Africa); WORK PROGRAMME ON ELECTRONIC COMMERCE, THE E-COMMERCE MORATORIUM: SCOPE AND IMPACT, Communication from India and South Africa, 11 March 2020, WT/GC/W/798; UNCTAD, RISING PRODUCT DIGITALISATION AND LOSING TRADE COMPETITIVENESS, 2017, https://unctad.org/system/files/official-document/gdsecidc2017d3_en.pdf; UNCTAD Research Paper No. 29, UNCTAD/SER.RP/2019/1, Rashmi Banga, Growing Trade in Electronic Transmissions: Implications for the South, February 2019, https://unctad.org/system/files/official-document/ser-rp-2019d1_en.pdf.

Some of the concerns expressed by India and South Africa and their rebuttal of OECD and other papers which look at upside benefits from the moratorium are captured in the following excerpt from the recent submission (WT/GC?W/833, pages 2-3).

2.2 Tariff Revenue Loss

“2.4. In our previous submission, WT/GC/W/798, we highlighted that based on the identification of a small number of digitizable goods in five areas, namely, printed matter, music and video downloads, software and video games, UNCTAD estimated a loss in tariff revenue of more than US$10 billion per annum globally because of the moratorium, 95% of which is borne by
developing countries.

“2.5. These submissions attempt to make the revenue foregone on account of the e-commerce moratorium seem insignificant by showcasing this revenue loss in terms of its share in customs revenue and total government revenue. However, even compared in this manner, it is evident that the percentage of government revenue lost for developing countries is higher than that for the
developed countries. The percentage of customs revenue lost for developing countries is 4.35% while that for the developed countries is a mere 0.24%. It is evident that the cost of the moratorium is almost completely borne by the developing countries for extending duty free quota free market access, largely for the developed countries.

“2.6. These submissions conclude that the amount of physical trade replaced by 3D printing is expected to be limited. UNCTAD (2019) provides a deeper analysis on the status of 3D printing though. It indicates that while 3D printing is currently at a nascent stage in developing countries, its market has grown annually by 22% in the period 2014-2018 and it is estimated that if investment
in 3D printing is doubled, it could potentially replace almost 40% of cross-border physical global trade by 20407. Such a growth is expected to significantly increase the potential tariff revenue loss.

2.3 Impact on SMEs and Digital Industrialization

“2.7. Interestingly, when assessing the total trade of electronic transmissions, these submissions consider only digitizable goods and conclude that these remain modest but when estimating the impact of the moratorium on exports, especially of SMEs, these submissions considers the extended scope of the moratorium by including services8 and find the impact to be huge. Defining the scope of the moratorium is therefore important in order to estimate its impact.

“2.8. These submissions state that the use of 3D printing is growing slowly since the opportunities for mass production and economies of scale are limited and the inputs, materials and time required for 3D printing further constrain its use for manufacturing complex items. In this context, it is highlighted that with recent technological advances, namely high-speed sintering, mass production is becoming possible with 3D printers, where mass-producing up to 100,000 (smaller) components
in a day will be possible at a speed which is 100 times faster9. According to D’Aveni (2015)10, the advent of additive manufacturing in the US hearing aid industry meant that, in less than 500 days, 100% of the industry was transformed and not one company stuck to the traditional mode of manufacturing.

“2.9. These submissions do not reflect the impact that new technologies such as 3D printing can have on domestic industries especially MSMEs in developing countries. As outlined before, while 3D printing is currently at a nascent stage in developing countries, its market is expected to grow at a rapid pace. The most affected sectors could include sectors such as textiles and clothing, footwear, auto-components, toys, mechanical appliances, and hand tools, etc. which generate large scale employment for low skilled workers and are sectors in which most MSMEs operate. This could have a catastrophic effect on the ability of developing countries to protect their nascent domestic industries including MSMEs11.

“2.10. If, ‘customs duties on electronic transmissions’ cover not only digitised and digitizable goods but also digitally transmitted services, as asserted by a couple of institutions recently, then the negative impact of continuing with the moratorium on developing countries would be even greater. Effectively, this implies that the economy of the future (the digital economy) is totally liberalised. History has shown that trade policies are integral to successful economies’ development trajectory and are critical in advancing industrial policy.

“7 UNCTAD Research Paper No 47 (2020).
“8 UNCTAD Research Paper No 58 (2021).
“9 Ibid.
“10 Richard D’Aveni, ‘The 3-D Printing Revolution’ (2015) Harvard Business Review
https://hbr.org/2015/05/the-3-d-printing-revolution accessed 1 June 2021.
“11 UNCTAD Research Paper No 58 (2021).”

There are many WTO Members who support the continuation of the moratorium on customs duties on e-commerce, and there have been studies by the OECD taking a position opposite that of UNCTAD. See, e.g., WORK PROGRAMME ON ELECTRONIC COMMERCE BROADENING AND DEEPENING THE DISCUSSIONS ON THE MORATORIUM ON IMPOSING CUSTOMS DUTIES ON ELECTRONIC TRANSMISSIONS, Communication from Australia; Canada; Chile; Colombia; Hong Kong, China;
Iceland; Republic of Korea; New Zealand; Norway; Singapore; Switzerland; Thailand and Uruguay, 29 June 2020, WT/GC/W/799/Rev.1; Andrenelli, A. and J. López González (2019-11-13), “Electronic transmissions and international trade – shedding new light on the moratorium debate”, OECD Trade Policy Papers, No. 233, OECD Publishing, Paris. http://dx.doi.org/10.1787/57b50a4b-en. An excerpt from the submission of various WTO Members in WT/GC/W/799/Rev.1 is presented below characterizing some of the OECD analysis (pages 2-3).

“3 AN INSIGHTFUL WELFARE ANALYSIS OF ELECTRONIC TRANSMISSIONS

“3.1. Members have been referring to many different estimates in past discussions on this matter, which did not take into consideration the benefits associated with relevant reductions of trade costs, potential gains in productivity and increased consumer welfare. The welfare analysis in the study provides a clear illustration of what is induced by the absence of duties on electronic transmissions in terms of both revenue loss and the welfare surplus for consumers. Taking into consideration consumer welfare would bring depth to the discussion and could help move them forward.

“3.2. The welfare analysis outlines that the reduction in production and transportation costs associated with digital deliveries, as well as the removal of the tariff, can lead to a reduction in price. In consequence, the increase in demand leads to a rise in imports and an increase in consumer surplus, part of which is associated with redistribution from the domestic producer and part of which is from government revenue to the consumer. The study is unambiguous: the overall impact to the economy is ‘positive and large’.

“3.3. The study finds that the imposition of equivalent duties on electronic transmissions could negate those positive effects by increasing the price of the digital delivery, which shifts some of the consumer welfare back to the domestic producers and the government. Governments and producers would recover some of the revenue foregone but the amount recovered would depend on the elasticity of demand. The study also highlights that this would occur at the expense of consumer surplus. The positive welfare impact would decrease as the price of the digital product increases. Consequently, by introducing equivalent duties on electronic transmissions, governments would create a “deadweight loss” to the economy. The overall benefits associated with digitization
(i.e. lower trade costs) would be reduced and weaker economies would miss an opportunity to overcome their trade cost disadvantages.

“4 THE APPLICATION OF INTERNAL NON-DISCRIMINATORY TAXES AS AN ALTERNATIVE TO TARIFFS

“4.1. The study not only provides important elements regarding who bears the burden of tariffs, but also regarding the potential alternative sources of government revenue which would be better suited to the digital economy. The study notes that tariffs increase the price of a product to the domestic consumer. The extent to which the domestic price increases is dependent on the tariff pass-through, which ranges from full pass-through to none. If there is no pass-through, then the foreign company fully absorbs the tariff through reduced revenue. If there is full pass-through, then the domestic price increases in proportion to the tariff. Recent work quoted by the study notes that quasi complete-pass tends to be the most common – that is, foreign companies fully pass-on the price increase to domestic consumers. Moreover, recent work conveyed in the study has also demonstrated that tariff increases, in the medium-term, negatively affect domestic output and productivity, employment and lead to higher inequality and real exchange rate appreciation.

“4.2. The study highlights other means for governments to generate revenue. The use of consumption taxes, such as value added taxes (VAT) or goods and services taxes (GST) could represent a better alternative. Examples of VAT/GST applied to digital services and intangibles are provided and point out that internal non-discriminatory taxes provide a broader tax base, and thus more stable. According to the study, evidence indicates developing countries that adopt indirect taxes such as VAT experience 40 to 50% less tax revenue instability than countries that do not use indirect taxes. The OECD study suggests that consumption taxes are a feasible alternative to customs duties for generating revenue.

“4.3. In this respect, it should be noted that the OECD International VAT/GST Guidelines have been adopted by the G20 leaders and endorsed by more than 100 jurisdictions and organisations. Furthermore, the OECD has produced a report on best practices to implement international VAT/GST collection schemes.2

“2 Mechanisms for the Effective Collection of VAT/GST, OECD, 2017 http://www.oecd.org/tax/consumption/mechanisms-for-the-effective-collection-of-vat-gst.htm.”

A recent report by Prof. Simon J. Evenett

On November 12, 2021, Prof. Simon Evenett (founder of the St. Gallen Endowment for Prosperity Through Trade) released a paper looking at the question, “Is the WTO Moratorium on customs duties on e-commerce depriving developing countries of much needed revenue?”. The abstract for the paper states –

Abstract  This note vitiates assertions by UNCTAD staff that developing countries have lost significant government revenues as products previously delivered physically are supplied digitally. Taking for the sake of argument UNCTAD’s revenue loss estimates, this note shows that they represent small shares of tax revenues from sources other than customs duties. Forgone revenues would have financed less than 5 days of government spending in the Least Developed Countries and Sub-Saharan African nations. Moreover, domestic tax takes needed only to grow marginally faster to offset UNCTAD’s estimates of forgone customs duties. Low per-capita income status is not a barrier to successful national tax reform, calling in question the relevance of public finance objections to participation in multilateral trade initiatives to integrate economies.”

 The paper from Prof. Evenett is embedded below.

S.-Evenett_-WTO-Moratorium-12-Nov-2021_-finalised

Conclusion

There are obviously large differences in view on the costs and benefits of a moratorium on customs duties on e-commerce between India and South Africa on the one hand (and others supporting their view) and the group of WTO Members supporting the continuation of the moratorium.

A problem with the UNCTAD studies and papers is the definition of developing countries used. As is clear from the 2017 UNCTAD report, the largest cross border e-commerce sales for any country by far is China with 40% of such sales in 2015 (UNCTAD, Rising Product Digitalisation and Losing Trade Competitiveness, 2017 at 12) and largest customs revenue loss from the moratorium (id at 16). China should not be viewed as a developing country as reviewed in a recent post. See November 15, 2021:  The folly of self-selection as a developing country at the WTO, https://currentthoughtsontrade.com/2021/11/15/the-folly-of-self-selection-as-a-developing-country-at-the-wto/. Moreover, China is not understood to be opposing the continuation of the moratorium.

The UNCTAD report also lists as developing countries a number which clearly aren’t classified as such or that shouldn’t be, including — Saudi Arabia, Greece, Egypt, Israel, Romania, Russian Federation, Iceland, Bulgaria, Mexico, Norway, Thailand, Turkey, Portugal (see id, Table 2, Net Exports of Developing Countries of ET Products, pages 13-14; November 15, 2021:  The folly of self-selection as a developing country at the WTO, https://currentthoughtsontrade.com/2021/11/15/the-folly-of-self-selection-as-a-developing-country-at-the-wto/).

While WTO Members should be concerned about the digital divide that exists for some Members, the answer to addressing the divide is not to erect barriers to e-commerce. Rather Members should focus on technical assistance and other actions to help least developed countries and some developing countries who are behind develop the infrastructure and technical skills to actively participate in e-commerce.

Extending the moratorium on customs duties on e-commerce is one more hurdle in front of WTO Members as they get ready for the 12th Ministerial Conference which starts in 12 days.

The role of plurilaterals in the WTO’s future

As the WTO is less than two weeks from the start of its 12th Ministerial Conference, an important question for the WTO Membership is whether or not the WTO will incorporate results from plurilaterals started at and after the 11th Ministerial (the so-called Joint Statement Initiatives) into the WTO or will rather limit the role of plurilaterals and effectively further reduce the relevance of the WTO going forward.

As reviewed in prior posts, India and South Africa have challenged the role of plurilaterals where WTO requirements are not followed to make it part of the WTO acquis. See, e.g., February 20, 2021:  Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/. The paper from India and South Africa, THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES, 19 February 2021, WT/GC/W/819 and one revision (WT/GC/W/819/Rev.1) was the subject of discussions at the March 1-2 and 4, 2021 General Council meeting and has been raised in subsequent General Council meetings as well. See GENERAL COUNCIL, MINUTES OF MEETING HELD IN VIRTUAL FORMAT ON 1-2 AND 4 MARCH 2021, WT/GC/M/190 (23 April 2021), pages 65-78; GENERAL COUNCIL, 7-8 October 2021 PROPOSED AGENDA, WT/GC/W/828 (5 October 2021), agenda item 11 (PAPER TITLED “THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES” BY INDIA, SOUTH AFRICA AND NAMIBIA (WT/GC/W/819/REV.1)). Neither India nor South Africa are participating in any of the Joint Statement Initiatives (“JSIs”) at the present time.

Below are some excerpts from the March 2021 General Council meeting which lays out the views of a few of the WTO Members on the topic. The excerpts start with the views of India and South Africa as the sponsors of the paper and then follows with the reaction of a number of Members who support the JSI process. Many more Members expressed views. The controversy basically revolves around whether WTO Members will pursue initiatives among those with an interest with all Members being able to monitor, participate and join when desired or be limited by a system which has proven largely unable to address new issues in a timely manner.

India (pages 65-67 of WT/GC/M/190)

“10.2. The representative of India recalled that India and South Africa had submitted the paper in document WT/GC/W/819 dated 19 February 2021 on the “The Legal Status of ‘Joint Statement Initiatives’ and their Negotiated Outcomes”. As a co-sponsor, India was not questioning the right of Members to meet and discuss any issue. However, when such discussions turned into negotiations
and their outcomes were to be brought into the WTO, the fundamental rules of the WTO should be followed. The WTO had been established as a forum concerning multilateral trade relations in matters dealt with under the agreements in the Annexes to the Marrakesh Agreement and for further negotiations among its Members concerning their multilateral trade relations and to provide a framework for the implementation of results of such negotiations.

“10.3. The Marrakesh Agreement defined ‘Plurilateral Agreements’ as the agreements and associated legal instruments that were included in Annex 4 to the Agreement. The Ministerial Conference, upon the request of the Members party to a trade agreement, decided exclusively by consensus to add that agreement to the said Annex 4. Procedures for amending rules were enshrined in Article X of the Marrakesh Agreement. On the other hand, the GATT and GATS contained specific provisions for modifications of Schedules containing specific commitments of Members.

“10.4. Amendments or additions to the rules were governed by multilateral consensus based decision-making or voting – right from the outset when a new proposal for an amendment was made. On the other hand, negotiations on modifications or improvements to Schedules could arise either as the outcomes of consensual multilateral negotiations pursuant to Article XXVIII of GATT or Article XXI of GATS or be reached through a bilateral request and offer process or as a result of a dispute. In fact, even changes to Schedules could not be made unilaterally as other Members had the right to protect the existing balance of rights and obligations.

“10.5. The GATS read in concert with the Marrakesh Agreement provided for different rules and procedures for amendment of rules and modification of schedules. While the GATS rules were governed by the GATS Part II, “General Obligations and Disciplines”, Part III of the GATS contained provisions concerning Members individual “Specific Commitments” pertaining to distinctly identified services sectors which were inscribed in Members’ Schedules. In case of conflict in interpretation, Article XVI.3 of the Marrakesh Agreement provided that in the event of a conflict between a provision of the Marrakesh Agreement and a provision of any of the Multilateral Trade Agreements, the provisions of the Marrakesh Agreement should prevail.

“10.6. Each of the JSIs was likely to pose different legal challenges to the existing WTO rules and mandates given the differences in the nature and scope of issues covered under each of those initiatives. However, any attempt to bring in the negotiated outcomes of the JSIs into the WTO by appending them to Members’ Schedules, even on MFN basis, following modification of Schedules
procedures, bypassing multilateral consensus would be contrary to the provisions of the Marrakesh Agreement.”10.7. Any attempt to introduce new rules, resulting from JSI negotiations, into the WTO without fulfilling the requirements of Articles IX and X of the Marrakesh Agreement would be detrimental to the functioning of the rules-based multilateral trading system. Among others, it would erode the integrity of the rules-based multilateral trading system, create a precedent for any group of Members to bring any issue into the WTO without the required mandate. bypass the collective oversight of Members for bringing in any new rules or amendments to existing rules in the WTO, usurp limited WTO resources available for multilateral negotiations, result in Members disregarding existing multilateral mandates arrived at through consensus in favour of matters without multilateral mandates, lead to the marginalization or exclusion of issues which were difficult but which remained critical for the multilateral trading system such as agriculture and development thereby undermining balance in agenda setting, negotiating processes and outcomes and fragment the multilateral trading system and undermine the multilateral character of the WTO.

“10.8. The document listed various options to move ahead. As per the provisions of the Marrakesh Agreement, for bringing in their negotiated outcomes in the WTO, the JSI Members could seek consensus among the whole WTO Membership, followed by acceptance by the required proportion of Members according to Article X of the Marrakesh Agreement. Alternatively, they could get the new agreements included in Annex 4 following Article X.9 of the Marrakesh Agreement. They also had option to pursue agreements outside the WTO Framework, as had been envisaged in the Trade in Services Agreement (TISA) or as had been done in multiple bilateral or plurilateral FTAs or RTAs. The proponents of a “flexible multilateral trading system” could even seek amendment to Article X of the Marrakesh Agreement following procedures enshrined therein to provide for such an approach.

“10.9. Through the paper WT/GC/W/819, India and South Africa reiterated that basic fundamental principles and rules of the rules-based multilateral trading system as enshrined in the Marrakesh Agreement should be followed by all Members including the participants of various JSIs. Negating the decisions of past Ministerial Conferences by decisions taken by a group of Ministers on the sidelines of a Ministerial Conference or the side-lines of any other event would be detrimental to the existence of the rules-based multilateral trading system under the WTO.”

South Africa (pages 67-68 of WT/GC/M/190)

“10.10. The representative of South Africa said that the WTO had been established as a forum concerning multilateral trade relations. South Africa’s interest in submitting the paper was to remind Members of the legal architecture that governed the functioning of the WTO which was critical to preserve its multilateral character. The pandemic was a sharp reminder of the importance of global cooperation in dealing with global challenges. The challenges facing humanity were not limited to
the pandemic but included rising inequality both within and between countries, poverty and food insecurity, among others. Those necessitated that Members avoided measures that undermined or fragmented the trading system.

“10.11. Any group of Members could discuss any issue informally. However, when discussions turned into negotiations, and their outcomes were sought to be formalized into the WTO framework, it could only be done in accordance with the rules of procedure for amendments as well as decision-making as set out in the Marrakesh Agreement. The plurilaterals were provided for in the Marrakesh Agreement and were included in Annex 4 to the Agreement – and there were specific rules to be followed to integrate those into the WTO framework. It was however important to note that the Ministerial Conference, upon the request of the Members party to a trade agreement, decided exclusively by consensus to add that agreement to the said Annex 4.

“10.12. The provisions in the Marrakesh Agreement had been carefully negotiated and were a result of the experience acquired in the GATT which had been characterized especially after the Tokyo Round by agreement on a number of plurilateral codes. There had been recognition that those plurilateral codes had created a fragmented system of rules. In respect of some Contracting Parties,
the GATT rules had been applicable, while in respect of the rest, both the GATT rules and the rules of plurilateral codes had been applicable. That created considerable complexity in determining what obligations had been applicable in respect of which Contracting Party.

“10.13. The Preamble to the Marrakesh Agreement clearly articulated Members’ vision for the WTO and it was to develop an integrated, more viable and durable multilateral trading system. Article II.1 stated that “The WTO shall provide the common institutional framework for the conduct of trade relations among its Members.” Article III.2 stated that “The WTO shall provide the forum for negotiations among its Members concerning their multilateral trade relations”. It provided for consensus-based decision-making as enshrined in Articles III.2, IX, X and also X.9 as well as procedures for the amendments of rules as articulated in Article X.

“10.14. The Marrakesh Agreement did not make provision for the so-called open plurilaterals and flexible multilateralism. Therefore, any suggestion that when offered on MFN basis, no consensus was required for bringing new rules into the WTO was legally inconsistent with the fundamental principles and procedures of the Marrakesh Agreement. Importantly, new rules could not be brought into the WTO through amendment of Members’ Schedules. It had also been suggested that the Telecommunications Reference Paper justified why the consensus principle could be bypassed. However, as part of the package of the Uruguay Round outcome, there had been a multilateral consensus and a formal mandate for the negotiations, including agreement on inscribing outcomes into Schedules without an amendment procedure.

“10.15. There were systemic and developmental implications inherent in plurilaterals especially if they attempted to subvert established rules and foundational principles of the Marrakesh Agreement. They risked eroding the integrity of the rules-based multilateral trading system, creating a precedent for any group of Members to bring any issue into the WTO without the required consensus, including disregard of existing multilateral mandates, marginalizing issues which were difficult but yet critical
for the multilateral trading system such as agriculture and development thereby undermining balance in agenda setting, negotiating processes and outcomes, fragmenting the system and undermining the multilateral character of the WTO which Members had sought to resolve by creating the WTO following the GATT experience.

“10.16. The legal framework of the WTO provided clear options for Members who were part of JSIs as outlined in the paper. South Africa was therefore calling on Members to respect the rules which continued to underpin the functioning of the WTO.

Australia (page 69 of WT/GC/M/190)

“10.24. The representative of Australia noted Members’ commitment to improving the effectiveness of the WTO’s rulemaking function. Australia was a participant in all the current JSI negotiations under way and strongly supported that important work at the WTO. Plurilateral initiatives were neither novel nor revolutionary in the multilateral trading system. They had always been a part of the WTO architecture had constituted the predominant form of rulemaking in the multilateral trading system for decades. WTO-consistent plurilateral trade agreements with wide participation played an important role in complementing global liberalization efforts. The current JSIs had the potential to deliver vital outcomes that strengthened the WTO’s rulemaking function and its health more generally. More than 110 Members were participating in one or more of the current JSI negotiations – demonstrating the wide acknowledgement from across the Membership that that was a legitimate and useful form of rulemaking. They had and continued to be inclusive, open and transparent.

“10.25. Australia did not agree with the legal analysis in India and South Africa’s paper. For instance, the suggestion that Members could not improve their GATT or GATS Schedules without consensus agreement was not accurate. Members could always incorporate improvements to their Schedules whether unilaterally or as a group of Members. That was the legal architecture which participants had agreed to use in the services domestic regulation JSI. Australia had full confidence in the WTO consistency of that approach. In the case of the e-commerce JSI, its participants were still exploring the legal structure options they could best use to incorporate eventual outcomes into the WTO legal framework but were confident that those pathways could be found. Australia encouraged all Members to participate in or at least keep an open mind on those plurilateral discussions to pursue
outcomes that modernized and enhanced WTO rules for the whole Membership.”

Costa Rica (pages 69-70 of WT/GC/M/190)

“10.26. The representative of Costa Rica was focused on ensuring that the WTO operated within the legal framework agreed by the Members. Costa Rica would reject any attempt to force Members to abide by new obligations without their consent. Costa Rica was a participant in the Joint Statement Initiatives on Electronic Commerce, Investment Facilitation for Development, MSMEs and Services Domestic Regulation. The reason for that was simple. Costa Rica was recognizing the need to adapt to the trade policy challenges of the 21st century. But that did not mean that any Member who chose to remain outside those discussions would be forced to adhere to any new obligations.

“10.27. Costa Rica focused its remarks that day on the negotiations on services domestic regulation as that was the initiative that it had the pleasure of coordinating. Those negotiations and the outcome they would produce were firmly within the rules of the WTO. 59 proponents of services domestic regulation had established the initiative at the end of 2017 after they had to accept with
great regret that no further progress had been possible in the Working Party on Domestic Regulation. Each and every proposal submitted had been rejected in its entirety by South Africa and other Members. Proponents of domestic regulation had no choice but to accept that position.

“10.28. Since that time, work on the subject had so far advanced in the Joint Statement Initiative on Services Domestic Regulation. To the extent that participants considered it to be a viable prospect for an outcome to be delivered that year, Costa Rica clarified that the outcome would consist of a set of disciplines on licensing, qualification and standards which would bind only participating
Members but would benefit services suppliers from all Members who traded with the participating Members which currently represented more than 70% of world services trade.

“10.29. The outcome that was envisaged would be incorporated into participating Members’ GATS schedules of specific commitments. In substance, it covered precisely those types of measures that were listed in the GATS as areas for additional commitments, namely, qualification standards and licensing matters That was important because the paper introduced by India and South Africa suggested that the disciplines developed by the initiative constituted some form of not further specified rules which did not fit under the architecture of services schedules. That was quite untrue. Rather, the disciplines constituted improvements of participating Members’ existing commitments.

“10.30. Participating Members would give legal effect to the outcome by inscribing the disciplines as additional commitments in the respective GATS schedules. That would not be done by seeking to add a new agreement to the WTO architecture but by applying well established multilateral WTO procedures to improve Members’ schedules of specific commitments. Concerns about the work of the JSI had been raised already at the end of 2019. At that time, India had argued that some of the disciplines could be of a GATS minus nature and the GATS Article VI.4 mandate could be affected by the work of the initiative. As the Coordinator of the initiative, Costa Rica had had the pleasure of discussing those concerns with India in more detail and to report back to the group. While participants in the initiative did not agree that the disciplines in question could be understood to undercut existing GATS obligations, they agreed wholeheartedly with India that the disciplines should not be understood to weaken any provision contained in the GATS.

“10.31. Indeed, participants had recently incorporated in the negotiating text language expressing clearly that the disciplines should not be constructed to diminish any obligations under the GATS. The GATS Article VI.4 mandate to develop any necessary domestic regulation disciplines was not, would not and could not be affected by the fact that Members participating in the JSI would undertake additional commitments on domestic regulation. Costa Rica was therefore disappointed to see that India currently appeared to question the right of any WTO Member to improve its services commitments. The JSI on Services Domestic Regulation remained open and transparent and all Members were welcome to join the meetings and to constructively engage ensuring that the outcome benefited service suppliers across the world and included as many Members as possible.”

Chinese Taipei (page 70 of WT/GC/M/190)

“10.32. The representative of Chinese Taipei noted that the plurilateral approach had contributed to global trade in the past. The ITA was an example. Certain limited use of the plurilateral approach could support and supplement the multilateral trading system by facilitating international trade. The discussions under JSIs had given the WTO new momentum which was necessary and healthy for the multilateral system. It was an unavoidable trend that more and more trade issues were emerging that urgently needed Members to establish new disciplines for them. It was highly important to update WTO rules and to make the WTO a living organization and not be left behind by the world.

“10.33. Through Joint Statement Initiatives, Members had developed a creative way to address the trend so that the WTO’s legislative function could be improved for it to maintain its relevancy given new developments in the world – with Members still maintaining the flexibility not to opt in. Chinese Taipei called on Members to jointly think about how plurilateral agreements could be integrated into the multilateral trading system while considering Members’ needs for their respective development stages and maintaining the existing rights and obligations of non-participating Members.”

Colombia (page 70 of WT/GC/M/190)

“10.34. The representative of Colombia believed that that was an important discussion for the future of the organization as those initiatives covered the interests of many Members to move forward on crucial issues in global trade relations. Colombia appreciated the interest the Director-General had expressed on JSIs. That was a necessary step for the strengthening of the WTO. Colombia was happy to see how the path that had begun with previous processes such as the ITA was currently joined by many Members who were involved in the JSIs – an important space to resolve pending priorities.

“10.35. Such perspective had led Colombia to actively and formally participate in the JSIs on ecommerce, investment facilitation for development, services domestic regulation, MSMEs and trade and gender. Colombia also expressed its interest in other nascent initiatives which would likewise have an important impact on the WTO’s future as a driver of development for Members. With regard to the document being reviewed that day, Colombia did not share the legal analysis that the paper had set out but remained ready to continue that discussion in the appropriate forum. Colombia reiterated its commitment to the JSIs and its support for any work that could be done in that area.”

Mexico (page 70 of WT/GC/M/190)

“10.36. The representative of Mexico said that JSIs provided an excellent opportunity to furnish the WTO with tools that would allow it to face the current challenges in global trade. Members were in a situation where some of them believed that they were still not in a position to fully integrate themselves into the work under way. The JSI participants had never foreclosed the possibility for more Members to join those initiatives when they deemed it appropriate to do so nor did those initiatives diminish the rights and obligations of non-participating Members. Rather, the JSIs offered a possibility to move forward and help the WTO become more relevant by promoting trade as a vehicle for development. Mexico had been a strong proponent of the JSIs as the work had taken place openly, inclusively and transparently with voluntary participation at its core.”

Russian Federation (page 71 of WT/GC/M/190)

“10.37. The representative of the Russian Federation found the paper by India and South Africa upsetting. There was no doubt that Members should respect the right of any of them to express its attitude towards current developments within the multilateral legal system and to point out issues which it could see as contradictory to the system’s rules. The paper was however not about that but
dealt with the issue of whether the WTO should move forward and regain its relevancy amid the changing global economic environment or should it be further bogged down by disagreements among Members and lack of consensus eventually turning into an archaic and useless institution.

“10.38. The multilateral outcomes at MC11 had clearly been quite poor. The decision to promote and accelerate fisheries subsidies negotiations – the only multilateral and negotiation-related result achieved in Buenos Aires – was evidently not enough to chart a way forward for the WTO. The JSIs in which Russia was proud to participate in had been considered globally as a signal of Members’ ability and readiness to explore possible formats to move ahead. The progress achieved in all JSIs since then demonstrated the effectiveness of that approach. For example, the JSI on Services Domestic Regulation was an attempt to deliver on a long standing commitment of all Members to develop the respective disciplines as set out in GATS Article VI.4.

“10.39. As for the incorporation of new plurilateral initiatives into the WTO Agreements, Russia agreed with suggestion of India and South Africa that it should be done in accordance with the relevant provisions of the Marrakesh Agreement. However, the final goal of the JSIs was not to create a set of isolated rules among like-minded Members but rather to update the multilateral legal
system as a whole. That was why the JSIs remained open to all Members at any stage.

“10.40. The most disappointing fact about the submission was that while attacking JSIs, it did not provide any way forward essentially keeping the WTO to languish in the current limbo. No Member had taken the position to leave behind the core WTO mandated issues like agriculture or ‘horizontal’ S&DT. However, if the needs of the businesses and the people worldwide including in developing countries required Members to agree on adequate and up-to-date rules on other important issues, they had no right to keep those requests as hostages of their inability to reach progress on all fronts.”

Japan (page 71 of WT/GC/M/190)

“10.41. The representative of Japan appreciated the Joint Statement Initiatives as an essential framework to allow the WTO to address in a flexible and realistic manner the changing global economic needs of the 21st century. The JSIs responded to calls from a broad range of stakeholders by discussing key economic issues and would contribute to updating the WTO rulebook and to
ensuring the relevance of the WTO in today’s world. Without the JSIs, the WTO risked becoming less relevant and even losing its raison d’être as a cornerstone of the multilateral trading system. The JSI meetings were organized in an open, transparent and inclusive manner.

“10.42. While taking into account the convenience of respective Members including the size of their delegations in organizing the process, the fact that many of them were participating in the JSIs and actively engaging in negotiations in a creative and innovative way clearly showed the JSI’s importance. A number of achievements made in the GATT and the WTO had initially been taken up
or discussed in plurilateral initiatives which were later merged in the system. Japan believed that the JSIs were consistent with the WTO and had high hopes that they would be a key part of the MC12 outcomes. Japan would continue to work with other Members to deliver substantial outcomes in the JSIs as a positive achievement of the WTO.”

Republic of Korea (page 71 of WT/GC/M/190)

“10.43. The representative of the Republic of Korea, as a staunch supporter of the multilateral trading system, was disappointed to see the WTO in limbo in particular its failure to function as a forum for multilateral trade negotiations in response to the diverse needs and interests of Members. Upon such impasse and trade liberalization shifting weight to regional agreements outside the WTO, plurilateral negotiations could be a meaningful stepping-stone for multilateral agreement. It also served as a test pad for pioneering new trade rules as demonstrated by the GPA and the ITA. The JSIs which were held parallel with multilateral negotiations were essential to maintain the WTO’s relevance in the changing trade environment. Those negotiations were responsive to the demands of diverse stakeholders which would help rebuild trust in the multilateral trading system. Korea
therefore expressed its concern on the communication submitted by India and South Africa which raised questions on the concerted endeavours for revitalizing the WTO’s negotiating function.”

United States (pages 71-72 of WT/GC/M/190)

“10.44. The representative of the United States believed that plurilateral negotiations at the WTO could be a useful means to advance issues of interest to Members and to keep the WTO relevant. It did not view plurilateral negotiations and outcomes as undermining multilateral ones. In fact, plurilateral initiatives could foster new ideas and approaches and build momentum toward
multilateral outcomes. The various rigid positions expressed in the paper would seem to foreclose Members’ ability to pursue creative and flexible approaches at the WTO to the challenges of today and tomorrow.”

Possible JSI outcomes at the WTO’s 12th Ministerial Conference

The WTO is hoping that the 12th Ministerial Conference will finally deliver a fisheries subsidies agreement after 20 years of negotiations. It would be a multilateral agreement and only the second such agreement (the other being Trade Facilitation) concluded since the creation of the WTO in 1995. There are hopes for collective action on trade and health and some other issues. But many of the likely deliverables will involve Joint Statement Initiatives. Hence the position of India and South Africa may muddy the outlook for whether such initiatives when concluded will be incorporated into the WTO acquis.

Press accounts of a recent Chatham House event noted the view of the European Union that the WTO needs to be able to bring these initiatives into the WTO. See Inside U.S. Trade’s World Trade Online, Weyand: WTO reform should include easier’ path for plurilateral deals, November 15, 2021, https://insidetrade.com/daily-news/weyand-wto-reform-should-include-easier-path-plurilateral-deals (“World Trade Organization members need an ‘easier’ way to integrate plurilateral agreements into the organization’s rulebook, European Commission Director-General for Trade Sabine Weyand said on Friday, calling for the idea to be a part of broader WTO reform discussions.”). The EU, like most other WTO Members, has been an active participant in various JSIs.

A former Deputy Director-General of the WTO, Alan Wolff, presented views in Singapore earlier this week on the subject of the role of plurilaterals in the WTO. See Peterson Institute for International Economics, Alan Wm. Wolff, Plurilateral Agreements and the Future of the WTO, November 16, 2021, Remarks delivered at the Nanyang Technological University, Singapore, https://www.piie.com/commentary/speeches-papers/plurilateral-agreements-and-future-wto. His speech is worth reading in its entirety. A few excerpts are provided below and highlight the critical importance of plurilaterals going forward. Whether plurilaterals are within the WTO or outside will basically determine whether the WTO can maintain relevance in the future.

“Plurilateral agreements have become and will remain the primary path forward for improving the conditions for international trade.

“Insofar as the future health of the multilateral trading system is concerned, there are three alternatives:

“(1) coalitions of the like-minded will be able to conclude open plurilateral agreements within the WTO,

“(2) forward-leaning agreements are negotiated outside the WTO but become templates for the multilateral rules, or

“(3) the WTO becomes increasingly irrelevant to new global challenges and there is a consequent fragmentation of the world trading system.”

After reviewing the JSIs and other initiatives on climate change, trade and health and other matters, Amb. Wolff notes that

“Global problems need global solutions.

“The only practical way forward for the WTO is through open plurilateral agreements. Otherwise, Members who are looking for solutions will view the WTO as being increasingly irrelevant. The WTO to thrive needs to become more flexible.

“Notionally, various subjects can be negotiated on their own, in disparate venues, each unrelated to the other, without full transparency, without interested countries having a say. That is a recipe for global incoherence. It is the opposite of what is needed.

“Where trade is a vitally important aspect of meeting a global challenge – such as a pandemic or climate change, there is no clear alternative venue for addressing fully countries’ needs. The WTO must be pressed into service.

“It is time for the WTO’s Members to take the next step and embrace the open plurilateral agreements being negotiated now and those that are going to be launched to meet their needs for the 21st century.”

The 12th Ministerial Conference is the opportunity for WTO Members to embrace the future or commit the WTO to reduced relevancy. By early December, we should understand the likely direction of the WTO.

The folly of self-selection as a developing country at the WTO

In prior posts I have reviewed efforts by the United States and others to have the WTO membership modify who is entitled to special and differential treatment in light of the rapid changes in economic capabilities of a number of countries who have classified themselves as “developing” countries at the WTO under the self-designation approach that has characterized the GATT and now the WTO. See, e.g., December 14, 2020:  WTO December 14th Heads of Delegation meeting – parting comments of U.S. Ambassador Dennis Shea, https://currentthoughtsontrade.com/2020/12/14/wto-december-14th-heads-of-delegation-meeting-parting-comments-of-u-s-ambassador-dennis-shea/; August 13, 2020 [updated August 27]:  The race to become the next WTO Director-General – where candidates are on important issues:  eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/; February 15, 2020: The U.S. Modifies the List of Developing and Least Developed Countries Under U.S. Countervailing Duty Law, https://currentthoughtsontrade.com/2020/02/15/the-u-s-modifies-the-list-of-developing-and-least-developed-countries-under-u-s-countervailing-duty-law/; December 28, 2019: WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved?, https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/.

The issue is one of importance because of the concern that many Members who have economically advanced to be fully internationally competitive or internationally competitive in significant areas of goods or services are not opening their markets to a level commensurate with their actual stage of development. A number of Members have indicated that they will not seek Special and Differential treatment in new agreements while maintaining rights under existing ones. The U.S., the EU and others have sought a more factual basis for any entitlement to differential treatment.

On November 10, 2021, Director-General Ngozi Okonjo-Iweala addressed the WTO Committee on Trade and Development (“CTD”) See WTO News Release, “Development issues should be at the heart of work at the WTO“— DG Okonjo-Iweala, 10 November 2021, https://www.wto.org/english/news_e/news21_e/devel_10nov21_e.htm. The press release starts with an overview of the importance of development in the overall WTO mission,

“Director-General Ngozi Okonjo-Iweala highlighted the key role that trade plays in economic development during a meeting of the WTO’s Committee on Trade and Development (CTD) on 10 November. She stressed that development is a priority for the WTO and that the CTD plays an important role in addressing the development dimension in the multilateral trading system.

“DG Okonjo-Iweala stressed that the work of the WTO is important for developing and least  developed countries (LDCs),  hence, it is critical for the WTO to deliver on issues of importance to them. Trade is a significant driver for economic growth and poverty reduction and ultimately for development, she added.”

The press release later has a statement that “The Secretariat presented the findings of its latest report concerning the participation of developing economies in global trade.” The latest report is PARTICIPATION OF DEVELOPING ECONOMIES IN THE GLOBAL TRADING SYSTEM, NOTE BY THE SECRETARIAT, 28 October 2021, WT/COMTD/W/262.

The problem with the note from the Secretariat and the functioning of the Committee on Trade and Development and other aspects of the WTO work is that developing countries in the note is treated as all Members so designating themselves and hence provides little useful information on the role of countries in actual need of assistance. Data in the note is skewed by information on developing Asia — an area that includes China, Singapore, the Republic of Korea and Chinese Taipei (Taiwan). On pages 8-9 of the Secretariat note, the major “developing” country traders are reviewed. The top 15 developing country exporters in 2020 were Chins (34.0%), Republic of Korea (6.7%), Mexico (5.5%), Singapore (4.8%), Chinese Taipei (4.6%), United Arab Emirates (4.2%), Viet Nam (3.7%), India (3.6%), Malaysia (3.1%), Thailand (3.0%), Brazil (2.8%), Kingdom of Saudi Arabia (2.3%), Turkey (2.2%), Indonesia (2.1%), South Africa (1.1%), other (16.4%). The top 15 importer developing countries included all of the top exporters with the exception of South Africa (Hong Kong, China was the 15th largest importer).

The World Bank provides Gross National Income per capita for most countries/territories (China blocks provision of data for Chinese Taipei). The latest data are for 2020 and include the following ranges for the four categories of World Bank countries:

Low income countries, less than $1,048/capita GNI

lower middle-income economies, $1,048-4,095/capita GNI

upper middle-income economies, $4,096-12,695/capita GNI

high income economies, $12,696 or more/capita GNI.

China in 2020 had a per capita GNI of $10,610; Singapore had a 2020 per capita GNI of $54,920; Republic of Korea had a 2020 per capita GNI of $32,860; Chinese Taipei had a per capita GDP in 2021 of $33,402; Mexico had a 2020 per capita GNI of 8,480; the United Arab Republic had a 2019 per capita GNI of $43,470; the Kingdom of Saudi Arabia had a 2020 per capita GNI of $21,930; Hong Kong, China, had a 2020 per capita GNI of $48,630; Thailand had a 2020 per capita GNI of $7,050; Malaysia had a 2020 per capita GNI of $11,230; Turkey had a 2020 per capita GNI of $9,030; Brazil had a 2020 per capita GNI of $7,850.

See New World Bank country classifications by income level: 2021-2022, July 1, 2021, https://blogs.worldbank.org/opendata/new-world-bank-country-classifications-income-level-2021-2022; World Bank Country and Lending Groups, ← Country Classification, https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups; GNI per capita, Atlas method (current US$) – China, https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=CN (lists all countries); Wikipedia, Economy of Taiwan, https://en.wikipedia.org/wiki/Economy_of_Taiwan.

There is obviously no justification in high income economies receiving special and differential treatment as though they are developing countries in fact. Thus, data for Singapore, Korea, Hong Kong, UAE, Saudi Arabia shouldn’t be in the developing country data base. Similarly, China and Malaysia with per capita GNIs above $10,000 and purchasing power parity gross national income per capita (2019) above the minimum high income economy threshold ($16,790 for China; $28,830 for Malaysia) shouldn’t be eligible for special and differential treatment as a general rule. Brazil, Thailand, Turkey and Mexico while below $10,000 per capita GNI in 2020 have 2019 per capita purchasing power parity GNI higher than the high income economy threshold ($14,890 for Brazil; $26,840 for Mexico; $18,570 for Thailand; $27,660). There is no apparent logic in having these countries have automatic rights to special and differential treatment.

The Secretariat, of course, cannot change the classification of Members. But the lack of a rational standard for determining appropriateness of receiving special and differential treatment undermines the functioning of the WTO and permits countries who have succeeded at rapid economic development from assuming full obligations of WTO membership. The problem also results in statistical reports that are largely meaningless.

In a consensus based system like the WTO, the road to rationality will be long at best with many WTO Members who should have accepted full obligations by now continuing to hide behind the self-selection process to claim lesser obligations.

The APEC 2021 Ministerial Meeting Joint Statement — portion relevant to WTO 12th Ministerial Meeting

The APEC 2021 Ministerial meeting was held remotely on November 8-9 and resulted in a joint statement which included ambitions of APECs 21 members for the upcoming 12th WTO Ministerial Conference which starts in Geneva at the end of November (November 30-December 3). New Zealand has chaired APEC in 2021. Because the APEC countries include members accounting for 38% of the world’s population, 62% of the world’s GDP and 48% of global trade in 2020 and includes both the United States and China among the 21 territories, what APEC members support for the upcoming WTO ministerial may offer a glimpse of what may be possible in Geneva in the coming weeks. The APEC Ministerial Meeting Joint Statement and a publication on APEC in Numbers can be found here. See 2021 APEC Ministerial Meeting Joint Statement, Wellington, New Zealand, 09 November 2021, https://www.apec.org/meeting-papers/annual-ministerial-meetings/2021/2021-apec-ministerial-meeting; APEC in Charts 2021, https://www.apec.org/docs/default-source/publications/2021/11/apec-in-charts-2021/221_psu_apec-in-charts-2021.pdf?sfvrsn=50537c36_2. APEC members include Australia, Brunei Darussalam, Canada, China, Hong Kong (China), Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russian Federation, Singapore, Chinese Taipei, Thailand, United States, and Viet Nam.

While the Declaration contains coverage of a number of issues, it has a separate section on the World Trade Organization (pages 4-5, paras. 17-22). The six paragraphs from the Joint Statement are copied below.

“World Trade Organization

“17. APEC takes pride in its long history of active support for the rules-based multilateral trading system (MTS), with the WTO at its core. The MTS has been a catalyst for our region’s extraordinary growth and we will work together to improve it. We seek a responsive, relevant, and revitalised WTO. We must support the WTO and its membership to modernise trade rules for the twenty-first century. Together, we will engage constructively and cooperate to ensure the 12th WTO Ministerial Conference (MC12) is a success and delivers concrete results.

“18. As a priority for MC12, we see an opportunity for the WTO to demonstrate that the MTS can continue to help address the human catastrophe of the COVID-19 pandemic and facilitate recovery. We call for pragmatic and effective ministerial outcomes that makes it easier to respond swiftly and effectively to the COVID-19 pandemic and accelerate the recovery. Our priorities include supporting the facilitation of manufacturing, distribution, and supply chains of essential medical goods, including vaccines. We will work proactively and urgently in Geneva to support text-based discussions, including on a temporary waiver of certain intellectual property protections on COVID-19 vaccines.

“19. We reiterate our determination to negotiate effective disciplines on harmful fisheries subsidies in line with SDG 14.6, and call for agreement to a comprehensive and meaningful outcome by MC12 in a few weeks’ time.

“20. Despite its importance for ensuring global food security and sustainable economic development, agriculture is one of the most protected sectors in global trade. We recognise the need for a meaningful outcome on agriculture at MC12, reflecting our collective interests and sensitivities, with a view towards achieving substantial progressive reductions in support and protection, as envisaged in the continuation of the reform process provided in Article 20 of the WTO Agreement on Agriculture and existing mandates.

“21. We recognise the positive role that existing plurilateral negotiations and discussions are playing in progressing outcomes. APEC member participants in the relevant Joint Statement Initiatives (JSIs) call for conclusion of negotiations on services domestic regulation by MC12; and substantial progress by MC12 in the JSIs on e-commerce; micro, small and medium-sized enterprises; and investment facilitation for development. We take note of the efforts by the APEC economies who endorsed the Joint Declaration on Trade and Women’s Economic Empowerment to deliver an ambitious outcome at MC12 that supports the advancement of trade and gender equality.

“22, We continued our frank and constructive discussions regarding improvement to the WTO’s monitoring, negotiating and dispute settlement functions. We continue to support the ongoing and necessary reform work to improve the WTO’s functioning, including the importance of making progress on enhancing transparency to support its monitoring and negotiating functions. We will work together at the WTO and with the wider WTO membership to advance the proper functioning of the WTO’s negotiation and dispute settlement functions, which require addressing longstanding issues. We urge WTO members to seek a shared understanding of the types of reform needed.”

The Joint Statement has some specific items where outcomes are pursued — conclusion of the fisheries subsidies negotiations, some outcomes in the Joint Statement Initiatives (services domestic regulation should be completed; micro, small and medium-sized enterprises is completed; progress on others). As reviewed in yesterday’s post, WTO Members still have a challenging road to achieve a completed fisheries subsidies agreement at the 12th Ministerial. See November 9, 2021:  WTO Fisheries Subsidies Negotiations — a second revised text from November 8 holds out hope for a deal by MC12; how realistic is the hope?, https://currentthoughtsontrade.com/2021/11/09/wto-fisheries-subsidies-negotiations-a-second-revised-text-from-november-8-holds-out-hope-for-a-deal-by-mc12-how-realistic-is-the-hope/. Moreover, India, South Africa and others are raising objections to having any plurilaterals being negotiated included in the WTO which will complicate what comes out of the 12th Ministerial Conference (as opposed to encouraging Members to pursue plurilaterals outside of the WTO). See February 20, 2021:  Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/; September 18, 2021: The WTO’s 12th Ministerial Conference in Late November – early December 2021 — the struggle for relevance, https://currentthoughtsontrade.com/2021/09/18/the-wtos-12th-ministerial-conference-in-late-november-early-december-2021-the-struggle-for-relevance/.

The Joint Statement also seeks “pragmatic and effective” outcomes in the health and trade space to address responding to the COVID pandemic. Specifics are lacking although there is support to expanding production and access to vaccines and other medical goods. While supporting text based negotiations in the area, including on a possible temporary waiver of some TRIPS provisions on COVID vaccines, the lack of greater specificity reflects differences in positions of APEC members.

Similarly, while supporting WTO reform in all three areas of WTO activity (monitoring, negotiating and dispute settlement), APEC members have significantly different views on what is needed in these areas. Hence only general language is included in the Joint Statement.

In a prior post, I have opined that recent actions by the U.S. and EU to find ways around the civil aircaraft and steel and aluminum frictions suggests that the U.S. may agree to the start of a process to review the dispute settlement system issues raised by it as part of the 12th Ministerial (a high EU priority) and that the U.S. and EU could coalesce around an outcome acceptable to both in the TRIPS waiver dispute. See November 2, 2021:  What does the U.S.-EU Agreement on steel and aluminum imply for the upcoming 12th WTO Ministerial Conference?, https://currentthoughtsontrade.com/2021/11/02/what-does-the-u-s-eu-agreement-on-steel-and-aluminum-imply-for-the-upcoming-12th-wto-ministerial-conference/.

China has opposed greater transparency obligations and has tied reform of industrial subsidies to looking at agricultural subsidies as well. A recent post of mine reviews the need for better information on subsidies. See October 30, 2021:  WTO reform — distortions to market access and the need for better information, https://currentthoughtsontrade.com/2021/10/30/wto-reform-distortions-to-market-access-and-the-need-for-better-information/. Despite differences of view on some issues among major Members, it is not out of the question that a reform program will cover an examination of all three functions going forward.

On agriculture, there is a shared view for a need for results at the WTO 12th Ministerial and reflects on the fact that Article 20 of the WTO Agreement on Agriculture calls for periodic rounds of liberalization. However, the language of the Joint Statement doesn’t specify the areas where agreement is possible by the 12th Ministerial, reflecting different views among APEC members.

Nothing in the APEC Joint Statement addressed what, if anything should be agreed at the 12th WTO Ministerial on the climate crisis and what role trade can play in addressing the crisis. This omission is unfortunate but likely reflects large differences in views within APEC members on the topic. As I reviewed in a recent post, much more is needed but unlikely to come from the WTO and its members. See November 4, 2021:  The WTO and the environment — will the 2020s be different in terms of trade policies that are environmentally supportive?, https://currentthoughtsontrade.com/2021/11/04/the-wto-and-the-environment-will-the-2020s-be-different-in-terms-of-trade-policies-that-are-environmentally-supportive/.

Conclusion

The APEC 2021 Ministerial Meeting Joint Statement, being released three weeks before the start of the WTO’s 12th Ministerial Conference is a positive statement of support for the multilateral trading system. Coming from a group of WTO Members accounting for nearly 50% of global trade, it is a useful guide for topics these countries and territories will be pursuing in Geneva. Other group statements have been released as well as individual country or group objectives. But even within the APEC group of countries, large differences exist on outcomes of interest. With the exception of a possible conclusion to the fisheries subsidies negotiations and conclusions on several Joint Statement Initiatives, there may be only limited positive outcomes. There may be some limited agreement on the broad topic of health and trade and some agreement on topics for future negotiation. There may also be at least some provisions in a declaration dealing with the climate crisis and the important role trade can play in addressing the crisis.

Such a limited set of outcomes will likely be viewed as a success for an organization hamstrung by Members with no common vision for the role of the organization, with large differences in development levels, a cumbersome governance system and growing divergence on whether the organization can support global trade where market rules are not the required framework. More is needed for a truly relevant WTO and for a sustainable global trading system. The world is unlikely to achieve meaningful reform at the WTO in the coming decade. Progress, if any, will likely be slow and piecemeal.

WTO Fisheries Subsidies Negotiations — a second revised text from November 8 holds out hope for a deal by MC12; how realistic is the hope?

After twenty years of negotiations on fisheries subsidies, WTO Members are just weeks away from another “hard” deadline for concluding the talks — the twelfth WTO Ministerial Conference being held in Geneva November 30-December 3. On November 8, the Chair of the Negotiating Group on Rules released a second revision to the draft text of a fisheries subsidies agreement along with a detailed explanatory note on the changes made from the first revision and the road ahead. See Negotiating Group on Rules – Fisheries Subsidies, Revised Draft Text, 8 November 2021, TN/RL/W/276/Rev. 2 and Fisheries Subsidies, Revised Draft Text, Chair’s Explanatory Note Accompanying TN/RL/W276/Rev.2, 8 November 2021, TN/RL/W/26/Rev.2/Add.1.

Ambassador Santiago Wills of Colombia, the Chair of the negotiations, gave a summary of next steps in his conclusion. Paragraph 148 provides the challenge ahead:

“148. Regarding next steps, where we need to go from here is simple: we have to genuinely negotiate. We have only three weeks left until MC12 and only two weeks before we need to send something to Ministers through the General Council. Our objective before then is to collectively evolve this draft text ideally into a completely clean text, or at least as clean as possible with only
one or two issues left for our Ministers to decide. As I communicated to you in my e-mail of 4 November, and as has been the plan since we resumed our work following the summer break, we now will need to meet very frequently – essentially every day – starting tomorrow, to review everything together clause-by-clause.”

The WTO Members have a lot at stake in terms of whether an agreement can finally be achieved. In the WTO press release about the release of the revised text, the importance of getting to the finish line is alluded to by the Director-General. The agreement is in fulfilment of one of the UN Sustainable Development Goal subitems, 14.6, although the WTO already missed the completion date of 2020. See WTO News, Revised fisheries subsidies text kicks off intensified negotiations ahead of MC12, 8 November 2021, https://www.wto.org/english/news_e/news21_e/fish_08nov21_e.htm.

“The Director-General told members she has been engaging with political leaders, including at the highest levels, to get their support for a successful conclusion to the 21-year-long negotiations.

“‘The eyes of the world are really on us,’ she said. ‘Time is short and I believe that this text reflects a very important step toward a final outcome. I really see a significant rebalancing of the provisions, including those pertaining to special and differential treatment, while, at the same time, maintaining the level of ambition.’

“Members are scheduled to hold daily meetings on the basis of the latest draft text, with the goal of providing ministers a clean draft before MC12.

“Under the mandate from the WTO’s 11th Ministerial Conference held in Buenos Aires in 2017 and the UN Sustainable Development Goal Target 14.6, negotiators have been given the task of securing agreement on disciplines to eliminate subsidies for illegal, unreported and unregulated fishing and to prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, with special and differential treatment being an integral part of the negotiations.”

A review of the revised draft and the Chair’s explanatory text show a large number of issues where strong differences remain, many provisions still in brackets, some alternative texts provided and other challenges all of which need to be largely resolved within two weeks. See, e.g., Art. 3.3, alternatives for type of proof and process needed for a finding that a vessel or operator has engaged in “illegal, unreported and unregulated fishing”; Art. 3.8, period that developing countries can provide subsidies and distance from shore for the fishing activities; Art. 4.4, similar bracketed provisions for subsidies for developing countries regarding overfished stocks; Art. 5.1(i), prohibited subsidies contingent upon or tied to fishing and related activities beyond the subsidizing Member’s jurisdiction; Art. 5.3, alternatives for disciplines on subsidies to vessels not flying the flag of the subsidizing Member; Art. 5.4, exceptions for developing countries including duration of exception and area from shore to which it applies; Art. 6.2, exceptions for LDC Members; Article 7, technical assistance and capacity building; Art. 8.2(b), whether to include notification requirements by Members of “any vessels and operators for which the Member has information that reasonably indicates the use of forced labour, along with relevant information to the extent possible”; Art. 8.5, notification requirements of any regional fisheries management organization or arrangement (RFMO/A); Art. 9.1, institutional arrangements; Art. 9 and 10 (dispute settlement) more broadly; Art. 11.1 and 11.5 from final provisions.

The detailed description from the Chair of the changes made and major differences that remain confirms that the effort to get to a final agreement will be daunting. The Chair’s proposed path forward includes using several Friends of the Chair to help address a range of open issues. But it also includes daily meetings including in different configurations and the inclusion of officials from capital remotely.

Challenges facing Members include some of the broader reform issues raised by the U.S. and others. Various special and differential treatment provisions (“S&D provisions) apply to “developing countries” as well as LDCs. “Developing Country is a matter of self-selection, meaning many WTO Members claim such status despite not needing S&D to be competitive. The U.S., EU and others have raised concerns with the need to refocus S&D on those actually needing assistance. Are the qualifiers on the S&D provisions sufficient to see that major subsidizers like China and others are not eligible to avoid disciplines? Similarly, can the effort of some “developing countries” to seek S&D for decades possibly make sense if the Agreement is to achieve sustainability of wild caught fish and if there are few restrictions on who is a developing country?

The U.S. has had deep concerns about the use of forced labor on fishing vessels. See The Use of Forced Labor on Fishing Vessels, Submission of the United States, 27 May 2021, TN/RL/GEN/205. The revised draft text agreement contains only one of three proposed modifications to the draft text proposed by the U.S. to better address concerns about forced labor, and that provision (Art. 8.2(b)) is opposed by some Members, presumably those whose fleets are known or suspected of using forced labor. More broadly, will a final text result in meaningful reforms on fisheries subsidies or be so compromised that the agreement offers at best partial disciplines.

With the world watching and with the opportunity to restore at least partially the relevance of the WTO as a forum for trade negotiations, WTO Members have two weeks to get a near finished text agreed, with less than two weeks after that for Members to agree to a meaningful final text to ensure a successful 12th WTO Ministerial Conference. Let’s hope that the WTO Membership can rise to the occasion.

The WTO and the environment — will the 2020s be different in terms of trade policies that are environmentally supportive?

With the world rapidly approaching the point of no return on rising temperatures, can an organization like the WTO characterized by negotiating paralysis play a meaningful role in seeing that trade rules support sustainable growth and a livable planet in a timely manner?. Recent history would suggest the answer is no or at least not in a timely manner.

Fisheries subsidies negotiations have dragged on for more than two decades, suggesting that even if a robust trade and environment work program is agreed to at the WTO’s 12th Ministerial Conference, the chances of meaningful progress in the current decade are modest at best.

The negotiations for an environmental goods agreement amongst 17 countries and groups accounting for 90% of trade in environmental goods which began in 2014 was essentially discontinued in 2016 despite the obvious global benefit from tariff reductions on the trade in goods that can improve the environment. While many have urged the restart of the talks, it is unclear whether talks will restart and how quickly they could conclude.

There are no ongoing negotiations to address the need to reduce the carbon footprint of industry and agriculture despite some 69 countries having adopted some form of carbon price and the impending start of carbon border adjustment measures (“CBAMs”) by some WTO Members. A global agreement on a carbon price is aspirational at this point without negotiations agreed to or started. Countries working to reduce carbon emissions are concerned about “leakage” of production and jobs to countries with low standards ensuring that there will be CBAMs imposed by some. Some WTO Members are threatening retaliation if such measures are adopted. So the 2020s will likely be a period of conflict among WTO Members on the topic instead of being a period of time in which the WTO and its Members are able to make a critical contribution to controlling the global warming crisis.

Efforts at plurilateral agreements (so-called Joint Statement Initiatives or JSIs) which include some in the environmental area (e.g., marine plastics pollution) are not certain to become part of the WTO, facing opposition from India and South Africa and others.

So recent history does not shout out that the WTO will play an important role in addressing the existential threat flowing from global warming.

This is not to say that the WTO Director-General isn’t advocating for trade to play its role in addressing the problems. Moreover, the Secretariat is attempting to generate information on the role trade can play in addressing global warming through a series of information notes. See, e.g., WTO news, DG Okonjo-Iweala highlights trade’s role in ambitious and just climate action at COP26, 2 November 2021, https://www.wto.org/english/news_e/news21_e/clim_02nov21_e.htm; WTO news, WTO issues information briefs on trade, climate, related issues with COP26 talks underway, 3 November 2021, https://www.wto.org/english/news_e/news21_e/clim_03nov21_e.htm. The press release reviewing DG Ngozi’s statement is copied below.

“Trade can and must make a contribution to a comprehensive climate action agenda, Director-General Ngozi Okonjo-Iweala declared in her engagements with world leaders and stakeholders at the United Nations COP26 Climate Summit in Glasgow, Scotland, highlighting the need for ambitious yet fair commitments that ensure a green transition that is just and inclusive to all economies.

“The Director-General highlighted trade and the WTO’s role in a wide breadth of approaches to climate action in her panels and bilateral meetings, covering carbon emission reductions, the conservation of forests as critical carbon sinks, climate adaptation, and finance.

“On carbon reduction and pricing, she championed a coordinated approach at the high-level event organized by Canada and the Carbon Pricing Leadership Coalition, saying: ‘Let’s move towards a global carbon price. We have a great deal of fragmentation and we are hearing increasingly from businesses that they are finding regulations difficult to navigate and sometimes it results in higher prices for consumers and others. We also have members who are afraid this measure is somehow disguised protectionism which will prevent them from selling products abroad. Their issues need to be respected as we develop these systems.’

“’The WTO provides a forum where we can initiate this dialogue and involve developing and least-developed countries in the conversation. Leaders should task the International Monetary Fund, Organisation for Economic Co-operation and Development, World Bank and the WTO to work together and come up with a global approach,’ she said.

“Halting deforestation and establishing sustainable markets for agriculture must also be part of the comprehensive trade and climate agenda, she said at a session of the World Leaders Summit on Forests and Land Use, organized by the United Kingdom, host of COP26, and the UN Framework Convention on Climate Change. WTO members have already notified an increasing number of policies relating to forestry management (514 measures from 2009 to 2019) as well as sustainable agriculture management (over 1,200 measures). However, more action is needed, such as reforming subsidies that create perverse incentives for market actors to deplete natural resources, the Director-General said.

“At the Africa Adaptation Acceleration Summit, moreover, the Director-General said: ‘Adaptation for Africa must be a priority for the international community. This region contributes the least to emissions but suffers the most. Climate finance for Africa to meet adaptation costs must be ramped up.’

“’We also need to put in place trade policies to cushion against and adapt to the negative impacts of climate change. Trade is part of the solution,’ she said, noting the need for trade to ensure food security in the face of climate threats, provide access to adaptation technologies, and create synergies in Aid for Trade and climate finance.

“The Director-General will also underline the importance of support for developing countries and least developed countries (LDCs) at the 3 November event organized by the United Kingdom on mobilizing climate finance.”

The five information papers released from the Secretariat on November 3, 2021 are:

TRADE AND CLIMATE CHANGE, INFORMATION BRIEF N°1, MAPPING PAPER: TRADE POLICIES ADOPTED TO ADDRESS CLIMATE CHANGE, https://www.wto.org/english/news_e/news21_e/clim_03nov21-1_e.pdf.

TRADE AND CLIMATE CHANGE, INFORMATION BRIEF N°2, CLIMATE CHANGE IN REGIONAL TRADE AGREEMENTS, https://www.wto.org/english/news_e/news21_e/clim_03nov21-2_e.pdf.

TRADE AND CLIMATE CHANGE, INFORMATION BRIEF N°3, TRADE RESILIENCE IN THE FACE OF A RISING BURDEN OF NATURAL DISASTERS, https://www.wto.org/english/news_e/news21_e/clim_03nov21-3_e.pdf.

TRADE AND CLIMATE CHANGE, INFORMATION BRIEF N°4, CARBON CONTENT OF INTERNATIONAL TRADE, https://www.wto.org/english/news_e/news21_e/clim_03nov21-4_e.pdf.

TRADE AND CLIMATE CHANGE, INFORMATION BRIEF N°5, AFRICA UNDER A CHANGING CLIMATE: THE ROLE OF TRADE IN BUILDING RESILIENT ADAPTATION IN AGRICULTURE, https://www.wto.org/english/news_e/news21_e/clim_03nov21-5_e.pdf.

A former Deputy Director-General of the WTO, Alan Wolff, in comments to the Harvard JFK School last week, identified a third required outcome of the WTO’s 12th Ministerial Conference (besides a statement on trade and health and the conclusion of the fisheries subsidies negotiations) to be —

“3. A clear pledge to deal with trade and climate, and other environmental issues (marine plastics pollution, fossil fuels, etc. – this last, probably unspecified).

“• The effort is likely to take the form of an open plurilateral negotiation, a joint statement initiative. This is now a path more often chosen, as agreement among 164 disparate sovereigns is becoming close to impossible to achieve.”

See Defining Success for MC12, Notes for remarks of Alan Wm. Wolff, Peterson Institute for International Economics, Harvard JFK School, 29 October 2021, https://www.piie.com/sites/default/files/documents/wolff-2021-10-29.pdf (page 3).

While the start of a JSI on trade and climate is the most that can be hoped for at the Ministerial, even if achieved, the question will be can progress be made quickly enough to affect global warming. The fact that the scope of any such negotiations is uncertain strongly supports the view that efforts at the WTO on a plurilateral or multilateral basis will be too limited and too late to make a difference.

This will likely mean any meaningful movement will be implemented by individual Members or potentially small groups and probably occur outside of the WTO. In the absence of global or plurilateral agreements, actions by individual Members will be needed but almost certainly not enough.

Let’s hope that the above analysis proves too pessimistic. For our children and grandchildren, a lot depends on a global robust response to global warming in many policy areas, including trade.

What does the U.S.-EU Agreement on steel and aluminum imply for the upcoming 12th WTO Ministerial Conference?

On October 31, 2021, the United States and the European Union took steps to lower the conflict over the 232 tariffs imposed in 2018 by President Trump on steel and aluminum and to start work on a new steel agreement that would protect both industries from the challenges posed by global excess capacity while moving towards a low carbon steel producing future. The Joint Statement released on October 31 is reproduced below and indicates that a tariff rate quota based on 2015-2017 volumes of steel and aluminum imports from the EU will be accepted in the U.S., duty free with volumes above that, that are not subject to exclusions entering at existing additional duty rates (25% on steel and 10% on aluminum) with periodic review. The EU will remove its additional duties that were imposed as result of the 232 action. WTO challenges by each party on the other will be stayed. And the countries will work on a new steel agreement over the next two years that will address both global excess capacity and reducing the carbon intensity of the products involved. Here is the joint statement.

“STEEL & ALUMINUM
“U.S.-EU Joint Statement
“October 31, 2021


“Given the joint desire of the United States and the European Union (“EU”) to address non-market excess capacity so as to preserve their critical steel and aluminum industries, the United States and the EU agree to the following:

1. Ongoing cooperation

“a. Trade Remedy/Customs Cooperation: To advance their efforts to address excess capacity, both sides agree to expand U.S./EU coordination involving both trade remedies and customs matters. The United States will also share public information and best practices with EU officials and/or member state officials, as appropriate, on topics including how detection of fraud/evasion and circumvention of duties is approached and possible self-initiation. Officials could also coordinate industry engagement with relevant sectors to hear their views and share observations/concerns. Insofar as customs cooperation is concerned, it may take the form of mutual administrative assistance in accordance with the U.S.-EU Agreement on customs cooperation and mutual assistance in customs matters.

“b. Monitoring: The United States and the EU will monitor steel and aluminum trade between them.

“c. Cooperation on Non-Market Excess Capacity: The United States and the EU agree to regularly meet to consult with a view to developing additional actions in order to contribute to adjustments and solutions and address non-market excess capacity in the global steel and aluminum sectors.

“d. Review: The United States and the EU agree to review the operation of this arrangement, and ongoing cooperation, on an annual basis, including in light of changes in the global steel and aluminum markets, U.S. demand, and imports.

2. Global steel and aluminum arrangements to restore market-oriented conditions and address carbon intensity

“Steel and aluminum manufacturing is one of the highest carbon emission sources globally. Excess capacity generates unnecessary greenhouse gas emissions, deflates prices of high emissions products and hinders the development and scaling up of competitive solutions for lower emissions production. For steel and aluminum trade to be sustainable, producers and consumers must address both global non-market excess capacity as well as the carbon intensity of the industries. Against this backdrop, the United States and the EU are resolved to negotiate, in accordance with their respective institutional frameworks, future arrangements for trade in these sectors that take account of both issues. The United States and the EU will invite like-minded economies to participate in the arrangements and contribute to achieving the goals of restoring market-oriented conditions and supporting the reduction of carbon intensity of steel and aluminum across modes of production. The United States and the EU will seek to conclude the negotiations on the arrangements within two years. In order to encourage similar efforts by other steel producing economies, the United States and the EU will consult with respect to bringing these matters into relevant international fora for discussion, as appropriate.

“Compatible with international obligations and the multilateral rules, including potential rules to be jointly developed in the coming years, each participant in the arrangements would undertake the following actions: (i) restrict market access for non-participants that do not meet conditions of market orientation and that contribute to non-market excess capacity, through application of appropriate measures including trade defence instruments; (ii) restrict market access for non-participants that do not meet standards for low-carbon intensity; (iii) ensure that domestic policies support the objectives of the arrangements and support lowering carbon intensity across all modes of production; (iv) refrain from non-market practices that contribute to carbon-intensive, non-market oriented capacity; (v) consult on government investment in decarbonization; and (vi) screen inward investments from non-market-oriented actors in accordance with their respective domestic legal frameworks.

“To enhance their cooperation and facilitate negotiations on a global sustainable steel and aluminum arrangements, the United States and the EU agree to form a technical working group. Through the working group, the United States and the EU will, among other things, confer on methodologies for calculating steel and aluminum carbon-intensity and share relevant data.

3. WTO Disputes

“The United States and the EU agree to suspend by November 5, 2021, pursuant to DSU Article 12.12, the WTO disputes they have initiated against each other regarding the U.S. Section 232 measures (DS548) and the EU’s additional duties (DS559). Regarding the matters that are before these panels, the United States and the EU mutually agree to resort to arbitrations pursuant to DSU Article 25, as set out below and so as to fully preserve the work of the parties and the panels and procedural steps in these disputes. The United States and the EU will agree by 17 December 2021 on the procedures to be followed in an arbitration of those matters, in accordance with the present arrangement. Upon agreement on these procedures, the EU and the United States will terminate their respective disputes before the panels, and the arbitrations will be suspended, without temporal limit. The United States and the EU intend for DSU rules and practices on panel proceedings to govern the arbitration and to be reflected as appropriate in the agreement on arbitration procedures.

“The arbitration procedures will permit the complaining party in each dispute to bring the matter forward from the panel into the arbitration, so as to preserve the work in each dispute and allow the arbitrators to continue the panel process on the basis of the procedural steps and work already performed and make findings on that matter. The three panelists in each dispute will serve as arbitrators, if available, and otherwise will be replaced by agreement of the parties or by the Director-General of the WTO, within one week from the complaining party’s request.

“Before resuming an arbitration, a complaining party will first seek to consult at the ministerial level with the other party with a view to reaching an alternative solution. A complaining party may request to resume the arbitration at any time after the lapse of a 30-day consultation period and no sooner than 12 months after the issuance of the present statement.

“An arbitration may be resumed only if a complaining party considers that this arrangement is not providing the benefits envisioned. The United States and the EU also intend not to initiate any new WTO dispute relating to these matters for so long as each party considers this arrangement to be operating satisfactorily.”

USTR press release, Joint US-EU Statement on Trade in Steel and Aluminum, October 31, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/joint-us-eu-statement-trade-steel-and-aluminum.

Under the Biden Administration, the U.S. and EU have found solutions to various trade and other bilateral conflicts (Boeing-Airbus; international taxation) and launched a the Trade and Technology Council. See, e.g., European Commission – Statement, Statement by President von der Leyen on a new Global Sustainable Steel Arrangement and EU-US steel and aluminium dispute
Brussels, 31 October 2021, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_21_5679 (“Since the beginning of the year, as you said Mr President, dear Joe, we have restored trust and communication. We put to rest our disputes on aircraft subsidies. We set up our Trade and Technology Council. We created a vaccine partnership. We reached an agreement on global minimum tax. And now, we have found a solution on EU-US steel and aluminium trade.”); White House Briefing Room, Remarks by President Biden and European Commission President Ursula von der Leyen on U.S.-EU Agreement on Steel and Aluminum
Trade, October 31, 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/10/31/remarks-by-president-biden-and-european-commission-president-ursula-von-der-leyen-on-u-s-eu-agreement-on-steel-and-aluminum-trade/ (statement of President Biden)(“Over the past nine months, the United States and the European Union have come together to take on major global challenges by looking to all that unites us and the shared interests we have both in Europe and the United States. We resolved the 17-year Boeing-Airbus dispute. And we’ve been close partners to the — to address COVID-19 and combat climate change. As we move forward, we’re going to continue together to update the rules of the road and the 21st century economy, and prove to the world that democracies — democracies —are taking on hard problems and delivering sound solutions. And the European Union and the United States will continue to be the closest of friends and partners as we work together to solve the 21st century challenges.”)

The closer cooperation of the U.S. and the EU could be good news for the World Trade Organization and portend potential positive progress at the upcoming 12th Ministerial Conference in Geneva that starts in just four weeks.

Possible implications for MC12

The WTO’s Director-General has been anxious for the WTO Members achieving meaningful deliverables for the upcoming Ministerial Conference. The U.S. and EU are supportive of many initiatives — a meaningful fisheries subsidies agreement, several of the joint statement initiatives (“JSIs”) that have been pursued by certain WTO Members since the last Ministerial Conference in Buenos Aires in 2017, improved transparency and compliance with notification requirements, WTO reform particularly in terms of increased disciplines of industrial subsidies, rules of state-owned and state-invested enterprises, intellectual property theft and more.are supported by both Which of these elements will advance in Geneva at the MC12 is uncertain although two of the JSIs (services regulation; MSMEs) are reportedly complete though facing opposition from some countries (e.g., India and South Africa) in terms of being brought into the WTO. Some late progress has been reported on the fisheries subsidies negotiations which could mean an agreement may be reached in Geneva during the Ministerial Conference after 20 years of effort. For all of the above issues, progress in terms of meaningful outcomes depend on the membership as a whole. U.S.-EU solidarity are helpful, but not sufficient to resolve the issues.

In addition, there are issues where the U.S. and the EU have not been aligned including on starting a process of reform of the DSU to get back to a two tier dispute settlement system and what, if any, waiver of TRIPs rights/obligations should occur during the COVID pandemic. These are issues on which alignment of the two would likely result in resolution of the issue at least for purposes of the 12th Ministerial Conference. The EU has had as a high priority getting agreement from the U.S. to have a process start by the Ministerial with a defined deadline to find solutions on the Appellate Body and other DSU issues. If the U.S. accepts at the Ministerial the establishment of a two year program to understand the problems in the dispute settlement system and find solutions, that would be a significant victory for the EU and many other WTO Members. While not guaranteeing a resolution in two years (that would depend on whether Members will actually address the underlying problems in a way to ensure a process consistent with original DSU intent), creating a process for discussions would be a positive step forward.

Similarly, the U.S. position on the proposed waiver of TRIPs rights/obligations during the pandemic has been opposed by a number of countries with the EU having the largest voice. Efforts by the EU, U.S. and others to expand production of vaccines in Asia, Africa and South America are significant steps to address access to vaccines from regional or local sources, as are increased global production and increased shipments to COVAX. However, the U.S. could accept the EU’s more limited proposal for flexibilities under TRIPs, or the EU could move in the direction of a waiver of at least some TRIPs rights. Movement by the US to supporting the EU position or movement by the EU would likely result in some announced victory at the Ministerial.

While I have previously written extensively on both dispute settlement and on the waiver request from many TRIPS rights/obligations during the pandemic, and have supported the U.S. position on dispute settlement (and an unwillingness to proceed until there is greater agreement on the causes of the problems) and been supportive of the EU position on the proposed TRIPs waiver (not seeing practical benefits from the waiver during the pandemic), I believe that MC12 may prove to be more successful than many have thought possible. If so, it will likely flow from a decision by the U.S. and EU to find common ground on these two important issues and will be consistent with the increased level of cooperation between these historic leaders of the GATT and WTO. We will find out in the coming month if the increased cooperation can result in short term benefits at the WTO.

WTO reform — distortions to market access and the need for better information

The WTO’s role in international trade requires timely, accurate and complete information on a wide range of matters covered by existing agreements and the willingness of Members to permit the gathering of information on topics which affect or may affect international competition. While information in some Committees is relatively timely, accurate and complete, many Members have failed to provide information required under existing agreements and have prevented the gathering by the Secretariat of information on topics of potential importance to the functioning of the global trading system and whether certain actions or modes of economic activity operate to create market distortions and distortions in trade patterns. Areas where information has been particularly deficient have been the areas of subsidy notifications both under the Agreement on Subsidies and Countervailing Meausres (“ASCM”) and under the Agreement on Agriculture.

A number of countries have proposed improved transparency requirements as part of the identification of needed WTO reforms. See, e.g., PROCEDURES TO ENHANCE TRANSPARENCY AND IMPROVE COMPLIANCE WITH NOTIFICATION REQUIREMENTS UNDER WTO AGREEMENTS COMMUNICATION FROM ARGENTINA; AUSTRALIA; CANADA; CHILE; COSTA RICA; THE EUROPEAN UNION; ISRAEL; JAPAN; REPUBLIC OF KOREA; MEXICO; NEW ZEALAND;
NORWAY; THE PHILIPPINES; SINGAPORE; SWITZERLAND; THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU; UNITED KINGDOM; AND THE UNITED STATES, 14 September 2021, JOB/GC/204/Rev.7, JOB/CTG/14/Rev.7.

Some countries have attempted to address the perceived inadequacies of subsidy notifications through counternotifications. See USTR, United States Details China and India Subsidy Programs in Submission to WTO, October 2011, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-prog (“U.S. Trade Representative Ron Kirk announced today that the United States has submitted information to the World Trade Organization (WTO) identifying nearly 200 subsidy programs that China has failed to notify as required under WTO rules. Information was also submitted on 50 subsidy programs in India not previously notified. Through these actions at the WTO, the United States is seeking the prompt provision of detailed information and data from China and India regarding the operation of these subsidy programs. ‘The situation was simply intolerable,’ said Ambassador Kirk. ‘Every member of the WTO is required to come clean on its subsidy programs on a regular basis. China has not notified its subsidy programs in over five years. India only recently filed its first notification in almost ten years, and even then notified only three of the many subsidy programs we know to exist. Because China and India have failed to meet their respective obligations, we had to act – as we are entitled to under the WTO rules – and provide the voluminous information we have developed regarding subsidy programs in these two countries.’)(emphasis added); WTO news release, Concerns grow about slippage in subsidy notifications, 25 April 2017, https://www.wto.org/english/news_e/news17_e/scm_25apr17_e.htm (“The United States and the European Union questioned China about what they alleged were some 160 government subsidies or grants listed in the annual reports of six of the largest Chinese steel producers (G/SCM/Q2/CHN/70) which were not included in China’s WTO subsidy notifications. The United States also quizzed China about the non-notification of other alleged subsides in sectors such as steel, aluminium and fisheries, as well as the non-notification of subsidies under China’s ‘Internationally Well-Known Brand’ programme.  On fisheries, the United States said China had failed to notify 44 subsidy measures, including tax exemptions for certain operations such as deep water fishing ‘ identifying over 470 Chinese subsidy measures that were not notified to the WTO.”);  WTO News, Members express concerns on lack of transparency at WTO subsidies committee meeting, 27 April 2021, https://www.wto.org/english/news_e/news21_e/scm_27apr21_e.htm.

Organizations like the OECD have historically developed trade policy reports that look at subsidies and distortions in agriculture, fossil fuels and fisheries. In recent years, the OECD has done some sector specific reports based on public data on distortions in international markets from subsidies in the aluminum and semiconductor value chains. See OECD (2019-01-07), “Measuring distortions in international markets: the aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD Publishing, Paris.
http://dx.doi.org/10.1787/c82911ab-en; OECD (2019-12-12), “Measuring distortions in international markets: The semiconductor value chain”, OECD Trade Policy Papers, No. 234, OECD Publishing, Paris, http://dx.doi.org/10.1787/8fe4491d-en. The OECD press releases on the two trade policy reports contain information on the reports and historical activity of the OECD.

“Measuring distortions in international markets: the aluminium value chain

“This report builds on the OECD’s longstanding work measuring government support in agriculture, fossil fuels, and fisheries in order to estimate support and related market distortions in the aluminium value chain. Results show that non-market forces, and government support in particular, appear to explain some of the recent increases in aluminium-smelting capacity. While government support is commonly found throughout the aluminium value chain, it is especially heavy in the People’s Republic of China and countries of the Gulf Cooperation Council. Looking across the whole value chain also shows subsidies upstream to confer significant support to downstream activities, such as the production of semi-fabricated products of aluminium. Overall, market distortions appear to be a genuine concern in the aluminium industry, and one that has implications for global competition and the design of trade rules disciplining government support.” ttps://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-markets-the-aluminium-value-chain_c82911ab-en.

“Measuring distortions in international markets: The semiconductor value chain

“This report builds on the OECD’s longstanding work measuring government support in agriculture, fossil fuels, fisheries, and more recently in the aluminium value chain in order to estimate producer support and related market distortions in the semiconductor value chain. Results for 21 large firms operating across the semiconductor value chain indicate that total government support has exceeded USD 50 billion over the period 2014-18. Government support provided in the form of below-market debt and equity appears to be particularly large in the context of the semiconductor industry and concentrated in one jurisdiction. Other types of support identified include support for R&D and investment incentives, which benefitted all firms studied in this report. The report also discusses the implications that these findings have for trade rules, and in particular for subsidy disciplines in a context of growing government involvement in semiconductor production and poor transparency of support measures.” https://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-markets_8fe4491d-en.

The 28th Global Trade Alert Report, Subsidies and Market Access

Earlier this week, Simon Evenett and Johannes Fritz released the 28th Global Trade Alert Report entitled “Subsidies and Market Access, Towards an Inventory of Corporate Subsidies by China, the European Union, and the United States.” https://www.globaltradealert.org/reports/gta-28-report. It is an important contribution to the development of a data base of possible government subsidies by the three largest trading nations or blocs. The report has used information from government sources but not the subsidy notifications filed with the WTO. The report claims to have inventoried “18,387 corporate subsidies awarded by China, the EU, and the USA since November 2008.” (page 5)

“Our study should not be read as implying that China, the European Union, and the United States are the only jurisdictions that award subsidies to organisations engaged in business; the Global Trade Alert database currently contains a total of 5,977 subsidy policy changes and awards implemented by other nations.” (Page 5) Many countries provide domestic subsidies on industrial goods and such subsidies are not presently limited by the WTO ASCM although where such subsidies cause distortions or injury to a trading partner, there are potential remedies. Many countries also provide subsidies on agriculture whether reported to the WTO or not, and there is no tracking of what, if any, subsidies are provided by WTO Members to the service industries.

At present, there are no WTO disciplines on service industries receiving subsidies whether domestic or export. Yet, the report released on Monday indicates that “a total of 4,564” of the subsidy actions catalogued “involved the transfer of state resources to service sector firms” with 12.66% to financial service sector firms (578). The service subsidy findings in the report suggest that service subsidies (in number) are more than twice the number of agricultural subsidy items catalogued (2,171) and 42% of the number found for manufacturing companies (10,814). Page 6. Agricultural subsidies are the most actively controlled in the WTO (by the WTO Agreement on Agriculture). There are limited restrictions on manufacturing subsidies under the ASCM and some disciplines on subsidies to the civilian aircraft sector for signatories to the separate plurilateral agreement. And none on subsidies to services providers. I have written in the past on the irrationality of the different subsidy disciplines under the WTO on agriculture, manufactured goods and services. See, e.g., 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/. The report released yesterday provides a potential measure of why a comprehensive review of subsidy disciplines is needed by the WTO Members for all trade (goods and services).

Observations

  1. breadth of data

There have been many studies of subsidies in particular sectors or by particular governments over the years. Depending on the level of transparency in a country, publications on subsidy sources by a particular government are not unheard of. For example, in Canada there used to be annual reports on government subsidy programs put out by Statistics Canada. See Fraser Institute, Governments go subsidy-wild with $684 billion spent on subsidies since 1981, https://www.fraserinstitute.org/article/governments-go-subsidy-wild-684-billion-spent-subsidies-1981 (“Ever wonder how Canada’s net federal debt reached $671 billion by 2013? Or how net provincial debt among the provinces ended up at $509 billion that same year? Wonder no more. It’s partially due to massive subsidies to corporations, government businesses and even consumers that over three decades amounted to $684 billion. Statistics Canada once collected useful information about such taxpayer-funded government subsidies. The subsidies include funding for corporations (think selected automotive and aerospace companies), or Crown corporations like VIA Rail, or a government-owned ferry system to subsidize consumers’ ferry rides. Statistics Canada stopped tallying up the numbers in 2009 but by looking at what is available from 1981 (and adjusting for inflation to 2013 dollars to get apple-to-apple comparisons), some useful statistics pop out.”).

The usefulness of the 28th Global Trade Alert report is its focus on the three largest trading nations or blocks and a compilation of data points for a lengthy period of time (since 2008). The data base is also available for evaluation. There is partial data for other countries in the data base as well.

Missing is an evaluation of how many of the inventoried items are covered by notified subsidy programs by Members to the WTO. While there are concerns about completeness of notifications and timeliness of notifications, it would have been helpful to flag how many of the items would be covered by the notifications.

Similarly, while the report lays out what it treats as a subsidy, there are likely areas where clarification would be helpful. For example, on export financing, the U.S. has long been a participant in the OECD undertaking on export credits. Yet, of the 5,962 “subsidies” identified by the report, more than 1500 were from U.S. Eximbank. These are not likely prohibited export subsidies. So presumably, any loan from U.S. Exim was treated as a domestic subsidy. Whether that would be factually accurate is an open question. Similarly, more than 1,000 of the subsidy items are actions by the U.S. Department of Agriculture. Since the U.S. has reported every year operating within the limits of its obligations under the WTO, the relevance of the notices would presumably be simply in cataloging subsidies provided. It is not clear how the information would be an improvement on what is reported by the U.S. to the WTO Committee on Agriculture.

2. Rise in trade remedy cases –a reaction to global excess capacity and a source of information on distortions to trade

Countervailing duty investigations by national authorities on imports from a particular country can reveal information on the type and level of subsidies. Much of the information developed in an investigation may not be otherwise publicly available. And GATT Contracting Parties and, now, WTO Members have been able to challenge perceived subsidy practices at the WTO under various agreements.

The 28th Global Trade Alert report notes the increase in CVD investigations and in WTO disputes on subsidies and CVD cases. While the observation is correct that there are more cases in the last decade or so, it is unclear that the authors explored the information from the CVD investigations to determine the extent of subsidy practices in particular industries which may vary considerably from the sources they used. Having been a trade practitioner for 40 years, it is clear particularly for countries like China that there are many programs that are not flagged in corporate documents as having been used and many other state interventions which distorted competition that are not available from public sources in China. Indeed, in at least one CVD case in the U.S., documentation was submitted by a petitioner indicating that the Chinese government was ordering companies not to cooperate — hence minimizing the understanding of subsidy practices in particular sectors in China. Moreover, many of the cases brought involve sectors where China’s (and other countries’) policies resulted in massive global excess capacity.

China has been the subject of 176 of 431 CVD investigations brought by WTO Members since 2008. 285 OF 632 CVD investigations since 1995 involved base metals products of base metals (e.g., steel and aluminum), with higher numbers in recent years. Chemicals, plastics, rubber products were the subject of 127 additional cases since 1995, with more cases in recent years. All of these sectors reflect problems of global excess capacity.

Historically, GATT Contracting Parties were all market economies. Thus, there has never been any question that market economy countries or territories often use domestic or export subsidies. This was true under the GATT and now under the WTO. What is different in 2021 and since 2001 is that with non-market economies like China now in the WTO and with their combination of massive government intervention in the domestic market, industry plans, government funding, tolerance of IP theft, limitations on operations of foreign companies, export restrictions on raw materials and other identified distortions of competition, distortions in global markets have gotten much worse.

Many sectors have found themselves characterized by massive global excess production capacity, often largely driven by China, including in sectors where China has no inherent competitive advantages such as aluminum or steel. Indeed, China has identified sectors where it acknowledges massive excess Chinese capacity since at least 2007. With limited transparency, China will note closed capacity in these sectors but will seldom acknowledge additions to capacity being made at the same time. I testified before the U.S.-China Commission in February 2016 on the problems flowing from the massive global excess capacity created by China’s economic system and multitude of distortions to market forces. See HEARING ON CHINA’S SHIFTING ECONOMIC REALITIES AND IMPLICATIONS FOR THE UNITED STATES, HEARING BEFORE THE
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION, ONE HUNDRED FOURTEENTH CONGRESS, SECOND SESSION, WEDNESDAY, FEBRUARY 24, 2016 at 92-100 (statement of Terence P. Stewart), https://www.uscc.gov/sites/default/files/transcripts/February%2024,%202016_Hearing%20Transcript.pdf; see also Rui Fan, ‘‘China’s Excess Capacity: Drivers and Implications,’’ Stewart and Stewart, June 2015 (cited in USCC 2016 annual report at 104, 116, 134). Excerpts from my prepared statement to the USCC are copied below.

“Generally, an economy that follows state planning has the ability to pour resources into industries on a scale that doesn’t reflect underlying demand patterns or that overshoots actual demand trends. In the past several decades, a massive amount of industrial capacity has been added in China in a large number of manufacturing sectors to enhance the competitive position of the country and to provide employment to large numbers of people, many in state-owned enterprises. These actions have created massive disequilibrium in China and globally in various important manufacturing sectors. This imbalance was exacerbated by the 2007-2008 global financial crisis and recession and has again surfaced as a destabilizing force amidst slowing global demand. In fact, the US and many other countries are suffering the consequences of China’s actions as seen in the closure of aluminum smelters and steel mills and the layoff of thousands of workers.

“Indeed, the scope of the excess capacity in certain major industries is extraordinary by any measure and flows from state planning, funding and subsidization on a massive scale. The central government of China has recognized that the problem is a serious one and has been trying to deal with it, often with little actual effect as planned capacity closures are undermined by local
governments focused on creating or maintaining employment and by central government efforts to add capacity in the western part of the country. So mandated closures have in many sectors been more than offset by other capacity additions in the country.1

“However, with the recent and increasingly slowing internal growth in China, the increasing capacity overhang in China is
creating very real problems for Chinese companies and their international competitors. These capacity increases in a time of declining global demand are destabilizing global markets as exports have increased in some cases by 100% in short periods. The result is depressed global prices for products and waves of dislocations around the world as producers in other markets shift product to export2 as they lose market share at home. Ultimately, China must play a leadership role in the global economy to help find a way to rebalance supply and demand in each of these sectors. While it is doing so, the sectors will be depressed around the world with companies, workers and their local communities paying the price for the massive excess capacity created and maintained by the Chinese economic system.

“Because there are no multilaterally agreed rules to address situations of massive global excess capacity in a rapid or comprehensive manner, Chinese action now to get rid of excess capacity is critical to preventing the serious global dislocations caused by overcapacity in many critical industrial sectors. Otherwise market economy producers will respond to the market signals
flowing from the excess capacity that prices are unsustainable by closing plants, writing off assets and laying off workers even if the plants being closed are in fact internationally competitive.3

“For example, in the aluminum sector, western aluminum producers have been closing aluminum smelters in many parts of the world because of the depressed prices caused in large part by China’s massive excess capacity and inventories of product overhanging the market. In the US, six aluminum smelters have closed or been announced as closing in the last six months, leaving the US with a capacity back at 1950s levels. Yet China has no natural competitive advantage in the production of aluminum and environmentally its production is not desirable being largely coalpowered for energy. Nonetheless, China has expanded its aluminum capacity from 1.75 million tons in 1996 to an estimated 36 million tons in 2015.4 And in 2014 alone, Chinese excess capacity was estimated at more than 10 million tons.5 China now accounts for more than half of the world’s aluminum smelting capacity (52.3% vs. 7.9% in 1996).6

“Meanwhile, US capacity has declined by 52 percent from 4.2 million tons in 1996 to 2 million tons in 2015 and will be much
smaller in 2016 following the announced closures or planned closures of six smelters since September 2015 (one million tons).7
Thousands of aluminum workers in the US have lost or are losing their jobs. America now has less than 3 percent of the world’s primary aluminum production capacity and will have less than 2 percent in 2016.8

“The global steel sector is also in crisis.9 China’s steel capacity has skyrocketed from 145 million tons in 2000 to more than 1 billion tons today (some estimates are as high as 1.4 billion tons) with excess capacity of as much as 40% – equal to the total capacity in the US, EU and Japan.10

“The problem of excess capacity in the steel sector has been studied for a number of years within the OECD,11 has been the subject of bilateral discussion between the US and China12 as well as the EU and China. Over the past few years, the Chinese have announced a series of production cuts with little or no actual net reductions in steel capacity to date. The government of China has announced in recent weeks a program to close 100-150 million tons of capacity in the steel sector over the next five years13 – a huge sum of capacity if actually achieved but as little as one fourth of what is needed in fact.

“Companies harmed by globally depressed prices and rising import levels can seek relief through trade remedies.14 However, for products like aluminum or steel, problems often reflect loss of export markets (China or third country) as well as loss of one’s home market. Trade remedies are generally available for import problems. WTO cases can be brought for loss of third country
markets or loss of the market by the subsidizing country but require the willingness of the home government to bring such a case. However, existing WTO rules do not provide members with quick and effective means to address excess capacity.

“1. See, e.g., Biman Mukherji, Rising Chinese Production Keeps Lid on Aluminum Prices, Wall Street Journal, Nov. 10, 2015 (noting that, since 2010, Chinese producers have closed 3 million tons of annual aluminum production capacity but have added an additional 17 million tons of capacity), http://www.wsj.com/articles/rising-chinese-production-keeps-lid-on-aluminum-prices1447186082 (requires subscription). See also Aluminum producers staggering as factories lack orders, http://china.org.cn/business/2013-08/27/content_29835483.htm; China’s aluminum glut set to continue, http://asia.nikkei.com/Markets/Commodities/China-s-aluminum-glut-set-to-continue.

“2 Will China Finally Tackle Overcapacity?, http://blogs.piie.com/china/?p=3857; OECD China Economic Survey (March 2015),
http://www.oecd.org/eco/surveys/China-2015-overview.pdf.

” 3 The US Trade Representative’s Office, in its December 2015 Report on China, summarized the problem of excess capacity:

“Excess Capacity

“Chinese government actions and financial support in manufacturing industries like steel and aluminum have contributed to massive excess capacity in China, with the resulting over-production distorting global markets and hurting U.S. producers and workers in both the United States and third country markets such as Canada and Mexico. While China recognizes the severe excess capacity problem in the steel and aluminum industries, among others, and has taken steps to try to address this problem, there have been mixed results.

“From 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth. Currently, China’s capacity alone exceeds the combined steelmaking capacity of the European Union (EU), Japan, the United States, and Russia. China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking, yet China’s capacity has continued to grow exponentially and is estimated to have exceeded 1.4 billion metric tons (MT) in 2014, despite weakening demand domestically and abroad. While China’s steel production is slowing and China may
produce approximately 2 to 3 percent less steel in 2015 than in 2014, steel demand in China is projected to decrease 5 percent this year. As a result, China’s steel exports grew to be the largest in the world, at 93 million MT in 2014, a 50-percent increase over 2013 levels, despite sluggish steel demand abroad. In 2015, there is rising concern that China’s steel exports are still growing and may have increased 25 percent in the first ten months of 2015, as compared to the same period in 2014.

“Similarly, monthly production of aluminum in China doubled between January 2011 and July 2015 and continues to grow. Large new facilities are being built with government support, including through energy subsidies. China’s aluminum excess capacity is contributing to a severe decline in global aluminum prices, harming U.S. plants and workers.

“Excess capacity in China – whether in the steel industry or other industries like aluminum – hurts U.S. industries and workers not only because of direct exports from China to the United States, but because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable. Domestic industries in many of China’s trading partners have continued to respond to the effects of the trade distortive effects of China’s excess capacity by petitioning their governments to impose trade remedies such as antidumping and countervailing duties.

“2015 USTR Report to Congress on China’s WTO Compliance (December 2015) at 12-13, https://ustr.gov/sites/default/files/2015-
Report-to-Congress-China-WTO-Compliance.pdf.

“4 U.S. Geological Survey, Mineral Commodity Summaries, 1998 and 2016, http://minerals.er.usgs.gov/minerals/pubs/commodity/aluminum/050398.pdf;
http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf. See also Attachment 2 (chart and table
showing China’s aluminum capacity).

“5 U.S. Geological Survey, Mineral Commodity Summaries, 2016, http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“6 U.S. Geological Survey, Mineral Commodity Summaries, 1998 and 2016, http://minerals.er.usgs.gov/minerals/pubs/commodity/aluminum/050398.pdf;
http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“7 Id.

“8 U.S. Geological Survey, Mineral Commodity Summaries, 2016, http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“9 See generally, Surging Steel Imports Put Up To Half A Million U.S. Jobs At Risk, Terence P. Stewart, Elizabeth J. Drake,
Stephanie M. Bell, and Jessica Wang (Stewart and Stewart), and Robert E. Scott (The Economic Policy Institute),
http://www.epi.org/publication/surging-steel-imports/#iv.-the-future-of-the-domestic-steel-industry-depends-on-effective-traderemedy-enforcement.

“10 See Attachment 2 (chart and table showing China’s steel capacity). See also .Developments in Steelmaking Capacity of NonOECD Economies, http://www.oecd-ilibrary.org/industry-and-services/developments-in-steelmaking-capacity-of-non-oecdcountries_19991606; China’s excess crude steel still a problem, http://asia.nikkei.com/Politics-Economy/Economy/China-sexcess-crude-steel-still-a-problem.

“11 See, e.g., OECD, Steelmaking Capacity, http://www.oecd.org/sti/ind/steelcapacity.htm.

“12 The United States and China engaged in discussions regarding excess capacity in the steel sector at the SE&D meeting in July
2014 and regarding the steel and aluminum sectors at the JCCT meeting in November 2015. See USTR December 2015 Report
on China, at 104-105, https://ustr.gov/sites/default/files/2015-Report-to-Congress-China-WTO-Compliance.pdf.

“13 China to cut steel capacity by 100-150 mln tonnes in 5 years, http://news.xinhuanet.com/english/2016-
02/04/c_135075575.htm.

“14 Pain Spreads From China’s Excess Production, http://blogs.wsj.com/chinarealtime/2014/07/16/pain-spreads-from-chinasexcess-production/ (noting that “China’s vast excess capacity makes it the biggest target of [trade] sanctions”).”

Conclusion

For the WTO to regain full relevance, its rule book needs to be updated to reflect both the current developments in world trade but also to ensure that all trade distortions are addressable in a meaningful and timely way by Members. A review of subsidy disciplines is certainly an important topic (including finalizing the GATS to address how subsidies will be handled for services). But there are many other distortions that are not currently fully or even partially addressable within the WTO in a meaningful way. State owned and invested enterprises are a growing factor in a number of countries and can seriously distort trade flows and competition. Government policies that restrict exports of inputs have had dramatic skewing effects on where downstream producers invest. State supported or sanctioned industrial espionage skews competition and drastically reduces the cost of production in countries that permit the theft. Economies that don’t function on market principles fundamentally distort market outcomes and invite use of non-WTO tools to address resulting distorted outcomes. And the WTO has no rules for addressing quickly any sector with massive global excess capacity.

Efforts to get greater transparency, completeness and timeliness in notifications are obviously a necessary and important element of WTO reform. Reports like that put out as the 28th Global Trade Alert report can be an important source of additional information to help WTO Members understand the extent of practices that may be of concern to themselves or others. However, in 2021, the array of market distortions pursued by governments like China (and others) are far broader than simply government subsidies. A road forward must include an analysis and update or creation of rules for all such distortions.

UPDATE: WTO Trade Policy Review Press Releases Corrected to Include Full Secretariat and Government Reports in reviews of the Republic of Korea and China

In yesterday’s post, I reviewed the fact that beginning with WTO Trade Policy Reviews in October 2021, the WTO press releases on the reviews were not including information that has historically been included, importantly the full Secretariat Report and the Government Report of the Member going through the review. See October 20, 2021:  WTO reduces transparency of Trade Policy Reviews — what is the possible justification?, https://currentthoughtsontrade.com/2021/10/20/wto-reduces-transparency-of-trade-policy-reviews-what-is-the-possible-justification/. The structure of the press releases was also changed, and the press releases no longer refer to the minutes or the written questions and answers which prior to October had been noted as likely to be released in about six weeks and to which links to the releases had been added once the documents were released.

Yesterday afternoon and evening, I received word from folks at the WTO that there was no intention to reduce the transparency of TPR events, and they were reviewing what might have happened in the Korea and China reviews. Last evening, I was informed that the problem had been discovered and corrected. The posted press releases for the Korea and China reviews were updated to include links to the full reports of both the Secretariat and the Government being reviewed. See WTO press release, Trade Policy Review: China, 20 and 22 October 2021, https://www.wto.org/english/tratop_e/tpr_e/tp515_e.htm (adding links to TRADE POLICY REVIEW REPORT BY THE SECRETARIAT, CHINA, 15 September 2021, WT/TPR/S/415 (209 pages) and to TRADE POLICY REVIEW REPORT BY CHINA, 15 September 2021, WT/TPR/G/415 (27 pages)); WTO press release, Trade Policy Review: Republic of Korea, 13 and 15 October 2021,https://www.wto.org/english/tratop_e/tpr_e/tp514_e.htm (adding links to TRADE POLICY REVIEW REPORT BY THE SECRETARIAT, REPUBLIC OF KOREA, 8 September 2021,WT/TPR/S/414 (229 pages) and to TRADE POLICY REVIEW REPORT BY REPUBLIC OF KOREA, 8 September 2021, WT/TPR/G/414 (15 pages)).

The corrections made by the WTO Secretariat are obviously appreciated by the public who follows WTO activities. It is welcome news that the problem on TPR documents was inadvertent and not intentional. WTO Members have over the last 25 years taken many actions which have significantly reduced transparency in a range of areas which I have reviewed in prior posts. See, e.g., November 12, 2019: The Continued Problem of Inconsistent Transparency at the World Trade Organization, https://currentthoughtsontrade.com/2019/11/12/the-continued-problem-of-inconsistent-transparency-at-the-world-trade-organization/. The Secretariat, of course, becomes captive to those actions with the result that many Secretariat generated documents (e.g., compilation of proposals) that used to be public are often not today. Thus, the public should be concerned about reduced transparency at the WTO and flag problems where identified.

On the Trade Policy Review press releases, the Secretariat should also note that the language of the press releases for Korea and China remain modified from prior releases in that there is no indication as to when minutes or written questions and answers will be available. I assume based on the communications from WTO personnel, that both the minutes and written questions and answers will be released as well in a few months. If not, then my concerns from yesterday on reduced transparency would remain. While such documents trail the release of the full reports, they are critical documents as well to understand concerns with any Member’s trade policies. Historically, the Secretariat would update the press release so that those following reviews could easily find the minutes and written questions and answers when released by simply looking at the press release. I would encourage the Secretariat to see that such information is added back into notices going forward and, if not done immediately for Korea and China, added at the latest when the documents are released.

WTO reduces transparency of Trade Policy Reviews — what is the possible justification?

Through September 2021, when a country went through a Trade Policy Review, a large amount of material was made available to the public at the time of the TPR meeting with additional information (minutes, questions and answers, corrections to Secretariat report and/or government report) released a number of months later. The WTO press releases at the time of the TPR meeting were similar. The one for Singapore from 22 and 24 September 2021 is typical.

As can be seen from the press release, the public could access the full report of the Secretariat, the full report of the Government of Singapore, the concluding comments of the Chairperson as well as an Executive Summary of the Secretariat report at the time of the two day meeting to review the reports. Moreover, minutes from the meeting were available to the public typically about six weeks after the meeting as were the written questions and written answers.

Beginning in October, the press release has been modified and far less information is made available immediately to the public. There have been two TPRs so far in October, the Republic of Korea (13 and 15 October) and China (20 and 22 October). A TPR of the Russian Federation is scheduled for next week.

The WTO press release for the Republic of Korea is copied below. The current one for China is similar.

All that is made available to the public at the time of the meeting is a short executive summary of the Secretariat report and the concluding remarks of the Chairperson. No reference is made to how to access the full report of the Secretariat or the Government (here Republic of Korea), nor is there an indication as to when minutes or written questions and written answers will be available.

There is nothing on the WTO webpage which describes why so little information is being provided beginning this month on new Trade Policy Reviews. For the public, the drastic reduction in transparency makes the WTO operations even less understandable.

If the WTO will be releasing all of the documents it has historically but with significant time delays on all documents, what is the justification? For 25 years, TPRs have been conducted with the type of information released that gave the public a good understanding of the Secretariat’s and the government’s review of its trade policy. That understanding has been timely, consistent with the meeting and supplemented within several months with minutes and the written questions and answers.

If the WTO is not intending on releasing all of the documents it has historically released, what is the possible justification?

China, which is going through a Trade Policy Review this week, also went through a TPR in 2018. In 2018, the Secretariat Report released to the public at the time of the TPR meeting was 193 pages (along with a summary of 6 pages). See WT/TPR/S/375. China’s Report on its trade policy was 23 pages. See WT/TPR/G/375. These documents are dated 6 June 2018. A revision to the Secretariat Report is dated 14 September 2018 and was also 193 pages ( WT/TPR/S/375/Rev.1). The Concluding remarks by the Chairperson are contained in a separate press release from the WTO at the time of the TPR meeting but linked from the main notice of the TPR. See WTO news, Trade Policy Review: China, 11 and 13 July 2018, https://www.wto.org/english/tratop_e/tpr_e/tp475_e.htm linking to the concluding remarks of the Chairperson at https://www.wto.org/english/tratop_e/tpr_e/tp475_crc_e.htm. The minutes of the meeting are contained in WT/TPR/M/375, 21 November 20218 and are 98 pages in length with statements from 66 Members (two on behalf of larger groups). The written questions and answers are contained in WT/TPR/M/375/Add.1, dated 1 February 2019 and being 729 pages in length. The WTO Members who submitted questions (including follow-up questions) are shown on pages 2-3 of the document.

Because the current TPR on China (20 and 22 October) does not provide either of the full reports (Secretariat and Government) and because there is no indication of when minutes or written questions and answers will be available, there is certainly delayed access and potentially denial of access of the same type of information on China (or any other country) that was been released in the past. This should be viewed as unacceptable by the WTO Secretariat and WTO Members and certainly should be so viewed by the public.

Conclusion

What is available to the public from a Trade Policy Review is critical for an understanding of concerns raised by WTO Members about any other Member’s trade policy as well as the level and openness of the response from the Member being reviewed. The Secretariat’s report is an important factual analysis of developments in the Member being reviewed. The recent curtailment of access to the full Secretariat Report and the full Government Report greatly harms transparency and the ability of the public to understand developments within WTO Members in a timely manner. Should the WTO cease to release any of the information heretofore available to the public in current and future TPRs, the WTO will be further damaging the public’s perception of the WTO and will be further retreating from openness and transparency towards the public..

What role China could play in WTO reform — possibilities are real but chances of a positive role are not

On October 14, 2021, Amb. Alan Wolff (former Deputy Director General of the WTO, former Deputy U.S. Trade Representative and now Distinguished Visiting Fellow at the Peterson Institute for International Economic Policy) spoke to the PIIE-CF40 Young Economist Forum on the topic “China in the World Trade System, The Role of China in WTO Reform”. Amb. Wolff’s paper provides an interesting overview of the many areas where China could provide positive leadership at the WTO to achieve meaningful reform. The paper also identifies what China has identified as its priorities for reform, most of which cut against positive leadership. His paper can be found here. Ala Wm. Wolff, China in the World Trading System, The Role of China in WTO Reform, October 14, 2021, https://www.piie.com/commentary/speeches-papers/china-world-trading-system.

Amb. Wolff, when he was Deputy Director General at the WTO made points on the need for reform, key values of the WTO, some of which to be continued would require China to make some important adjustments to its economic system. See November 10, 2020:  The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/. As DDG, Amb. Wolff spoke often on the future of the WTO, reforms needed, and more. He has continued that since leaving the WTO. See, e.g., May 1, 2021:  Alan Wolff’s vision for saving the WTO — aspirational but is it achievable?, https://currentthoughtsontrade.com/2021/05/01/alan-wolffs-vision-for-saving-the-wto-aspirational-but-is-it-achievable/.

Among the values of the WTO identified by Amb. Wolff while serving as DDG were two that remain critical in the continued relevance of the WTO:

The primacy of market forces — Commercial considerations are to determine competitive outcomes.

Convergence —The WTO is not simply about coexistence; differences among members affecting trade which deviate from the principles governing the WTO, its core values, are to be progressively overcome.”

These two issues are among the areas where Amb. Wolff identifies the opportunity for China to take an active role in ensuring WTO relevance and WTO reform. But there are many areas where China could be active in a positive maner.

Many of the suggested areas for Chinese action are straight forward. For example, China is not a member of the Pharmaceutical Agreement but is now a very important producer and trader of pharmaceutical products. Joining would be an important step. Similarly, Amb. Wolff urges China to participate in updating the Information Technology Agreement to include medical equipment and eliminate duties on such equipment.

On the negotiating function, Amb. Wolff states,

“There are a number of important opportunities for Chinese leadership in negotiations.

“A positive substantive outcome is necessary in the fisheries subsidies negotiations, which it is hoped will be concluded shortly. China has by far the world’s largest long distance fishing fleet. China’s full and active participation is essential to attaining this objective.

“Another marine issue in which China is prominent is its co-sponsoring with Fiji of an environmental initiative targeting the problem of plastic waste in the oceans. This is a praiseworthy endeavor in which all should join.

“China should also take a lead in re-starting and concluding an Environmental Goods Agreement (EGA).” (pages 10-11).

On the Joint Statement Initiatives, China has the ability to determine the level of ambition in the e-commerce negotiations on issues like privacy, cross border data flow and forced localization of servers. It also is involved in JSIs on Investment Facilitation for Development and on Domestic Regulation of Service. Amb. Wolff notes that China will need to take a position on whether JSIs become part of the WTO acquis or not –

“Any results from the JSIs will add to the world trade rule book and constitute reform. It remains to be seen how valuable these agreements will be, and it is not yet clear how they will be incorporated into the WTO acquis. Either the WTO will be a venue for the negotiation of these crucial open plurilaterals or it will not, and China will have to make a choice as to its position on
the subject. Open plurilateral agreements are essential to the future health of the international trading system.” (page 12)

On WTO reform, both in terms of new rules and restoring the dispute settlement system, Amb. Wolff notes that the two areas will be intertwined and will require addressing “industrial subsidies, state intervention in the economy and technology transfer.” China views these issues defensively which will not help restore the system.

“As a major economy and important stakeholder in the multilateral trading system, China has a pivotal role to play which it should approach positively and constructively – rather than defensively, engaging actively in deliberations on reform. There is a choice between seeing areas of emerging rules as targeting or threatening China’s practices or, more fruitfully, seeing how they can serve the trading system more broadly. Either the WTO will be the venue for setting the rules of engagement or it will be done regionally, bilaterally or unilaterally. It should be in China’s interest to seek resolutions where it has a seat at the table.” (page 13)

On transparency, China will play an important role in whether the WTO 12th Ministerial Conference requires greater transparency and whether Members requires the Secretariat to “independently and aggressively report on all measures affecting trade flow, those that impede trade and those that facilitate it.” (page 14)

Amb. Wolff then addresses several sensitive issues: self-designation of developing country, “market-oriented policies” (what the U.S. would term China’s non-market economy). Amb. Wolff views the self-designation issue as less important for China since China “states that it will accept obligations commensurate with its capacity.” (page 14)

On the question of “market oriented policies,” Amb. Wolff has a long section.

“More serious than the rhetorical issue of whether China is or is not a developing country is the heated discussion over ‘market-oriented policies’. The Riyadh Initiative for the Future of the WTO reached a highly interesting outcome in its November 2020 G20 meeting. The Saudi chair reported that all members agreed to the following list as part of the principles of the WTO under the heading of ‘Rule of Law’:

“o Transparency

“o Non-discrimination

“o Inclusiveness

“o Fair competition

“o Market openness

“o Resistance to protectionism

“o Reciprocal and mutually advantageous arrangements, acknowledging that agreements provide for differential and more favorable treatment for developing economies, including special attention to the particular situation of least developed countries

“The Saudi chair reported that Members could not reach agreement that ‘market-oriented policies’ is a principle of the WTO.

“China defends the role of the state in its economy. However, whether it should be as sensitive as it is to the adoption of this principle is questionable. China already committed in the Working Party Report accompanying its Protocol of Accession that its state-owned enterprises (SOEs) would behave in effect in a market-oriented manner:

“‘44. In light of the role that state-owned and state-invested enterprises played in China’s economy, some members of the Working Party expressed concerns about the continuing governmental influence and guidance of the decisions and activities of such enterprises relating to the purchase and sale of goods and services. Such purchases and sales should be based solely on commercial considerations, without any governmental influence or application of discriminatory measures. . . …

“‘46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.

“This commitment already applies to government influence over private or quasi-private enterprises as well, foreign or domestic, where the role of the state is even less overt, because any government intervention that favors national goods, services, or IP, or treats one foreign supplier less favorably than another, violates fundamental and binding WTO non-discrimination rules: National Treatment and the Most-Favored Nation Principle. The hurdle is often not the legal principle involved but adducing proof of the influence.

“China’s Accession Protocol itself, providing other Members with additional flexibilities to restrict imports from China, indicates a belief of the negotiators for China’s entry into the WTO that there would be continuing progress toward China allowing market forces to determine competitive outcomes in its market, to determine investment, and to avoid artificially supporting
its exports.

The golden rule of the multilateral trading system is that competitive outcomes should be determined by market forces and not state intervention. Without this rule, the system cannot function as intended. As the world’s largest exporting country, China should recognize that this fundamental principle is in its commercial interest. Its enterprises require access to markets around the world. That market forces are to determine competitive outcomes is the basis for the WTO and the GATT before it. Were this precept not accepted and applied, there would no effective alternative but to adopt additional interface mechanisms, far beyond the transitional antidumping and safeguard flexibilities applied to China in the first 12-15 years of its WTO membership under the terms of its accession.” (pages 15-16)(Emphasis added)

Amb. Wolff flags climate change and how WTO Members chose to deal with it as a possible third major area of disagreement, focusing on carbon border adjustment measures.

Amb. Wolff then looks at what the WTO would look like if China’s proposals for reform were adopted. See page 17-19. While some of the proposals are noncontroversial, China argues for self-designation of developing country status, right to have as much state involvement in the economy without WTO scrutiny as a Member wishes, selective reductions in agricultural subsides (US and EU but not China or India), no disciplines on industrial subsidies among others which clearly are contrary to what Amb. Wolff has identified as the necessary course for maintaining WTO relevance.

The paper identifies a series of statements on “What can and should be anticipated going forward with respect to WTO reform, including China’s role in it?” (page 21; nine statements). The list identifies both what needs to be done and what is likely if such actions are not achieved.

“1) Despite the valuable everyday work of the WTO — from standards notifications, assisting developing countries with a wide variety of challenges posed by trade, to trade policy reviews that are among the most civilized interactions of sovereign nations in accepting scrutiny of their policies — absent negotiation of new agreements the WTO will continue to lose credibility. In particular the WTO Members must act to allow their organization to rise to the trade challenges of pandemics and climate change and conclude the fisheries subsidies negotiations. China is central to making the WTO responsive to current challenges.

“2) China is active in JSIs. It should press for open plurilaterals to become a regular and accepted feature of the WTO system.

“3) There will be no restoration of an appellate function for dispute settlement without dealing with issues surrounding China’s trade practices. This will of necessity include addressing substantive rules, and not just how the appellate and panel functions are managed. It will be a difficult negotiation.

“4) The WTO must adopt and implement an explicit rule that market-forces will determine competitive outcomes. China is already pledged to this. This prospective fight can be avoided because it is unnecessary and because it cannot be won by China.7 But then China would have to have its economy be consistent with any resulting new rules that might be constructed. China is not the only economy with state involvement, although it is more pervasive and has more global systemic relevance than is true for any other country. For the sake of the future of the WTO, for the multilateral trading system, this challenge, however daunting, must be met for the WTO to survive as an effective system of rules for global trade.

“5) China, the U.S. and the EU each need to recognize the essential value of the WTO and invest in it accordingly. (This goes for India, South Africa, and others as well.)


“6) De-globalization, were it more than a correction for overly lean and extended supply lines, is not in the interests of any of the WTO Members, least of all, China. It is, avoidable. Re-balancing too far inward, over-emphasizing near-shoring, will hurt all
economies, disproportionately for the largest trading WTO Members. Some shortening of supply lines as a hedge against disruptions can be expected but will be limited by the need to avoid unnecessary costs.

“7) International agreements function on trust. It is up to the Members with the largest trade to increase the level of trust in the system. Trust is not created by stipulating it; it must be earned by experience. To say that there is a trust deficit between the two
largest trading nations would be a gross understatement. Within the WTO, it is time to consider how they can engage in putting into place confidence-building measures.

“8) If the WTO is not able to function, regional agreements will be where serious trade negotiations take place. This will be against the interests of all, including the big three.

“9) China needs to become an effective champion in the cause of preserving and enlarging the scope and effectiveness of the WTO. A major objective of China’s national interest must remain integration into, not retreat from, the world economy.
This can only be achieved through investing in the multilateral trading system. “

“7 Two distinguished academics, Mavroidis and Sapir, have written that the WTO Members must reinforce the
WTO’s fundamentals, which means market-based trade. They say that China must evolve its system to be
compatible. There is little belief in academia that this will occur. It does not seem to be the direction of change in
China at present.” (pages 21-23)(Emphasis added)

Amb. Wolff adds “A cautionary note” several paragraphs of which are copied below

“The life span of any trade agreement, including the WTO acquis, depends on the underlying evolution of the commerce of the parties toward greater openness. If there is stasis, or retreat from openness, then the duration of the agreement will be short.

The WTO is about convergence not coexistence. That is why transition periods exist to deal with differences rather than permanent exclusions. The rules emerging from a process of ‘WTO reform’ will either trend toward reinforcing convergence or increasing the use of interface mechanisms, the safeguards against governmental measures that distort the market. There is no middle ground if the WTO is to be effective. What we do not know is how long the multilateral trading system can endure if convergence is not going to take place.” (page 24)(Emphasis added)

Comments and Conclusion

Trade and the WTO have obviously been highly beneficial to China and to many other Members. Nonetheless, China has been working hard not to have its economic system evolve to a market-based one. It has generally not pursued liberalization that benefits all versus favoring China. It insists on coexistence vs. convergence. It uses the consensus system to prevent evaluation of its practices which distort trade It has limited transparency of its actions and has engaged in actions against individual Members that are retaliatory and coercive. As the world’s largest exporter, China has a critical role in global trade. But the dangers Amb. Wolff has outlined in his speech where market principles and convergence are not the core values are manifesting themselves in the world marketplace as countries look for alternative approaches to deal with China’s trade distortions.

Amb. Wolff’s speech outlines a number of ways that China can improve the functioning of the WTO and exhibit leadership in WTO reform. His speech is an important one which hopefully has had a receptive audience in China. Unfortunately, while there are some identified actions that China may take, it is unlikely that China will do anything to address the critical differences that its economic system poses to the survival of the global trading system.

G20 Trade and Investment Ministerial Statement of October 12 and Amb. Tai’s comments on the WTO from October 14 — the ongoing divide among major Members makes a meaningful WTO MC12 less likely

In prior posts, I have reviewed the challenges facing the WTO as it approaches the 12th Ministerial Conference in Geneva at the end of November, beginning of December. See, e.g., October 8, 2021: The gap between WTO activity and the needs of businesses and workers for the international trading system, https://currentthoughtsontrade.com/2021/10/08/the-gap-between-wto-activity-and-the-needs-of-businesses-and-workers-for-the-international-trading-system/; September 18, 2021: The WTO’s 12th Ministerial Conference in Late November – early December 2021 — the struggle for relevance, https://currentthoughtsontrade.com/2021/09/18/the-wtos-12th-ministerial-conference-in-late-november-early-december-2021-the-struggle-for-relevance/; May 10, 2021:  World Trade Organization — possible deliverables for the 12th Ministerial Conference to be held in Geneva November 30-December 3, 2021, https://currentthoughtsontrade.com/2021/05/10/world-trade-organization-possible-deliverables-for-the-12th-ministerial-conference-to-be-held-in-geneva-november-30-december-3-2021/.

The G20 Trade and Investment Ministerial Statement of October 12, 2021

WTO Reform

While the vast majority of WTO Members profess an interest in a successful MC12 beginning in late November, the reality is that success means very different things to different Members. The G20 countries have repeatedly called for a successful MC12, but this week’s meeting in Sorento Italy and resulting Ministerial statement on trade and investment shows limited actual convergence on what should be achieved at the upcoming WTO Ministerial Conference. See G20 TRADE AND INVESTMENT MINISTERIAL MEETING – OCTOBER 12, 2021, G20 MINISTERIAL STATEMENT ON TRADE AND INVESTMENT, https://www.g20.org/wp-content/uploads/2021/10/G20-TIMM-statement-PDF.pdf.

Paragraph 6 of the G20 Trade and Investment Ministerial statement reiterates support for a successful MC12.

“We commit to a successful and productive WTO 12th Ministerial Conference as an important opportunity to advance WTO reform to revitalise the organisation. We commit to active engagement in this work to provide the political momentum necessary for progress.”

Yet the statement is short on specific areas of reform other than improving rule making and dispute settlement — areas where there has been no meaningful forward movement ahead of MC 12 and where there are major divisions among G20 countries.

Trade and Health

On the topic of “trade and health” there is support among G20 countries for equitable access to vaccines, therapeutics, diagnostics and personal protective equipment, and G20 countries are making belated contributions to increased supplies to the most vulnerable. However, with the exception of export restraints where there is language recognizing the right of countries to take actions in limited circumstances, the divisions amongst the G20 make specifics on WTO issues merely aspirational.

“10. We will work actively and constructively with all WTO members in the lead up to the 12th Ministerial Conference and beyond to enhance the capacity of the multilateral trading system to increase our pandemic and disaster preparedness and resilience by adopting a multifaceted response. Trade-related aspects of intellectual property rights, contributions to international efforts to expand production and delivery of vaccines, therapeutics and essential medical goods, diversifying manufacturing
locations and fostering equitable distribution, trade facilitation measures, export restrictions, encouraging regulatory compatibility, are among the areas where our constructive engagement in the WTO, notably in the TRIPS Council, the Council for
Trade in Goods, the Council for Trade in Services, and other relevant bodies and processes, can enhance global public health efforts.”

While there may be language in an MC12 declaration and a work program for the future, there will not likely be any meaningful results announced at MC12.

Services and Investments


Embarrassingly for the WTO, Members, efforts to develop multilateral rules for digital trade and e-commerce continue to be far from concluded. This has led to the Joint Statement Initiative (“JSI”) on E-Commerce and other JSIs being launched at the 11th WTO Ministerial Conference in Buenos Aires in 2017 amongst a subset of WTO Members but open to all. Two of the other JSIs are Investment Facilitation for Development and Services Domestic Regulation. The JSI on Services Domestic Regulation has reportedly reached an agreement that will be presented at MC12. However, within the G20, there are some countries who oppose bringing JSIs into the WTO — most notably, India and South Africa. See WTO News, Participants in domestic regulation talks conclude text negotiations, on track for MC12 deal, 27 September 2021, https://www.wto.org/english/news_e/news21_e/serv_27sep21_e.htm; THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES, submission from India, Namibia and South Africa, 30 April 2021, WT/GC/W/819/Rev.1. This difference of views is reflected in the G20 Trade and Investment Ministerial Statement.

“14. G20 participants in the Joint Statement Initiatives on E-Commerce, Investment Facilitation for Development and Services Domestic Regulation encourage and support the active participation of all WTO members in the initiatives and look
forward to meaningful progress in the lead up to the 12th WTO Ministerial conference. Concerns have been expressed on rule-making by some G20 members that are not part of the JSIs.”

Government Support and Level Playing Field

The section of the Ministerial Statement looking at government support and level playing field issues recognizes that there are “structural problems in some sectors, such as excess capacities” which cause problems and note that “Many G20 members affirm the need to strengthen international rules on industrial subsidies and welcome ongoing international efforts to improve trade rules affecting agriculture.” As is clear “many of us” means a number of G20 countries don’t agree. Industrial subsidy rule improvement is intended to address the distortions caused by China’s programs (and of others). Agriculture market access and agricultural subsidies and transparency are also issues where there is a significant division among G20 countries.

Trade and Environmental Sustainability

The challenges to the world from a warming climate are existential. The Ministerial Statement contains useful language of a general nature in terms of the importance of addressing environmental issues and that “trade and environmental policies should be mutually supportive”. The G20 support reaching a conclusion to the fisheries subsidies negotiations even though there have been recent actions by some G20 countries — again, India and South Africa — to weaken disciplines on “developing” countries which threaten the achievement of a meaningful agreement 20 years after negotiations commenced.

MSMEs

Micro-, small- and medium-sized enterprises are a critical part of most countries economies and make up a larger share of business in lower income countries. While the Ministerial Statement addresses MSMEs importance and need for additional assistance, there is no mention of the Joint Statement Initiative on MSMEs among some WTO Members and the fact that an agreement is ready for presentation at MC12 with the agreement being open to all. See WTO News, Working group on small business finalises MC12 draft declaration, 27 September 2021, https://www.wto.org/english/news_e/news21_e/msmes_28sep21_e.htm. India and South Africa and others have raised the same objection to the MSME JSI as they have to the others.

Conclusion on G20 Trade and Investment Ministerial Statement

The deep divisions within the WTO membership are reflected as well among the G20 countries with China, India, South Africa and others having much different priorities that the historic leadership of the GATT/WTO including the U.S., EU, Canada, United Kingdom, Australia and others. It is the lack of a common purpose and agreement on basic principles that has largely paralyzed the negotiating function at the WTO. The disappointing G20 Trade and Investment Ministerial Statement reflects that same lack of common purpose and agreement on basic principles.

USTR Katherine Tai’s October 14, 2021 Prepared Remarks on the WTO

The U.S. Trade Representative traveled to Geneva after the G20 Trade and Investment Ministers meeting in Italy and spoke on the WTO at an event hosted by the Graduate Institute of International and Development Studies’ Geneva Trade Platform on October 14. Ambassador Tai’s prepared statement is available on the USTR webpage and is reproduced below. See USTR,Ambassador Katherine Tai’s Remarks As Prepared for Delivery on the World Trade Organization, October 14, 2021, https://ustr.gov/about-us/policy-offices/press-office/speeches-and-remarks/2021/october/ambassador-katherine-tais-remarks-prepared-delivery-world-trade-organization.

” Good afternoon.  Thank you to Dmitry and Richard, the Geneva Trade Platform, and the Graduate Institute of International and Development Studies for hosting me today and putting together this event.

“It is a pleasure to be back in Geneva.  I have looked forward to making this trip since becoming the United States Trade Representative in March, and I am grateful to be here with all of you today.  

“I spent a lot of time in this city earlier in my career representing the United States Government with pride before the World Trade Organization.  

“I appreciate the importance of the institution.  And I respect the dedicated professionals representing the 164 members, as well as the WTO’s institutional staff working on behalf of the membership.  I also want to thank Director-General Dr. Ngozi for leading this organization through a difficult and challenging year. 

“Let me begin by affirming the United States’ continued commitment to the WTO.  

“The Biden-Harris Administration believes that trade – and the WTO – can be a force for good that encourages a race to the top and addresses global challenges as they arise.  

“The Marrakesh Declaration and Agreement, on which the WTO is founded, begins with the recognition that trade should raise living standards, ensure full employment, pursue sustainable development, and protect and preserve the environment. 

“We believe that refocusing on these goals can help bring shared prosperity to all.

“For some time, there has been a growing sense that the conversations in places like Geneva are not grounded in the lived experiences of working people.  For years, we have seen protests outside WTO ministerial conferences about issues like workers’ rights, job loss, environmental degradation, and climate change as tensions around globalization have increased. 

“We all know that trade is essential to a functioning global economy.  But we must ask ourselves: how do we improve trade rules to protect our planet and address widening inequality and increasing economic insecurity?

“Today, I want to discuss the United States’ vision for how we can work together to make the WTO relevant to the needs of regular people.

“We have an opportunity at the upcoming 12th ministerial conference – or MC12 – to demonstrate exactly that.

“Throughout the pandemic, the WTO rules have kept global trade flowing and fostered transparency on measures taken by countries to respond to the crisis.  But many time-sensitive issues still require our attention.  We can use the upcoming ministerial to deliver results on achievable outcomes.

“The pandemic has placed tremendous strain on peoples’ health and livelihoods around the world.  The WTO can show that it is capable of effectively addressing a global challenge like COVID-19, and helping the world build back better. 
  
“There are several trade and health proposals that should be able to achieve consensus in the next month and a half.  

“I announced in May that the United States supports text-based discussions on a waiver of intellectual property rights for COVID-19 vaccines.  The TRIPS Council discussions have not been easy, and Members are still divided on this issue.  The discussions make certain governments and stakeholders uncomfortable.  But we must confront our discomfort if we are going to prove that, during a pandemic, it is not business as usual in Geneva.  

“The United States is also working on a draft ministerial decision aimed at strengthening resiliency and preparedness through trade facilitation.  Our proposal would improve the sharing of information, experiences, and lessons learned from COVID-19 responses to help border agencies respond in future crises.  

“It is important that our work on trade and health does not end at MC12.  This pandemic will not be over in December, and it will not be the last public health crisis we encounter.  In the next six weeks, we also have an opportunity to conclude the two-decades-long fisheries subsidies negotiations and show that the WTO can promote sustainable development.  

“We want to continue working with Members to bridge existing gaps in the negotiations.  

“To this end, the United States is sharing options to respond to developing countries’ request for flexibilities.  We believe that any agreement must establish effective disciplines that promote sustainability.  

“It must also address the prevalence of forced labor on fishing vessels.  We call on all Members to support these goals.

“I recognize that discussing these complex issues during a pandemic is hard.  Despite this challenge, we can reach meaningful outcomes and set ourselves up for candid and productive long-term conversations on reforming the WTO.

“As I mentioned earlier, the reality of the institution today does not match the ambition of its goals.  Every trade minister I’ve heard from has expressed the view that the WTO needs reform.  

“The Organization has rightfully been accused of existing in a ‘bubble,’ insulated from reality and slow to recognize global developments.  That must change.

“We are used to talking to each other, a lot.  We need to start actually listening to each other.

“We also must include new voices, find new approaches to problems, and move past the old paradigms we have been using for the last 25 years.  

“We need to look beyond simple dichotomies like liberalization vs. protectionism or developed vs. developing.  Let’s create shared solutions that increase economic security.

“By working together and engaging differently, the WTO can be an organization that empowers workers, protects the environment, and promotes equitable development. 

“Our reform efforts can start with the monitoring function.  In committees, Members deliberate issues and monitor compliance with the agreements.  This important work is a unique and underappreciated asset of the WTO. 

“Increasingly, however, Members are not responding meaningfully to concerns with their trade measures.  The root of this problem is a lack of political will.  But committee procedures can be updated to improve monitoring work.  

“At MC12, Ministers can direct each committee to review and improve its rules. 

“It is also essential to bring vitality back to the WTO’s negotiating function.  We have not concluded a fully multilateral trade agreement since 2013.

“A key stumbling block is doubt that negotiations lead to rules that benefit or apply to everyone. But we know that negotiations only succeed when there is real give and take.

“We can successfully reform the negotiating pillar if we create a more flexible WTO, change the way we approach problems collectively, improve transparency and inclusiveness, and restore the deliberative function of the organization.

“Over the past quarter century, WTO members have discovered that they can get around the hard part of diplomacy and negotiation by securing new rules through litigation.    

“Dispute settlement was never intended to supplant negotiations.  The reform of these two core WTO functions is intimately linked.  

“The objective of the dispute settlement system is to facilitate mutually agreed solutions between Members.  Over time, ‘dispute settlement’ has become synonymous with litigation – litigation that is prolonged, expensive, and contentious.  

“Consider the history of this system.  

“It started as a quasi-diplomatic, quasi-legal proceeding for presenting arguments over differing interpretations of WTO rules.  A typical panel or Appellate Body report in the early days was 20 or 30 pages.  Twenty years later, reports for some of the largest cases have exceeded 1,000 pages.  They symbolize what the system has become: unwieldy and bureaucratic. 

“The United States is familiar with large and bitterly fought WTO cases.  Earlier this year, we negotiated frameworks with the European Union and the United Kingdom to settle the Large Civil Aircraft cases that started in 2004.  

“We invoked and exhausted every procedure available.  And along the way, we created strains and pressures that distorted the development of the dispute settlement system.

“With the benefit of hindsight, we can now ask: is a system that requires 16 years to find a solution ‘fully functioning?’

“This process is so complicated and expensive that it is out of reach for many – perhaps the majority – of Members. 

“Reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.  

“It is about revitalizing the agency of Members to secure acceptable resolutions.

“A functioning dispute settlement system, however structured, would provide confidence that the system is fair.  Members would be more motivated to negotiate new rules.

“Let’s not prejudge what a reformed system would look like. While we have already started working with some members, I want to hear from others about how we can move forward.

“Reforming the three pillars of the WTO requires a commitment to transparency.  Strengthening transparency will improve our ability to monitor compliance, to negotiate rules, and to resolve our disputes. 

“I began these remarks with an affirmation of commitment.  I’d like to conclude with an affirmation of optimism.

“I am optimistic that we can and will take advantage of this moment of reflection.

“In reading over the Marrakesh Agreement’s opening lines, I was struck by the founding Members’ resolve to develop ‘a more viable and durable multilateral trading system.’  

“These words are just as relevant today as they were then. We still need to work together to achieve a more viable and durable multilateral trading system.

“It is easy to get distracted by the areas where we may not see eye to eye.  But in conversations with my counterparts, I hear many more areas of agreement than disagreement.  

“We all recognize the importance of the WTO, and we all want it to succeed. 

“We understand the value of a forum where we can propose ideas to improve multilateral trade rules.  We should harness these efforts to promote a fairer, more inclusive global economy.  

“WTO Members are capable of forging consensus on difficult, complicated issues. It’s never been easy, but we’ve done it before.  And we can do it again.  

“Thank you.”

Comments on USTR Tai’s statement on the WTO

The Biden Administration has been supportive of multilateral institutions, and that support is relfected in Amb. Tai’s comments. At the same time, the U.S. has believed that a small package of deliverables is achievable for MC12 with hopefully a work program for the serious reform that is needed also being agreed to at MC12. Amb. Tai’s comments reflect both optimism and a limited set of deliverables being sought.

The Fisheries Subsidies negotiations has made limited progress on a range of important issues. The U.S. is attempting to find answers to problems raised by others while still achieving a meaningful outcome. With the limited time remaining, this suggests either a less robust agreement or movement by others to a higher level of ambition or to no agreement being finalized. Addressing forced labor in fishing and more broadly should be important to all WTO Members, was raised by the U.S. (and is important to Democratic leadership in the Congress) but is opposed by some, including China. If the U.S. continues to pursue the addition of this issue to the fisheries subsidies text,

On greater transparency, Members agreeing to have Committees review their procedures to improve the monitoring function are important steps that could be taken to improve Member confidence in actions of trading partners and affect negotiations and dispute settlement as well. Even such seemingly simple steps, however, may not move forward as at least one major country — China — has as one of its negotiating priorities not changing transparency obligations.

Revitalizing the negotiating function and restoring a dispute settlement system are longer term efforts, with the U.S. vision on dispute settlement (focus on what dispute settlement is doing vs. ensuring a two stage process) far apart from that of the EU and many other Members.

And, of course, the U.S. is supportive of some form of outcome on addressing the pandemic and trade and health moving forward. Whether there will be outcomes in this area are dependent more on flexibility by others as the U.S. has been looking for solutions that will meet the pandemic needs and prepare for the future.

Conclusion

With very limited time until the 12th WTO Ministerial Conference begins at the end of November, it is hard to see an ambitious outcome emerging from the efforts of WTO Members. The G20 Trade and Investment Ministerial Statement from October 12 reflects the divisions amongst the major WTO Members. Amb. Tai’s statement yesterday in Geneva while positive on the WTO and its important role tees up a relatively limited outcome as likely for MC 12. Even Amb. Tai’s more realistic set of expectations are likely to be challenging to achieve.

WTO Information Notes on COVID-19 Vaccine Production and Potential Bottlenecks

On October 8, 2021, the WTO released the latest in a series of Information Notes pertaining to the COVID-19 pandemic. The first one is entitled “COVID-19 Vaccine Production and Tariffs on Vaccine Inputs”. The purpose of the information note was to examine public information to see if import tariffs in any of the 27 major vaccine manufacturing countries could pose challenges or create “choke” points in vaccine production. The second Information Note is entitled “Indicative List of Trade-Related Bottlenecks and Trade-Facilitating Measures on Critical Products to Combat COVID-19” and is an update on an earlier version released 20 July 2020. Both Information Notes are linked to a WTO press release from 8 October. See WTO news, WTO issues papers on vaccine inputs tariffs and bottlenecks on critical COVID-19 products, 8 October 2021, https://www.wto.org/english/news_e/news21_e/covid_08oct21_e.htm

The second Information Note is the more important of the two papers as it identifies a range of challenges to the expedited movement of vaccines and inputs. However, the first paper is interesting in terms of identifying tariffs on critical materials in major producing countries. However, as the paper acknowledges, the analysis has its limitations.

” 2. TECHNICAL DETAILS
“The MFN applied tariffs were based on the dataset used for World Tariff Profiles 2021, and 2020
imports were based on the TDM dataset3. Even if the national tariff line data (i.e. eight-digit tariff
line codes) were available, beyond the standard HS six-digit level there is no uniformity of codes
across national tariff nomenclatures. Thus, even if only a portion of the HS six-digit code pertains to
the COVID-19 vaccine input, the data used in the analysis both for tariffs and imports were the
six-digit MFN tariff average and the total six-digit imports from the world. Preferential tariffs were
not taken into consideration and thus intra-EU imports, imports from partners of free trade
agreements (FTAs) or any other preferential imports were treated as if MFN tariffs were levied.
Furthermore, there was definitely an over-estimation of the import value of the inputs, since
identification of the national breakdown pertaining to the actual product used in vaccine
manufacturing cannot be easily done. Sometimes even within the most detailed national tariff line
(or specific product) code available (eight digits or longer), the product coverage does not
necessarily refer only to the specific vaccine input and includes non-vaccine-related inputs. While
tariff estimates can be arguably good enough,4 the same cannot be said of the estimated imports
value.” (footnotes omitted)

Certainly for the EU, U.S. and some others, many of the potentially dutiable imports will have been duty free from FTAs or other preferential partners. But the Information is nonetheless useful in flagging general categories of products important to vaccine production that have bound tariffs at 5% or greater. While neither the U.S. nor Japan have any such categories, many other vaccine producing countries have one, several or many product categories where bound tariffs are 5% or higher. Table 4 of the Information Note provides a useful summary of the findings made.

Table 2 of the Information Note presents a summary of the weighted average MFN tariff rate by country.
Thus, from a bound tariff perspective, some countries, particularly developing countries are assessing ordinary customs duties on materials needed for the production of COVIDE-19 vaccines at relatively high rates that at a minimum increase costs, making it more expensive to provide vaccines to the domestic population or export populations.

A detailed review of each of the 27 countries is provided in the WTO’s Vaccine Production and Tariffs on Vaccine Inputs which is attached to the first Information Note.

The second note is the more interesting as it reflects issues and suggestions from various stakeholders on how to expand production and access to vaccines, therapeutics and medical devices needed to combat COVID-19. The introduction to the Information note provides useful background.

“1. INTRODUCTION
“This information note seeks to facilitate access to information on possible trade-related bottlenecks and trade-facilitating measures on critical products to combat COVID-19, including inputs used in vaccine manufacturing, vaccine distribution and approval, therapeutics and pharmaceuticals, diagnostics and medical devices. It is not meant to be an exhaustive list of all specific trade measures, nor does it make any judgement on the effect or significance of the reported bottlenecks, nor on the desirability of implementing any of the suggestions on trade-facilitating measures.3

“The indicative list is based on issues identified and suggestions made by stakeholders at various events and consultations convened by the WTO, as well as with vaccine manufacturers in the context of meetings organized by the Multilateral Leaders Task Force on COVID-19,4 which includes the heads of the International Monetary Fund (IMF), the World Bank Group, the World Health Organization (WHO) and the WTO.5 This revision includes information as of 4 October 2021. Entries under each subheading are presented in no particular order. One common theme that emerges is that essential goods and inputs need to flow efficiently and expeditiously to support the rapid scaling up of COVID-19 production capacity worldwide. As manufacturers scale up production and establish new sites in different countries, the production network is not only becoming larger but also increasingly complex and international. The delay of a single component may significantly slow down or even bring vaccine manufacturing to a halt, so it follows that inputs need to flow expeditiously, and each node within the supply chain network needs to operate seamlessly with the others.” (footnotes omitted)

There are a large number of potential trade-related bottlenecks including export restrictions (13 WTO Members are reported to have one or more), such restrictions as applied by manufacturers to “fill and finish” sites, effect of such restrictions on clinical trials, high applied tariffs, customs administration challenges (no green channels for expedited clearance, limited hours of customs operation, treatment of non-commercial samples sent for testing ad quality control, import barriers/delays on manufacturing equipment), challenges in completing consular transactions.

There are also many bottlenecks identified from vaccine regulatory approval including when looking at WHO Emergency Use Listing, requirements for application/registration and authorization, inspection, release, post-approval changes, donations, EUA and regular approval, scaling up production and other issues.

The paper also identifies bottlenecks in the distribution of finished vaccines and immunization supplies, bottlenecks in trade in pharmaceuticals, bottlenecks in trade in diagnostics and other medical devices.

All in all, a daunting list of challenges the vast majority of which involve the importing country and the complexity of systems for approval of medical goods and vaccines.

The last four pages of the Information Note then identify “possible trade-facilitating measures” that could be taken to improve movement of goods. Because the information note is providing a summary of proposals put forward by stakeholders and is not an agreed set of steps by WTO Members, the note states that “no judgement is made on the desirability of implementing any of these suggestions.” Page 7. That said, many of the suggestions relate to streamlining import operations, e.g., through implementation of the Trade Facilitation Agreement, seeing that customs operates 24 hours/7 days a week, exemptions from export restrictions, harmonization of regulatory approaches and many more.

Conclusion

The Information Notes developed by the WTO provide useful information either from public sources, such as the bound tariff rates of COVID-19 vaccine input materials or summaries of information gathered from stakeholders at events looking at how to ramp up production and distribution of vaccines. It is clear that the challenges for all WTO Members in addressing the global pandemic are many and not easily addressed. The Information Notes provide a data base that can be used by WTO Members to see that the current pandemic is fully addressed in fact in the coming months, and that Members consider ways to prepare for a better outcome to future pandemics.

The gap between WTO activity and the needs of businesses and workers for the international trading system

On October 7, the WTO General Council held the first of two days of its fall meeting at the WTO (combination in person/virtual) with a typical agenda including many elements of what has been under negotiation for possible outcomes at the 12th Ministerial Conference in Geneva starting November 29. See WTO General Council 7-8 October 2021, Proposed Agenda (5 October 2021), WT/GC/W/828. The WTO press release from yesterday, is entitled “General Council chair briefs members on work towards MC12 outcome document”. https://www.wto.org/english/news_e/news21_e/gc_07oct21_e.htm. Obviously further discussion of the agenda items before the General Council will occur today.

However, with the exception of progress on several Joint Statement Initiatives separately reported (e.g., MSMEs and Services Domestic Regulation), the WTO Members are struggling to find results in a host of areas, including concluding fisheries subsidy negotiations that have dragged on for 20 years, agriculture negotiations, response to the COVID-19 pandemic, e-commerce, WTO reform and more. See, e.g., WTO News, Working group on small business finalises MC12 draft declaration, 27 September 2021, https://www.wto.org/english/news_e/news21_e/msmes_28sep21_e.htm; WTO News, Participants in domestic regulation talks conclude text negotiations, on track for MC12 deal, 27 September 2021, https://www.wto.org/english/news_e/news21_e/serv_27sep21_e.htm; JOINT INITIATIVE ON SERVICES DOMESTIC REGULATION, REFERENCE PAPER ON SERVICES DOMESTIC REGULATION, NOTE BY THE CHAIRPERSON, 27 September 2021, INF/SDR/1; Financial Times, WTO clambers towards an unambitious summit,30 September 2021, https://www.ft.com/content/50109953-45e8-4e01-8d2a-d543aa821a6e; Bloomberg, Okonjo-Iweala Grows Frustrated With WTO Inertia, Floats Quitting, September 30, 2021, https://www.bloomberg.com/news/articles/2021-09-30/okonjo-iweala-grows-frustrated-with-wto-inertia-floats-quitting.

The October 7 WTO news on the General Council’s Chairman’s report doesn’t show significant progress on the few items addressed in the news release.

“The chair of the General Council, Ambassador Dacio Castillo of Honduras, briefed WTO members on 7 October regarding his consultations on a possible outcome document for trade ministers to adopt at the WTO’s upcoming 12th Ministerial Conference (MC12). He encouraged delegations to continue to work towards producing a draft document by the end of October.

“‘Work towards a possible MC12 outcome document is a member-led process,’ the chair declared. ‘As always, it is the members that decide what goes into any agreed outcome document.’

“Ambassador Castillo has been assisting WTO members in his capacity as General Council chair with work on the first part of the outcome document, which would cover: (i) the context in which MC12 takes place; (ii) broader political messages; and (iii) guidance from ministers on additional elements members may agree on.

“Work has taken place in a small group format broadly representative of the membership and comprising all group coordinators and several other delegations, he noted. Transparency is being ensured through group coordinators who keep their members up to date on the ongoing discussions and feed their views and suggestions back into the process, as well as through the chair’s regular reports at informal General Council meetings.

“The chair said that, based on the preliminary exchanges in the small group, members believe the first part of the outcome document should take into account both the external and internal environments in which MC12 is taking place, namely the pandemic, the changed trading landscape, and the systemic/internal challenges that the WTO is facing. 

“Members have also expressed views that ‘political messages’ should note the need for greater solidarity and collaboration amongst members, the role of international trade and the WTO in global economic recovery, a reaffirmation of the principles enshrined in the Marrakesh Agreement, and the needs and interests of developing country members, in particular the least developed members.

“The chair has followed members’ guidance in drafting possible language for an outcome document, focusing on the broader messages where possible convergence could be detected. The small group had a useful and constructive first exchange on the draft language earlier this week and work will continue in the coming days and weeks, he noted.

“* * *

“Ambassador Castillo also briefed on his consultations with members regarding the WTO’s Work Programme on Electronic Commerce as well as the possible continuation of the e-commerce moratorium. Since 1998, WTO members have periodically renewed the moratorium at each Ministerial Conference and have continued addressing e-commerce related issues in the Goods Council, the Services Council, the TRIPS Council and the Committee on Trade and Development as part of the e-commerce work programme.

“The chair said he highlighted in the consultations the need to intensify work towards a possible draft decision for the consideration of ministers at MC12. He noted that, despite the well-known differences in members’ positions, many continue to attach importance to e-commerce and that the pandemic had highlighted e-commerce opportunities as well as its challenges, both of which should continue to be discussed within the WTO.

“Delegations generally reiterated their views with respect to the moratorium and the Work Programme in the consultations, he said. On the moratorium, proponents considered its extension a priority for MC12 and reiterated its role in providing a stable and predictable trading environment. On the other hand, some delegations said that it would be difficult for them to agree to an extension of the moratorium without clarifying its scope and implications. 

“On the Work Programme, Ambassador Castillo said, no delegation opposed its continuation, although some indicated that they could not accept a decision to continue its work without at least an extension of the moratorium.

“Following the chair’s intervention, Ambassador David Walker of New Zealand provided his report on his consultations within the Facilitator-led Multilateral Process on the WTO response to the COVID-19 pandemic. 

“Ambassador Walker said a large number of delegations in the consultations he undertook as facilitator attached high priority to a meaningful outcome at MC12 on the use of export restrictions and prohibitions in the context of the pandemic, with discussions underscoring the importance of keeping markets open.

“He also said many delegations believe an outcome on trade and health at MC12 should address both the WTO’s response to the current pandemic as well as future crises. To this end, a framework to guide the WTO’s work post-MC12 on how to make the multilateral trading system more resilient and better prepared for such crises was proposed. Such a framework could build on lessons learned from the current pandemic and set out guidelines and best practices for more coordinated responses in the future.

“Ambassador Walker said he will be continuing his consultations in the coming weeks and will continue to report on this process through open-ended and formal meetings as well as formally to the General Council.”

Separately Chairman Castillo’s report on Agenda Item 2 (implementation of the Bali, Nairobi and Buenos Aires Outcomes) was released and can be found at JOB/GC/272 (8 October 2021) but shows little progress on the items covered therein. The report of Amb. David Walker (summarized in the news release) was not released publicly although is identified in “recent documents” on the WTO webpage. See General Council – Agenda item 5.C : WTO response to the COVID-19 pandemic – Report by the Facilitator, H.E. Dr. David Walker (New Zealand) – 7 October 2021, JOB/GC/273. The same is true of other reports from Chairman Castillo and the Director General. See General Council – Agenda item 5.A : Preparations for the Twelfth Session of the Ministerial Conference – MC12 outcome document – Report by the chair – Thursday, 7 October 2021, JOB/GC/274; General Council – Agenda item 5b : Work programme on electronic commerce – Report by the Chair – Thursday, 7 October 2021, JOB/GC/275; General Council – Agenda item 1 : Report by the Chair of the Trade Negotiations Committee and report by the Director-General – Friday, 8 October 2021, JOB/GC/276.

The challenges at the WTO flow from some historical challenges (the preference of India to see no agreements imposing obligations on them, now supported by South Africa and others), from the growing divergence in views as to the purpose of the WTO, from the increased importance of non-market economies in the global trading system and the current failure of existing rules to address their distortions to global trade flows and competition, and the inability of a consensus system with 164 Members to move forward in a timely manner, if at all.

The challenges posed by India and South Africa can be seen in the fisheries subsidy negotiations where they are seeking a huge hole in the agreement’s obligations for developing countries with a duration of 25 years, by their opposition to Members moving forward within the WTO on a plurilateral basis (the Joint Statement Initiatives) where any agreements are open to others to join, from their pursuit of an overly broad waiver request from TRIPs obligations for some undetermined period to address the pandemic, and their recent request for the WTO to examine vaccine passports required by countries to permit the resumption of travel. See, e.g., Inside U.S. Trade’s World Trade Online, India, others propose new exceptions in fisheries talks, September 24, 2021, https://insidetrade.com/daily-news/india-others-propose-new-exceptions-fisheries-talks; THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND
THEIR NEGOTIATED OUTCOMES (submission of India, Namibia and South Africa), 30 April 2021, WT/GC/W/819/Rev.1; WAIVER FROM CERTAIN PROVISIONS OF THE TRIPS AGREEMENT FOR THE PREVENTION, CONTAINMENT AND TREATMENT OF COVID-19, 25 May 2021, IP/C/W/669/Rev.1; The Economic Times, Covid passport, vaccine discrimination new trade barriers: India to WTO, October 7, 2021, https://economictimes.indiatimes.com/news/economy/foreign-trade/covid-passport-vaccine-discrimination-new-trade-barriers-india-to-wto/articleshow/86849838.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.; Financial Times, WTO clambers towards an unambitious summit, 30 September 2021, https://www.ft.com/content/50109953-45e8-4e01-8d2a-d543aa821a6e (“Okonjo-Iweala convened an ad hoc virtual ministerial in July to try for progress on fisheries subsidies, a move she herself admitted was unusual. It was a gamble that did not really come off. India (often with South Africa in a supporting role) has now established a role in the WTO objecting to more or less everything. In the fisheries subsidy talks it has demanded massive loopholes that are politically a total non-starter. There’s talk around the WTO of Okonjo-Iweala going to India to make a direct appeal to Narendra Modi. But the Indian prime minister has resisted all entreaties and openings to do serious trade liberalisation so far, including passing up the chance to join the Regional Comprehensive Economic Partnership, the Asian mega-deal.”).

WTO reform, which is recognized as important to achieve by most Members, is not an agreed set of measures with the U.S., EU, Japan and others seeking reforms to industrial subsidies and to state-owned and state-invested enterprises to address problems faced from China and others. China to date does not agree. Many countries also seek greater transparency and completeness in notifications, particularly on subsidies. There has been only limited progress to date, and those not providing complete notifications presumably oppose the proposal (e.g., China). The U.S., EU and others also want to make objective criteria determinative of which Members are entitled to special and differential treatment, something opposed by some “developing countries” who have self-selected the designation. Many countries want a return of a two-tier dispute settlement system, something that won’t happen against U.S. opposition absent serious reform and restrictions on the second tier, as such restrictions which currently exist in the Dispute Settlement Understanding have been ignored by the Appellate Body and not addressed by Members.

Thus, the WTO is struggling to demonstrate continued relevance. The WTO rules that exist were negotiated during 1986-1993 with limited updates despite the extraordinary changes to trade, technology and make-up of important trading nations.

How far away the WTO Members are from embracing an agenda that meets the needs of business, labor and civil society can be seen from the views put forward by the business community and reviewed at the recent public forum. The International Chamber of Commerce and B20 Italy presented views on what the business community needs from the WTO moving forward. See WTO News, Business groups highlight need for WTO reform, MC12 outcomes, 29 September 2021, https://www.wto.org/english/news_e/news21_e/bus_30sep21_e.htm; ICC, Global Business Priorities for the WTO, September 2021, https://iccwbo.org/content/uploads/sites/3/2021/09/icc-document-wto-policy-paper.pdf. While the paper on the Global Business Priorities doesn’t reflect priorities of labor or civil society, it is an interesting list in terms of what is needed at least by much of the business community for the WTO to reclaim relevancy and address needs of 21st century business. The 27 specific recommendations are listed below grouped under the broad topics shown:

“WTO Reform

“1. Agree on a coherent holistic vision for WTO reform

“2. Put market access back on the agenda

“3. Agree on a path forward to improving the negotiation function

“4. Adopt a new evidence-based approach to Special and Differential Treatment

“5. Agree on a path forward for reforming the dispute settlement system

“6. Promote full compliance with and improvements to the WTO Agreement on Subsidies and
Countervailing Measures (SCM)

“7. Improve the Secretariat’s capacity to monitor trade policy developments

“8. Create a crisis management protocol for future crises

“9. Create a business advisory council and a civil society council

“Trade and Health

“10. Ensure trade policies facilitate vaccine manufacturing and distribution

“11. Creation of a Health Market Information System

“12. Adopt cooperative ways to speed up vaccine production

“13. Adopt and go beyond the Trade and Health Initiative

“Trade and environmental sustainability

“14. Finalise the fisheries subsidies negotiations

“15. Agree to a formal roadmap to address specific issues on trade and environmental
sustainability

“16. Develop a package of recommendations on trade and the circular economy

“17. Deal with carbon leakage in a multilateral way

“Trade and the digital economy

“18. Accelerate the e-commerce negotiations

“19. Develop market access provisions for the digital economy

“20. Make permanent the moratorium on customs duties on electronic transmissions

“21. Create an enabling legal environment for paperless trade

“22. Finalise negotiations for the JSI on Services Domestic Regulation

“Trade and inclusivity

“23. Identify new areas for rulemaking based on best practice from bilateral and regional trade
agreements

“24. Adopt the full package of recommendations of the MSME group

“25. Commit not to impose export restrictions on humanitarian aid

“26. Adopt a declaration with concrete and measurable proposals to advance trade and
women’s economic empowerment

“27. Launch discussions on the negative impact of illicit trade.”

Many of the recommendations made by the ICC and B20 Italy have been identified by one or more Members in the past, many are the subject of proposals, and a few are the subject of active negotiations. Some recommendations may be inconsistent with objectives of civil society (e.g., addressing vaccine equity through waving TRIPs obligations), and few deal with concerns of labor. Some are actively opposed by particular Members. However, the priorities reflect the hope and needs of the business community that Member governments find a path back for the WTO to regain relevancy and permit a more flexible structure to address changing needs on a more timely basis.

The next two months will reveal whether WTO Members can start the process of forward movement and improved relevancy. It seems unlikely that meaningful progress will be made on many fronts, but there is still time if there is a collective will.

The Indo-Pacific region — increased interest in the CPTPP by major trading nations; implications for international trade; U.S. policy towards China

The Trans-Pacific Partnership was originally pursued by the United States to improve trade relations with many countries in the Pacific region and as a counter to rising Chinese influence. See, e.g., New York Times, U.S. Allies See Trans-Pacific Partnership as a Check on China, October 5, 2015, https://www.nytimes.com/2015/10/07/world/asia/trans-pacific-partnership-china-australia.html.

After President Trump withdrew the United States from the Agreement at the beginning of his term in 2017, Japan pushed to conclude the agreement among the remaining eleven countries. The revised agreement, the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership, was signed in Santiago, Chile on 8 March 2018 and took effect 30 December 2018, with 8 of the eleven countries who signed now having ratified — Mexico, Japan, Singapore, New Zealand, Canada, Australia, Vietnam and Peru. That leaves Brunei, Chile and Malaysia as signatories who have yet to ratify the agreement.

With Brexit completed, the United Kingdom was the first non-CPTPP country to apply for membership. Its application filed on 1 February 2021 was accepted on 2 June 2021 with the first negotiations held on 28 September 2021. See Government of Canada, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – Joint Ministerial Statement on the occasion of the Fourth Commission Meeting, 2 June 2021, https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/cptpp_meeting_four-ptpgp_declaration_quatre.aspx?lang=eng; Government of the United Kingdom, UK kickstarts talks to join £9 trillion global trade bloc, 28 September 2021, https://www.gov.uk/government/news/uk-kickstarts-talks-to-join-9-trillion-global-trade-bloc. The U.K.’s application is also an extension of the range of countries potentially eligible for membership since the U.K. is not a Pacific bordering country.

In September, both China and Taiwan applied for membership. See, e.g., Ministry of Commerce, People’s Republic of China, China officially applies to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), September 18, 2021, http://english.mofcom.gov.cn/article/newsrelease/significantnews/202109/20210903201113.shtml; Nikkei Asia, Taiwan submits bid to join CPTPP trade pact, September 23, 2021, https://asia.nikkei.com/Economy/Trade/Taiwan-submits-bid-to-join-CPTPP-trade-pact; Wall Street Journal, China Seeks to Join Pacific Trade Pact After U.S. Forms New Security Alliance, September 16, 2021, https://www.wsj.com/articles/china-seeks-to-join-pacific-trade-pact-after-u-s-forms-new-security-alliance-11631813201 .

China’s application, while facing hurdles because of challenges to complying with provisions on state owned enterprises, data flows and other issues, is also a major challenge to efforts of the U.S. to have a more important role in the Indo-Pacific region. Because China would more than double the size of the CPTPP if admitted and because of heightened tensions in the Indo-Pacific area in recent years, there has been a great deal written on China’s application.

Some articles have argued for CPTPP countries rejecting China’s application or the likely failure of China to join for substantive reasons. See CNBC, China will likely fail in its CPTPP bid — but it’s a ‘smart’ move against the U.S., say analysts, September 27, 2021, https://www.cnbc.com/2021/09/27/analysts-on-chinas-bid-to-join-cptpp-strategic-competition-with-us.html (“Beijing needs the approval from all 11 CPTPP signatories to join CPTPP, and it may not succeed given its strained relationships with some member countries, said analysts.”); Bloomberg, Editorial Board, CPTPP Trade Block Shouldn’t Welcome China, September 22, 2021, https://www.bloomberg.com/opinion/articles/2021-09-22/cptpp-trade-bloc-shouldn-t-welcome-china.

Others have noted the multiyear effort by China to study the TPP and resulting CPTPP and ongoing efforts to gain support from individual CPTPP members for their application. See Nikkei Asia, Analysis: China’s TPP bid follows carefully scripted 300-day plan, Beijing’s move aims to thwart possible U.S. return to pact, pressure Taiwan, September 23, 2021, https://asia.nikkei.com/Editor-s-Picks/China-up-close/Analysis-China-s-TPP-bid-follows-carefully-scripted-300-day-plan; Brookings, China moves to join the CPTPP, but don’t expect a fast pass, September 23, 2021, https://www.brookings.edu/blog/order-from-chaos/2021/09/23/china-moves-to-join-the-cptpp-but-dont-expect-a-fast-pass/; Foreign Policy, Wendy Cutler, China Wants to Join the Trade Pact Once Designed to Counter It, September 21, 2021, https://foreignpolicy.com/2021/09/21/china-cptpp-trade-agreement/.

Others have focused on the importance of the U.S. reengaging economically in the region or risking losing to China. For example, Wendy Cutler, a former USTR lead negotiator for the Trans-Pacific Partnership, is the Executive Vice President of the Asia Society Policy Institute and has urged the last and current Administrations to stay economically engaged in Asia. See ASPI, Report, Reengaging the Asia-Pacific on Trade: A TPP Roadmap for the Next U.S. Administration, September 2020, https://asiasociety.org/sites/default/files/2020-09/A%20TPP%20Roadmap%20for%20the%20Next%20U.S.%20Administration.pdf. See also Nikkei Asia, Comment, Why U.S. membership in CPTPP makes more sense than ever, Washington risks being locked out and ceding Indo-Pacific influence to China, September 24, 2021, https://asia.nikkei.com/Spotlight/Comment/Why-U.S.-membership-in-CPTPP-makes-more-sense-than-ever; PIIE, Jeffrey Schott, China’s CPTPP bid puts Biden on the spot, September 23, 2021, https://www.piie.com/blogs/trade-and-investment-policy-watch/chinas-cptpp-bid-puts-biden-spot; Inside U.S. Trade’s World Trade Online, Citing China’s CPTPP bid, Carper and Cornyn urge U.S.
trade leadership, September 20, 2021, https://insidetrade.com/daily-news/citing-china%E2%80%99s-cptpp-bid-carper-and-cornyn-urge-us-trade-leadership; Wall Street Journal, Opinion/Comment by Tim Groser, The U.S. Has a Way Back on Pacific Trade, And if Washington doesn’t take it, the Indo-Pacific would likely become China’s for the taking, September 29, 2021, https://www.wsj.com/articles/america-tpp-china-japan-indo-pacific-trade-influence-11632931688. New Zealand’s Former Trade and Environment Minister Tim Groser’s piece is particularly interesting and is copied below.

“It was February 2017 and President Trump’s first address to a joint session of Congress. I was on the floor of the U.S. House as a guest of a pro-trade Republican congressman. As the president announced the U.S. withdrawal from the Trans-Pacific Partnership, I was thinking about a conversation I’d had with a particularly astute Asian ambassador. He’d suggested to me that if a book on the decline of American influence in Asia and the Indo-Pacific were ever written—and he hoped it never would be—its first chapter would be an account of the withdrawal of the U.S. from TPP.

“Largely because of Japan’s courageous decision to proceed without the U.S., TPP survived. With some changes to a few of its provisions and a new moniker—Comprehensive and Progressive TPP, or CPTPP—it went ahead. Nothing would have been possible if Japan, by far the dominant remaining economy in the agreement, had decided differently.

“China’s decision this month to apply for CPTPP membership should be a sharp reminder to Republicans and Democrats alike that if the U.S. is serious about competing with China in the Indo-Pacific it must confront a central reality: Having withdrawn from the TPP, the U.S. doesn’t yet have a trade strategy to back up its military posture in the region. China is the principal trading partner of many countries in the Indo-Pacific. The size of China’s economy, as well as its military and geostrategic ambition, means that Beijing will be at the center of the debate over every regional and global issue in the 21st century, from climate change to trade. Its ability to influence the outcomes of those issues will be determined by the degree—and effectiveness—of U.S.

“We don’t yet know where the new policy script that the Chinese Communist Party is now writing will lead the world’s second-largest economy. When Deng Xiaoping 40 years ago shifted China toward growth and an open economy with his slogan ‘to be rich is glorious,’ it was the beginning of the largest poverty-reduction program in human history. Hundreds of millions of Chinese were lifted out of destitution, and huge opportunities opened up for China’s trading partners. Things have been moving backward lately, in the direction of greater centralization and state control. One could even mount an elegant argument that China itself needs balance from the full engagement of the U.S. in the region.

“The Chinese people have benefited enormously, not from ‘wolf warrior’ diplomacy, but from Beijing’s positive engagement with the U.S.-designed liberal economic architecture. China’s future choices and trade strategies will be fundamentally different if they aren’t constrained by a muscular and successful U.S. economic strategy in the Indo-Pacific.

“Intriguingly, the U.S. is putting in place the elements of regional re-engagement. No foreign policy (or trade policy) is politically sustainable without a solid domestic constituency behind it. Trade has long been a tortured issue in American politics, particularly for Democrats, because economic change creates anxiety for the middle class. When people are under severe economic pressure, trade is always a potential scapegoat.

“In September 2020, the Carnegie Foundation for International Peace published a white paper titled ‘Making U.S. Foreign Policy Work Better for the Middle Class.’ Among the authors was Jake Sullivan, now President Biden’s national security adviser. The White House approach to assuaging traditional Democratic fears of trade-induced economic change seems clear: Shore up domestic policy before moving forward aggressively on any trade deals.

“The recent establishment of the Aukus security arrangement among the U.S., the U.K. and Australia can leave no doubt that the Biden administration views the Indo-Pacific as the most important theater of strategic competition with China. Kurt Campbell, the National Security Council’s coordinator for the Indo-Pacific, has made clear that U.S. strategy in the region must extend beyond a military plan to protect American allies from China’s expansionist ambitions. It needs an economic component.

“In my view, the U.S. is unlikely to rectify the mistake of leaving TPP by asking to join CPTPP. Mr. Biden has said he would oppose joining the original deal without a renegotiation. That alone would make it difficult for the U.S. to waltz back in. But it’s also true that the strategic environment has evolved. Large parts of TPP, such as its provisions on trade and the environment, remain relevant, but the past five years have sharpened the policy world’s understanding of such key issues as digital trade and state-owned enterprises. Plus, there is a new kid on the TPP block: the U.K. The world’s sixth-largest economy, a major intelligence and defense partner of the U.S., wants to join the club. The U.K.’s post-Brexit desire to expand its horizons beyond geographical Europe was the political subtext of the trade deal announced this summer between London and Canberra.

“Whatever next year’s congressional elections bring, active foreign-policy engagement always requires the involvement of both American political parties. The U.S.-Mexico-Canada agreement, updating the North American Free Trade Agreement, passed easily with bipartisan support during the Trump administration. If the U.S. recommits to TPP, it should be rechristened the Indo-Pacific Economic Partnership Agreement. A new name might make it an easier sell politically.

“The regional stakes were high even before China’s aggressive move on Hong Kong, its saber-rattling in Taiwan, and its ramped-up trade war with Australia. We now need to hear American leaders on both sides of the aisle talking about re-engaging in the region, not only on the political and military levels, but on the trade and economic architecture that will shape economic relations over the next decade and beyond. Only then will my friend the astute Asian ambassador be able to rest easy, secure in the knowledge that the decline of American influence in the Indo-Pacific is a book that will never be written.

Mr. Groser served as New Zealand’s trade minister (2008–15) and ambassador to the U.S. (2016–18).

The interest in the CPTPP will be heightened for other countries who are not members or who are already considering joining CPTPP and will be the subject of programs to explore the politics and business implications. See, e.g., Inside U.S. Trade’s World Trade Online, Eyes on Asia: Thailand re-evaluates CPTPP, Peru brings pact into force, September 22, 2021, https://insidetrade.com/trade/eyes-asia-thailand-re-evaluates-cptpp-peru-brings-pact-force; Business Korea, South Korea Planning to Join CPTPP, January 12, 2021, http://www.businesskorea.co.kr/news/articleView.html?idxno=58283; Nikkei Asia, Philippines explores joining TPP to expand free trade network, April 2, 2021, https://asia.nikkei.com/Economy/Trade/Philippines-explores-joining-TPP-to-expand-free-trade-network; The Global Business Dialogue, Inc., CPTPP: PEFORMANCE, PROMISE AND OUTLOOK, October 5 and 7, 2021, https://www.gbdinc.org/.

Likely U.S. Trade Approach Short Term

Despite the groups calling for the U.S. to reengage with the CPTPP countries and the obvious growing importance of the CPTPP for Indo-Pacific trade relations, most analysts believe the United States will not seek to either renegotiate the CPTPP or to join the CPTPP as it is in the near future. While the U.S. has free trade agreements with many of the CPTPP countries (Canada, Mexico, Australia, Singapore, Peru and Chile), with the exception of Canada and Mexico who are party to the USMCA, other FTAs are older and not as comprehensive or addressing all the issues as the CPTPP.

The United States under the Trump Administration and now under the Biden Administration has sought selective trade improvements with some Indo-Pacific countries, including Japan (Phase I deal under the Trump Administration), resolution of 301 disputes on currency and lumber with Vietnam (resolution by the Biden Administration) and bilateral activity with other Asian countries including India, Japan and Australia as members of the Quad. See, e.g., White House Briefing Room, U.S.-India Joint Leaders’ Statement: A Partnership for Global Good, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/u-s-india-joint-leaders-statement-a-partnership-for-global-good/; White House Briefing Room, Joint Statement from Quad Leaders, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/joint-statement-from-quad-leaders/; White House Briefing Room, Quad Principles on Technology Design, Development, Governance, and Use, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/quad-principles-on-technology-design-development-governance-and-use/. These types of initiatives include trade related elements such as supply chain resiliency in areas like semiconductors and pharmaceuticals and other medical products needed to address the COVID-19 pandemic as well as on technical barriers to trade issues flowing from technology developments. And, of course, the U.S. engages with other countries in the region even if there are no specific trade negotiations. See, e.g., USTR, Readout Of Ambassador Katherine Tai’s Meeting with ASEAN Economic Ministers, September 14, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/september/readout-ambassador-katherine-tais-meeting-asean-economic-ministers.

But these efforts to date don’t ensure U.S. access to many of these markets on the best possible terms for some products and services or ensure the highest standards of the agreements going forward.

China may or may not be accepted into the CPTPP now that it has applied or may decide that the requirements won’t work for its vision of its economy. While the U.S. is seeking cooperation from trading partners at the WTO and in various alliances to deal with some of the major challenges posed by China’s failure to convert its economy to a market economy and to address some of the coercion and failures to comply with bilateral, plurilateral and multilateral commitments, a strong trade agenda and participating in the rule development within important regional groupings would obviously improve the likelihood of improved balance in international trade relations.

That said, the Biden Administration has been reviewing its trade relationship with China, looking to develop a whole of government approach to China.

USTR’s October 4, 2021 articulation of U.S. approach to trade with China

USTR had signaled last week that Amb. Tai would be making a major speech today. The speech at the Center for Strategic and International Studies was at 10 a.m. (ET) this morning. See Office of the United States Trade Representative, Remarks As Prepared for Delivery of Ambassador Katherine Tai Outlining the Biden-Harris Administration’s “New Approach to the U.S.-China Trade Relationship,” October 4, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/remarks-prepared-delivery-ambassador-katherine-tai-outlining-biden-harris-administrations-new. The Administration also released a fact sheet on the Administration’s policy. See Office of the United States Trade Representative, Fact Sheet: The Biden-Harris Administration’s New Approach to the U.S. – China Trade Relationship, October 4, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/fact-sheet-biden-harris-administrations-new-approach-us-china-trade-relationship. The fact sheet lists four “initial steps” the U.S. is taking. Those steps as described in the fact sheet are reproduced below.

“Today, we are announcing the initial steps we will take to re-align our trade policies towards the PRC around OUR priorities: 

“•    First, we will discuss with China its performance under the Phase One Agreement. China made commitments that do benefit certain American industries, including agriculture that we must enforce.  President Biden will continue to promote our economic interests – and build confidence for American industry.

•    Second, while pursuing Phase One enforcement, we will restart our domestic tariff exclusions process to mitigate the effects of certain Section 301 tariffs that have not generated any strategic benefits and raised costs on Americans. We will ensure current Section 301 tariffs align appropriately with our economic priorities like boosting American workers’ wages and job opportunities, securing the resilience of critical supply chains, sustaining our technological edge, and protecting our national security interests. 

“•    Third, we continue to have serious concerns with the PRC that were not addressed in the Phase One deal, specifically related to its state-centered and non-market trade practices including Beijing’s non-market policies and practices that distort competition by propping up state-owned enterprises, limiting market access, and other coercive and predatory practices in trade and technology. 

“Even as we work to enforce the terms of Phase One, we will raise our broader concerns with Beijing’s non-market policies and practices like abuse of state-owned enterprises, anti-competitive behavior and subsidies, the theft of American intellectual property directly and in coordination with our allies and partners. We will defend American economic interests using the full range of tools we have and by developing new tools as needed. 

“•    And lastly, we know that we cannot do it alone. We will continue consulting and coordinating with allies and partners who share our strong interest in ensuring that the terms of competition are fair, work collectively to set the rules of the road for trade and technology in the 21st century, and strengthen the global market for our workers and businesses. 

“This work with our allies and partners is already bearing fruit, as evidenced by efforts at the G7, the US-EU Summit, the Quad, the OECD, and the TTC. The Boeing-Airbus deal struck in June of this year is just one example of how this commitment to work with our allies creates more opportunity to sell American products. We will accelerate this progress and look forward to continuing the conversations with our likeminded allies and partners about the impact the PRC’s non-market practices have on them, and how we can work together to find solutions.”

China’s Phase 1 commitments have been met is some areas but widely missed in terms of expanded purchases, particularly on manufactured goods and energy. China’s performance on agricultural goods has been significantly better and close to commitments. There are also large volumes of U.S. exports that are not covered by the Phase I Agreement where China has sharply reduced purchases in 202-2021 despite China’s economic performance. See PIIE, US-China phase one tracker: China’s purchases of US goods, As of August 2021, September 27, 2021, https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods. Thus, it will be interesting to see if outreach to China on the need for ramped up improvements will have any effect in fact.

American businesses have long complained about the tariffs on hundreds of billions of dollars of imports from China that resulted from the 301 investigation on China’s IP and other practices. Businesses viewed USTR’s exclusion process as an ineffective system for seeking exclusions and felt the process ended up penalizing U.S. companies. Congress has applied pressure on the Biden Administration (as it did on the Trump Administration) to restart and improve the exclusion process. Former USTR Lighthizer criticized some of the legislative efforts to weaken Section 301, require a revised exclusion process and renew certain tariff waiver programs that he viewed as significantly advantaging China. See New York Times, Opinion/Guest Essay (Robert Lighthizer), America Shouldn’t Compete Against China With One Arm Tied Behind Its Back, July 27, 2021, https://www.nytimes.com/2021/07/27/opinion/us-china-trade-tariffs.html. While the Biden team identifies actions which could reduce the loss of effectiveness of the 301 tariffs on China, time will tell how well step two of the new approach works in fact.

Press reports indicate that the U.S. will be raising the host of trade problems not addressed in the Phase I Agreement with China but will not be engaged in a Phase II Agreement negotiation. See Inside U.S. Trade’s World Trade Online, U.S. to renew China talks, restart tariff product exclusions, October 4, 2021, https://insidetrade.com/daily-news/us-renew-china-talks-restart-tariff-product-exclusions (“But the administration is not looking to negotiate a phase-two deal, senior administration officials told reporters on Sunday. ‘We’ll focus on phase-one engagement, we will raise concerns on industrial policies, but we are not seeking a phase-two negotiation,’ one said.”).

That said, the U.S. has been pursuing reforms at the WTO on industrial subsidies and other matters along with some major trading partners (e.g., Japan and the EU on industrial subsidies). While reforms are not likely at the WTO any time soon on industrial subsidies, the U.S. is attempting to apply pressure in a number of fora on China’s policies. Thus, the U.S. is actively pursuing alliances to achieve reforms in China’s policies and distortive practices.

In short, today’s announced trade policy to address China appears to be less confrontational than the actions of the Trump Administration while maintaining for the time being the tariffs that were added following the 301 investigation in 2017-2018. While working to get better compliance with the Phase I Agreement is a positive, many provisions were adopted by China based on prior Administration statements. It will be important to know if these granular provisions once adopted have actually been implemented and whether U.S. trade has benefitted as a result. While the purchase commitments other than agriculture have been widely missed (including some commitments by sectors with heavy state ownership, such as energy), there are specific commitments for 17 goods categories only for 2020 and 2021 and some language about continued growth in the future, it is not clear how aggressive the U.S. will be in pursuing compliance in the last three months of 2021 and moving forward. The same is true in services where the pandemic has undoubtedly contributed to declines in U.S. services exports and the dismal performance compared to commitments. It is also not clear if the U.S. will address the sharp contraction of U.S. exports of products not covered by the Phase I purchase commitments. Such contractions in a period of economic growth by China seem likely driven by Chinese action whether formal or informal to reduce U.S. exports regardless of China’s overall growth.

The serious problems China’s economic model and policies are causing the U.S. and other market economies will be difficult to correct simply through discussions. The Biden’s Administration’s focus on domestic policies and reinvesting in infrastructure, R&D and workers is certainly long overdue (if Congress passes funding), The Biden Administration clearly needs China engaged to address the climate crisis and a number of other global issues. This reality may have contributed to the level of action envisioned on trade relations with China. But today’s announced trade policy towards China seems uninspired and unlikely to make a significant difference in rebalancing trade relations.

Coupled with U.S. reluctance to identify a trade policy agenda that can be used with trading partners to generate new agreements and revise existing agreements, the U.S. approach to China raises the specter of a lost opportunity. Let’s hope that concern proves incorrect.

The WTO Dispute Settlement System — What Member Comments on the Recent Panel Decision in United States – Safeguard Measure on Import on Crystaline Silicon Photovoltaic Products Say about the Need for Reform

Last week, I wrote on the September 2 panel report pertaining to China’s challenge of the U.S. safeguard action on imports of crystaline silicon photovoltaic products. See September 20, 2021: The WTO panel report on the U.S. safeguard case on Crystalline Silicon Photovoltaic Products — a well reasoned report but exemplifying the challenges that China’s non-market economy and policies pose to global trade, https://currentthoughtsontrade.com/2021/09/20/the-wto-panel-report-on-the-u-s-safeguard-case-on-crystalline-silicon-photovoltaic-products-a-well-reasoned-report-but-exemplifying-the-challenges-that-chinas-non-market-economy-and-policies-pos/.

China filed an appeal on September 16, 2021 (WT/DS562/12), becoming the 21st “current notified appeal” (the fifth in 2021, following five in 2020, following eight in 2019 and three in 2018 that have not be heard or completed in light of the lack of a quorum for the Appellate Body). See WTO, Appellate Body, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm (Current notified appeals).

Earlier this week, the WTO posted a note on the Dispute Settlement Body meeting held on September 27, 2021 in which the panel report and China’s appeal were on the agenda. See WTO News, Panels established to review steel duties in China, food import measures in Panama, 27 September 2021, https://www.wto.org/english/news_e/news21_e/dsb_27sep21_e.htm. The summary of the meeting on the panel report is copied below and shows sharp difference of opinion between China and the United States with some comments recorded by the EU and Canada.

“Statement by China regarding the panel report in the dispute “US — safeguard measure on imports of crystalline silicon photovoltaic products” (DS562)

“China sharply criticized the dispute panel ruling in DS562, which was circulated on 2 September and which China appealed on 16 September. China said it is deeply concerned with the systematically harmful findings made by the panel, the first time that a complainant’s case against a safeguard measure has been rejected in its entirety.  The panel report severely deviated from all these jurisprudences and substantially lowered the threshold of imposing safeguard measures, China said. It added that the dangerous signal sent by the panel will lead to the abuse of safeguard measures and thus seriously undermine the rules-based multilateral trading system.

“China went on to detail what it said were the serious legal errors contained in the ruling, including a gross misreading of legal requirements for imposing safeguard matters as well as a major misunderstanding of a panel’s proper role in examining trade remedy investigations.  China said safeguards are extraordinary measures for extraordinary situations and cannot be used as a convenient tool for rescuing a domestic industry in bad shape because of its own business decisions and injuries caused by other factors.

“The United States said China should focus on what matters.  First, it matters that the WTO panel found the US safeguard to be consistent with WTO rules.  The US welcomes those findings but said the win came at a very high cost, namely the crushing of a thriving US industry by China’s massive non-market excess capacity.  This dispute demonstrates that WTO rules do not effectively constrain China’s damaging non-market behaviour.  Second, it matters that China once again sought to use the WTO dispute settlement system as a vehicle to create new rules that would limit a member’s ability to defend itself from China’s non-market practices. The panel rightly rejected every single one of China’s arguments. 

“The US said it was disappointed that China has decided to appeal the panel report despite overwhelming evidence of the damaging effects of China’s non-market practices.  The safeguard measure serves to support the US domestic industry’s efforts to adjust to import competition after global excess solar cell and module capacity pushed the industry to the brink of extinction, mainly as a result of excess capacity fueled by China’s non-market practices which are in direct contradiction to its WTO commitments.

“China responded that its appeal was not intended to delay the adoption of the dispute report or create new rules but to ensure the interpretation of the WTO rules in a fair and reasonable manner and ensure respect for past jurisprudence.

“The EU said the case was yet another example of the grave consequences stemming from the continued blockage of Appellate Body appointments since 2017, which frustrates members’ ability to exercise their rights under WTO dispute settlement procedures.  Canada added that finding a solution to the Appellate Body impasse is of the highest importance.”

The full statements of China, the United States and the EU are available from their respective WTO Mission websites. See Statements by China at the DSB Meeting on 27 September 2021, http://wto.mofcom.gov.cn/article/meetingsandstatements/202109/20210903204327.shtml; Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, September 27, 2021, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2021/09/Sept27.DSB_.Stmt_.as_.deliv_.fin_.public.pdf; EU Statements at Regular Dispute Settlement Body (DSB) meeting, 27 September 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/104751/eu-statements-regular-dispute-settlement-body-dsb-meeting-27-september-2021_en.

In reading the summary of the proceeding and the full prepared statements of China, the U.S. and the EU, it is clear that the U.S. concern about how the WTO Members have let the dispute settlement system degenerate to the extent it has is a matter of significance and essentially ignored by most Members.

For example, GATT Articles VI, XVI and XIX and the Uruguay Round Agreements on those articles are not exceptions to WTO obligations but rather important WTO rights for all WTO Members. WTO Members are assumed to implement their rights and obligations according to their commitments. So how strange is it that the U.S. safeguard action on imports of crystalline silicon photovoltaic products is the first safeguard decision challenged that has been upheld.

Yet, China’s arguments and concerns with the panel report basically flow from the ability of any Member to pursue a safeguard action. Indeed, China’s desired interpretations of the agreements and Article XIX would ensure WTO Members would basically be unable to use safeguard actions. Consider China’s statement on Sept. 27, “In the past 26 years of the WTO, all of the safeguard measures challenged prior to this case had been found to violate the WTO rules. However, the panel report of DS562 has severely deviated from all these jurisprudences and substantially lowered the threshold of imposing safeguard measures. The erroneous and dangerous signal sent by this panel report to WTO members will lead to the abuse of safeguard measures and thus seriously undermine the rules-based multilateral trading system.” So the correct outcome is for all uses of the safeguard system to be found as violations of WTO obligations?

Equally interesting is the EU’s statement at the meeting. “The EU intervened as third party in this case and looks forward to commenting further at the appellate stage when the proceedings resume. In the meantime, as it is uncertain when appellate proceedings will resume, the EU notes with interest certain aspects of the approach which this panel has taken to the interpretation and application of the WTO disciplines on multilateral safeguards in this case.

“The present panel report would appear to be the first completely successful defence of a multilateral safeguard measure (subject to the pending appeal proceedings).

“Hence, the EU considers that the report of this panel and its approach to the WTO rules on multilateral safeguards deserve close attention.”

One can only respond to the EU, “Really?”

The Appellate Body has been viewed by many Members as having imposed obligations that Members had not agreed to, including in the interpretation of the Safeguard Agreement and GATT Article XIX. Yet safeguard actions are an integral part of WTO Member rights. It is not the role of panels or the Appellate to substitute their views for that of the administrators. Nor is it the role of the panels or the Appellate Body to adopt constructions of the agreements which render them nugatory in fact.

The panel, chaired by a former Chair of the Rules Negotiating Group, addressed the dispute as every panel should address trade remedy cases. Why would the outcome reached by the panel be surprising? The United States has had safeguard laws on the books for many years, has extensive experience in conducting such investigations by the U.S. International Trade Commission, and was active in the creation of the Safeguard Agreement and in Article XIX. Indeed, much of the language in the Agreement mirrors U.S. law.

So the focus of China and the implications of the statements by the EU are that dispute settlement reform for these important Members will not address the underlying concerns of the United States about overreach, about panel and AB reports not creating precedents or for the WTO membership to go back to the fundamental purpose of dispute settlement which is not for the panels or Appellate Body to create rights or obligations.

The U.S. statement also reveals the challenges the WTO is facing by having members like China whose economic systems are not market based and the urgent need for broader reforms or for countries like China to in fact become market economies.

“STATEMENT BY CHINA REGARDING THE PANEL REPORT IN THE DISPUTE: ‘UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF CRYSTALLINE SILICON PHOTOVOLTAIC PRODUCTS’ (DS562)

“• China as a WTO Member has the right to bring a matter to the attention of the DSB. Why China should want to highlight for Members that China is the first complaining party ever to lose a WTO challenge to a safeguard action – or the second, if we count China’s own previous loss in its challenge to the China-specific tires safeguard – is a matter for Beijing alone to consider.

“• But in bringing this matter forward, China should focus on what matters. First, it matters that the WTO panel found the U.S. safeguard to be consistent with WTO rules. We welcome those findings – but cannot pass without mentioning the very high cost of this victory. A thriving U.S. industry was essentially crushed by China’s massive non-market excess capacity – and this formed the factual basis for the U.S. safeguard action. So while we welcome the panel report findings, this dispute demonstrates, perversely, that WTO rules do not effectively constrain China’s damaging non-market behavior.

“• Second, it matters that China, once again, sought to use the WTO dispute settlement system as a vehicle to create new rules that would limit a Member’s ability to defend itself from China’s non-market practices. The United States has expressed grave concerns with Appellate Body interpretations that go well beyond the terms of WTO safeguards rules. But in this dispute, China sought to go even beyond those erroneous interpretations. China encouraged the panel to read Article XIX of the GATT 1994 and the Agreement on Safeguards as creating a procedural minefield with no realistic path for Members seeking to use a safeguard measure for its intended purpose. The Panel rightly rejected every single one of China’s misplaced arguments.

“• China tries to depict the uniform failure of its arguments as evidence that the Panel must have been wrong or that the Panel committed certain missteps. But the Panel’s thorough evaluation demonstrates that it is China that committed fundamental errors in its approach to this case. In particular, China attempted to read the relevant WTO safeguard provisions in a way that is inconsistent with the text of the covered agreements, and in a way that no competent authorities or no Member could ever meet in practice. That, and not some malfeasance by the Panel, is why China lost this dispute.

“• It was China’s burden to establish a prima facie case that the U.S. solar safeguard measure is inconsistent with one of the enumerated provisions of the GATT 1994 or the Agreement on Safeguards. The Panel held China to that burden. It addressed each of China’s arguments, and explained why China failed to discharge that burden in each instance. We will focus on just a few of those rejected arguments in our statement today.

“• Before the panel, China conceded that the U.S. competent authorities correctly found that the domestic industry was suffering from serious injury. That is beyond dispute, as numerous U.S. producers exited the industry, and remaining producers suffered profitability losses and declining investment. China conceded that imports were increasing from multiple sources, or that import prices were decreasing over the course of the period covered by the investigation. This is exactly the situation that GATT 1994 Article XIX and the Safeguards Agreement were designed to address. And, after a massive investigation with multiple parties and thousands of pages of evidence and arguments, the U.S. International Trade Commission (USITC) found that increased imports caused serious injury.

“• In its challenge, China instead sought to avoid the logical implication of these facts by attacking the competent authorities. It asked the Panel to essentially conduct a new investigation and issue a new determination, uncritically accepting the views of Chinese producers and rejecting out of hand any contrary evidence and argument. The Panel correctly rejected this view of its role. In line with the terms of the Safeguards Agreement, it evaluated the report of the competent authorities and whether the report provided findings and reasoned conclusions in support of the ultimate determination. The Panel properly declined to make new findings or a new determination.

“• The Panel also correctly focused on the substance of the USITC’s findings, and rejected China’s efforts to portray Article XIX of GATT 1994 and the Safeguards Agreement as mandating formulaic cookie-cutter approaches to the analysis. You can see a good example of this correct approach in the Panel’s handling of whether the United States showed that increased imports were a result of U.S. tariff concessions. There was no dispute that the U.S. bound rate on CSPV solar products was zero, or that the binding prevented the United States from raising tariffs in response to the documented surge in imports. China nonetheless argued that the United States failed to satisfy the obligation because the USITC did not couch its findings in the exact words used in Article XIX. The Panel correctly focused on substance over form, finding that:
“he USITC identified the United States’ domestic tariff treatment of CSPV products when it observed that CSPV products covered by the safeguard measure “are provided for in subheading 8541.40.60 of the U.S. Harmonized Tariff Schedule [and] have been free of duty under the general duty rate since at least 1987”. Although we recognize that this statement does not explicitly establish that such tariff treatment was required under the United States’ WTO obligations, we consider that the supplemental report appropriately demonstrates that this was the implication of the USITC’s statement.1

“1 US – Safeguard Measure on PV Products, para. 7.53.

“• That is exactly what a Panel should do in evaluating a safeguard measure. It should examine the totality of the competent authorities’ findings, and not fasten on quibbles over phrasing as excuses to reject their conclusions.

“• The United States is disappointed that China has now decided to press onward by appealing the Panel report in spite of overwhelming evidence of the damaging effects of China’s non-market practices, instead of focusing its energy on changing those practices that are harming workers and businesses worldwide. Indeed, it is important to recall why the United States imposed the solar safeguard in the first place. The safeguard measure serves to support our domestic industry’s efforts to adjust to import competition, after global excess solar cell and module capacity pushed our industry to the brink of extinction. Chinese producers in China and around the world are largely responsible for this excess capacity, fueled by China’s non-market practices, which are in direct contradiction to the commitments China made when it joined this organization in 2001. Meanwhile, China’s solar industry has attempted to undercut U.S. antidumping and countervailing measures on imports from China for years by shifting operations to other countries.

“• The United States will not stand idly by while China continues trying to undermine the solar safeguard measure and to continue harming U.S. solar producers and indeed market-oriented solar producers worldwide.”

Conclusion

If one needed an example of the challenges to forward movement at the WTO on dispute settlement reform, one need only look at the responses by three major players to the recent panel report on the U.S. safeguard action on imports of crystaline silicon photovoltaic products. Despite a well reasoned panel report upholding the U.S. action on surging imports that clearly devastated a domestic industry, one major Member cries foul for the panel not accepting extreme interpretations that would effectively eliminate the practical ability of Members to use safeguard actions. A second Member seems to focus on consistency with past decisions and interpretations regardless of concerns about overreach or the lack of precedents in the WTO dispute settlement system or the reasonableness of the panel report. The third Member takes the opposite position and reviews concerns about overreach, the failure of one Member to bring its economic system into conformity with market economy requirements of WTO membership, and notes the fundamental correctness of the panel’s upholding of the U.S. action.

It is hard to imagine the United States agreeing to removing its blockage of Appellate Body appointments in an environment in which major Members continue to pursue a path to undermine the purpose of dispute settlement, to ignore the need to correct the overreach problems of the past, and fail to recognize the role of dispute settlement which is not to create rights and obligations.

U.S. Department of Commerce commences a national security investigation under Section 232 of the Trade Expansion Act of 1962, as amended, on NdFeB permanent magnet imports

On September 24, 2021, the Biden Administration initiated its first Section 232 national security investigation. See U.S. Department of Commerce, U.S. Department of Commerce Announces Section 232 Investigation into the Effect of Imports of Neodymium Magnets on U.S. National Security, September 24, 2021, https://www.commerce.gov/news/press-releases/2021/09/us-department-commerce-announces-section-232-investigation-effect. As stated in the press release:

“Interested parties are invited to submit written comments, data, analyses, or other information to BIS by November 12, 2021. This is the first Section 232 investigation initiated under Secretary Raimondo’s leadership, and is consistent with a recommendation by the White House in the Biden-Harris Administration’s 100-day supply chain reviews to evaluate whether to initiate this investigation.

“Critical national security systems rely on NdFeB permanent magnets, including fighter aircraft and missile guidance systems. In addition, NdFeB permanent magnets are essential components of critical infrastructure, including electric vehicles and wind turbines. The magnets are also used in computer hard drives, audio equipment, and MRI devices.

“If the Secretary finds that NdFeB permanent magnets are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall advise the President in her report on the findings of the investigation. By law, the Secretary of Commerce has 270 days from initiation, until June 18, 2022, to present the Department’s findings and recommendations to the President.

“U.S. Secretary of Commerce Gina M. Raimondo released the following statement: ‘The Department of Commerce is committed to securing our supply chains to protect our national security, economic security, and technological leadership. Consistent with President Biden’s directive to strengthen our supply chains and encourage investments to shore up our domestic production, the Department initiated a Section 232 investigation on imports of NdFeB permanent magnets to determine whether U.S. reliance on imports for this critical product is a threat to our national security.’”

Commerce’s Bureau of Industry and Security published in the Federal Register on September 27, 2021 the formal request for public comments. See U.S. Department of Commerce Bureau of Industry and Security, Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of
Neodymium-Iron-Boron (NdFeB) Permanent Magnets, 86 Fed. Reg. 53,277-278 (September 27, 2021). The notice contained eight questions that the Department was particularly interested in getting comments on from the public:

“The Department is particularly interested in comments and information directed to the criteria listed in § 705.4 of the NSIBR as they affect national security, including the following:

“(i) Quantity of or other circumstances related to the importation of NdFeB permanent magnets;

“(ii) Domestic production and productive capacity needed for NdFeB permanent magnets to meet projected national defense requirements;

“(iii) Existing and anticipated availability of human resources, products, raw materials, production
equipment, and facilities to produce NdFeB permanent magnets;

“(iv) Growth requirements of the NdFeB permanent magnets industry to meet national defense requirements and/or requirements for supplies and services necessary to assure such growth including investment, exploration, and development;

“(v) The impact of foreign competition on the economic welfare of the domestic NdFeB permanent magnets industry;

“(vi) The displacement of any domestic NdFeB permanent magnets production causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;

“(vii) Relevant factors that are causing or will cause a weakening of our national economy; and

“(viii) Any other relevant factors, including the use and importance of NdFeB permanent magnets in critical infrastructure sectors identified in Presidential Policy Directive 21 (Feb. 12, 2013) (for a listing of those 16 sectors see https://www.dhs.gov/cisa/critical-infrastructure-sectors).”

86 Fed. Reg. at 53,278.

The 100 day supply chain review referenced in the Commerce press release was released in June 2021. See White House, BUILDING RESILIENT SUPPLY CHAINS, REVITALIZING AMERICAN MANUFACTURING, AND FOSTERING BROAD-BASED GROWTH, 100-Day Reviews under Executive Order 14017 (June 2021), https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf. Discussion of the challenges relating to NdFeB permanent magnets is taken up in the Review of Critical Minerals and Materials by the Department of Defense (pages 151-204 (see pages 156-57, 160, 165-66, 170-171, 174, 177, 183, 189-92)).

But the White House Report (and the various sources cited therein) follows many years of articles and reports looking at the potential national security and economic security risks from dependence on certain minerals, materials and downstream products incorporating the same from limited foreign suppliers.

The challenge for the U.S. with NdFeB permanent magnets is that supply of both the rare earth mineral and the processed product and down stream product are dominated by China with projected demand growth far outstripping likely existing supplies. See, e.g., Physics Today, US government acts to reduce dependence on China for rare-earth magnets, February 1, 2021, https://physicstoday.scitation.org/doi/10.1063/PT.3.4675 (“Driven by an expected surge in demand for electric vehicles (EVs), wind turbines, and other applications requiring permanent magnets, consumption of many rare-earth (RE) elements is expected to outstrip the global supply within a decade. Coupled with an almost total US dependence on China for separated REs and the magnets made from them, the impending shortage has prompted the US government to subsidize and stimulate domestic RE mining, metal-making, and magnet manufacturing.”)(contains a detailed review of U.S. efforts to expand options for procuring neodymium and magnets made with neodymium).

WTO issues

Many of our larger trading partners have challenged the U.S. 232 investigations on steel and aluminum and resulting import relief imposed by former President Trump. While the U.S. position has been that GATT Art. XXI does not permit WTO panel review of actions taken for national security reasons, prior panels looking at the issue have felt authorized to reach the merits. Decisions by panels in the various challenges to steel and aluminum 232 actions are expected possibly by the end of 2021. See United States — Certain Measures on Steel and Aluminium Products, WT/DS544/11 (9 February 2021)(“the Panel now expects to issue its final report to the parties no earlier than the second half of 2021.”)(identical extensions noticed in cases by India (WT/DS547), EU (WT/DS548), Norway (WT/DS552), Russian Federation (WT/DS554), Switzerland (WT/DS556), Turkey (WT/DS564).

As the report to the President from Commerce is likely to be presented in June 2022 (statutory time limit is 270 days after initiation), the Administration will have time to consider how, if at all, it will respond to any WTO panel decisions in the steel and aluminum cases and whether it will appeal any such panel decisions (likely if adverse). If the panels do not limit their reports to indicating national security actions are not reviewable, it is unlikely that Commerce will address issues of concern to the panel if potentially relevant in the U.S. investigation of NdFeB permanent magnets. But that could occur.

However, the U.S. interest in resolving the Appellate Body situation will likely be affected by whether national security policy decisions are accepted as nonreviewable by trading partners and the WTO’s dispute settlement system.