G20 Trade and Investment Ministerial Meeting Communique, 22 September 2020

In an earlier post today, I reviewed, inter alia, a statement made by Deputy Director-General Alan Wm Wolff to the G20 trade and investment ministers virtual meeting on the topic of WTO reform and the need for G20 engagement.

The G20 Trade and Investment Ministerial Meeting Communique is now available and is embedded below.

G20SS_Communique_TIMM_EN

One of five agreed areas of cooperation and coordination by the G20 ministers was on supporting “the necessary reform of the World Trade Orgaization (WTO) t which the Riyadh Initiative on the Future of the WTO provides political support”. Other areas of cooperation and coordination include supporting recovery of international trade and investment from the fallout from COVID-19; encouraging “greater international competitiveness of Micro-, Small and Medium-Sized Enterprises (MSMEs); fostering “economic diversification”; and strengthening “international investment”. Page 1, para. 3.

This post focuses on the second area of cooperation and coordination, reform of the WTO. The Communique contains an articulation of G20 agreement in paragraphs 13-22 and provides in Annex 1 the Chair of the Trade and Investment Working Group’s (TIWG) “Summary of the Exchange of Views under the Riyadh Initiative on the Future of the WTO”. The Annex was prepared under the Chair’s “own responsibility and is without prejudice to the positions of individual members.” Page 3, para 14.

“15. We reaffirm our commitment to the objectives and principles enshrined in the Marrakesh Agreement Establishing the WTO.

“16. We recognize that the effectiveness of the multilateral trading system depends on the implementation of WTO rules by all Members, as well as their respective enforcement, in order to maintain the balance of Members’ rights and obligations.

“17. We remain committed to working actively and constructively with other WTO Members to undertake the necessary reform of the WTO. We recognize that this reform should improve the functions of the WTO and we encourage a constructive discussion of all proposals in this regard.

“18. We recognize transparency as an important condition for enhancing trade predictability and fostering trust between WTO members with regards to the compliance with their WTO obligations. In this regard, we reaffirm our commitment to fulfill our WTO transparency obligations and to lead by example and we call on all other WTO Members to do so. We recognize the need for assistance to WTO Members that face capacity constraints in meeting their notification obligations. We acknowledge ongoing discussions to enhance transparency and bolster compliance with notification obligations at the WTO.

“19. We underscore the significance of ongoing WTO negotiations and reiterate our support to achieve an agreement by 2020 on comprehensive and effective disciplines on fisheries subsidies, as WTO Ministers decided at the 11th Ministerial Conference. Many members affirm the need to strengthen international rules on industrial subsidies and welcome ongoing international efforts to improve trade rules affecting agriculture. Many of us highlighted agricultural subsidies and agricultural market access. We also stress that urgent action is necessary regarding the functioning of the dispute settlement system in order to contribute to predictability and security in the multilateral trading system.

“20. We note the ongoing discussions under the Joint Statement Initiatives (JSI) at the WTO, including the JSI on E-Commerce, Investment Facilitation for Development, MSMEs, and Services Domestic Regulation. G20 participants in these initiatives call for significant progress in the lead up to the 12th WTO Ministerial Conference. We note that concerns have been expressed on rule-making by some G20 members who are not part of the JSIs.

“21. We note the process under-way to select the next Director General of the WTO. We look forward to working with all WTO Members towards concluding the selection process by the 7th of November 2020.

“22. The 12th WTO Ministerial Conference represents an important milestone in an inclusive and ambitious process of WTO reform. We will use the additional time available until then to bolster our efforts to work constructively with other WTO Members to achieve meaningful progress in advancing our shared interests, including emerging stronger from theCOVID-19 pandemic and progressing with the necessary reform of the WTO to improve its functioning.” [Emphasis added]

While the G20 Communique lays out a number of areas of potential cooperation on WTO reform — fisheries subsidies, joint statement initiatives, transparency — there are other issues where language is qualified (e.g., industrial subsidies, rules on agriculture, agricultural subsidies, and concern re new rules established through plurilaterals). Thus, the known tensions between major G20 members are reflected in the joint Communique.

Similarly, the Annex 1 on the Riyadh Initiative on the Future of the WTO, TIWG Chair’s Summary, pages 8-13 contains sections on “Common Objectives,” “Foundational Principles,” “Collective Vision to Advance the Necessary WTO Reform,” and “Conclusion”. The Annex demonstrates the continued division within the G20 on many aspects of WTO reform. Consider the section on Foundational Principles:

“FOUNDATIONAL PRINCIPLES

“With respect to the principles that underpin the WTO, the Chair notes that G20 members’ responses referred to the foundational principles embodied in the Marrakesh Agreement and included in the covered agreements, with most members noting that some of these foundational principles are also reflected in the Marrakesh Declaration.

“The Chair notes the following outcomes of the exchange of views on foundational principles:

“• All members agreed to list the following as part of the principles of the WTO:

“o 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

“• Most members stressed that ‘sustainability’ is a principle of the WTO

“• Most members stressed that ‘market-oriented policies’ is a principle of the WTO.

“• Some members stressed that ‘special and differential treatment’ is a principle that is integral to and underpins the WTO and that should be preserved. Many members, highlighting that WTO rules contribute to economic growth and development, expressed the view that S&DT is a tool to facilitate the achievement of WTO objectives and should be applied on the basis of demonstrable needs.

“• Members noted the practice of consensus-based decision making in the WTO, expressly carried over from the GATT in the Marrakesh Agreement. Some members consider this practice to be a principle of the WTO.” Pages 11-12 [Emphasis added].

The qualifications included reflect deep divisions on some issues. For example on whether “market-oriented policies” is a principle of the WTO, China strongly opposes the concept and views discussion of the matter as outside of the WTO’s mandate.

The same presence of divergent views is seen in the Conclusion:

“CONCLUSION

“The Saudi G20 Presidency extends its appreciation to all TIWG representatives for their feedback and engagement in the Riyadh Initiative. The Presidency notes the following outcomes of the Riyadh Initiative:

“• G20 support for the objectives enshrined in the Marrakesh Agreement Establishing the WTO, with most members noting that some of these objectives are also reflected in the Marrakesh Declaration.

“• Affirmation of foundational principles of the multilateral trading system with different views being expressed on various issues.

“• Determination to tackle the necessary reform of the functions of the WTO and to discuss all proposals in this regard.

“• The need for Members to fulfill their notification obligations as a necessary condition for Members to effectively monitor compliance with existing rules.

“• Recognition by most members of the value of pursuing plurilateral negotiations on issues where progress can be achieved and emphasis by some members that new rules be adopted by consensus.

“• Shared sense that the dispute settlement system needs urgent reform, with divergent views on the nature of such reforms.

“The Saudi G20 Presidency sincerely hopes that the Riyadh Initiative will help advance the shared interest of WTO Members in bringing about the necessary reform of the WTO, so it can fulfill its objectives of improving the lives of the world’s citizens and ensuring peaceful, inclusive and sustainable economic development through multilateral cooperation.” Page 13 [Emphasis added].

It is obviously a positive development that the G20 trade and investment ministers have been meeting during the COVID-19 pandemic and working together on various issues including keeping markets open, supporting investment (and more) and that the G20 countries are supportive of WTO reform. So today’s Communique is an important positive for many reasons including for the effort to get some focus on WTO reform at the WTO. However, the deep divisions among even the G20 countries show that the road for reform at the WTO will be long and complicated.

WTO reform — a push by the Secretariat for engagement by the Members; articulation of EU priorities

Background

The WTO has been struggling to restore its relevance in a rapidly changing global market but with limited success due to the challenges facing its negotiating arm. Those challenges are accentuated by the major tensions between three of the largest Members (U.S., EU and China) with the U.S. and EU having fundamental differences on the role of dispute settlement and with the US and EU and Japan having deep concerns about the trade distorting policies of China that are not adequately addressed by current WTO rules. The need for broad reform seems to be recognized by many WTO Members, though priorities for reform vary widely by Member or groups of Members. The WTO is working through its selection process for a new Director-General following the early departure of the last Director-General, Roberto Azevedo. The candidates vying for the Director-General slot have faced many questions on how they would help promote reform and deal with long festering issues. The distrust within the WTO membership generally and between the largest Members in particular resulted in the Members being unable to agree on an acting Director-General, so the WTO is operating without a Director-General at the present time though in a statement today to the G20 Trade Ministers, Deputy Director-General Alan Wm. Wolff, is listed as “Joint Acting Director-General”.

A push by the Secretariat for greater engagement by Members in the reform process

Because the WTO is a member-driven organization, the key to reform is for Members to come forward with proposals, for the membership to discuss proposed reforms, and for Members to look for areas where there are common interests or shared expectations.

The Secretariat can encourage Members to engage. At the present time, Deputy Director-General Wolff (DDG Wolff) has been making numerous statements to different groups encouraging engagement to move the reform process forward and highlighting the role the WTO can play in environmental and development of circular economies.

Specifically, between September 17 and today, September 22, DDG Wolff has given virtual statements to five groups. The first three were on September 17 and were to Business Europe on trade and climate change, to the Economic Times Packaging Virtual Summit (India) on packaging issues in trade including plastics pollution and moving to circular economies, and to the World Knowledge Forum in Korea on trade disputes between major trading powers and calling on all countries to work to improve WTO rules and recognizing that even where there are major differences between Members, there are common interests as well. See DDG Wolff: “Trade policies have a huge potential to support climate action,” https://www.wto.org/english/news_e/news20_e/ddgaw_18sep20_e.htm; DDG Wolff: WTO members addressing implications of plastics pollution, https://www.wto.org/english/news_e/news20_e/ddgaw2_17sep20_e.htm; DDG Wolff: Time for all countries to work to improve the rules of multilateral trade, https://www.wto.org/english/news_e/news20_e/ddgaw_17sep20_e.htm. The conclusion from the statement to the World Knowledge Forum gives a good summary: “As for the WTO, the demands are clear. It is time to consider needed reforms, to bring to life the negotiating forum that the founders of the WTO envisaged, to find a way forward to a single agreed binding dispute settlement system that all can support, and to strengthen the institution more generally. The support of the largest Members along with their trading partners will be necessary to succeed. Crises have in the past opened up new opportunities for making progress in building the world trading system and can do so now again.”

On September 21, DDG Wolff made comments to the Trade Law Center for Southern Africa. DDG Wolff: WTO reform crucial to restoring confidence in the trading system, https://www.wto.org/english/news_e/news20_e/ddgaw_21sep20_e.htm. His statement was entitled, “A WTO fit for the 21st century trade governance”. The following excerpt goes through some of the reform issues that are already being teed up:

“The last major update of the WTO rule book took place during the Uruguay Round. These negotiations were concluded in Marrakesh in April 1994, just as the world was beginning to hear of the internet. The world has changed over these last 25 years in ways that could scarcely have been imagined. Not only has technology revolutionized how we trade but even the main actors in the global economy have changed with new groundbreaking economic and business models.

“Ongoing WTO reform efforts will be crucial to restoring confidence in
the system’s ability to meet the needs of its users and adapt to changing
economic realities. However, the full range of challenges as well as
opportunities that the WTO’s membership faces cannot, and will not, be addressed overnight. More proposals need to be tabled and discussed, on how to update the WTO to enhance its effectiveness and assure that it evolves alongside changes in world trade.

“Trade rules will have to adapt to economic transformations such as the
fourth industrial revolution, characterized as the advent of ‘cyberphysical
systems’ involving entirely new capabilities for people and machines. If they do not, the likely outcome is unilateral action and fragmentation, which means unpredictability and higher costs for business, especially micro, small and medium enterprises (MSMEs). International cooperation can offer a path forward to a global economy where everyone can participate and benefit.

“Currently, WTO members are progressing on multiple fronts. At the multilateral level, they are working to reach an agreement that would limit fisheries subsidies and contribute to the health of our oceans. They are looking at how to liberalize and reduce distortions in agriculture trade.

“At the same time, groups of WTO members are considering potential
future rules on investment facilitation, e-commerce and on domestic
regulations that can unnecessarily obstruct services trade. These ‘joint
statement’ initiatives, as they are called, address issues at the heart of the
21st century world trade. They also represent a quiet revolution in the
way governments negotiate at the WTO. Like-minded members are free
to pursue issues of interest; the initiatives are open to all Members, but
no Member is required to join. As one example, the e-commerce talks,
bring together 82 members, accounting for around 90% of global trade.
Establishing joint rules of the game would facilitate electronic transactions and digital trade and could help manage wider tensions over technology.

“WTO Members must deliver on both the multilateral front and the joint
initiatives as these are vital for the future of the system. For the road
ahead, the WTO’s Twelfth Ministerial Conference, next year in Kazakhstan, will be a key landmark. It must deliver credible agreements and map the way for further reforms.” [Emphasis added]

And then today, September 22, DDG Wolff spoke to the G20 trade ministers urging them to step up engagement on WTO reform. https://www.wto.org/english/news_e/news20_e/igo_22sep20_e.htm. DDG Wolff’s statement is reproduced below:

“Thank you, Chair. 

“This is a time of great challenges for the world trading system as well as of great opportunities.

 “World trade has fallen by 18% compared to last year.

“Shortfalls in key medical supplies persist, despite icreased production – and increased trade. Preliminary figures indicate that global trade in products such as personal protective equipment, hand sanitizer and ventilators grew by close to 30% in the first half of the year.

“While some trade restrictions have already been rolled back, particularly with respect to foodstuffs, the pandemic is far from over and economic challenges will persist.

“The roll-back of trade restrictions may already be losing momentum.

“Government support needed to fight the economic downturn could end up distorting competitive conditions and fueling future trade tensions.

“However, fresh opportunities also exist.   

“The WTO’s Members are well-advanced in the process of selecting a new WTO Director-General. 

“Renewed engagement of the WTO’s Members can ensure that the WTO is fully ready to meet the challenges of a changing global economy.

“As the pandemic continues, emergency trade-restrictive measures should be reviewed through the lens of the G20’s criteria that existing measures are, in fact, targeted, proportionate, transparent, and temporary; members should begin to unwind those that are no longer absolutely necessary. 

“Existing negotiations to modernize the WTO’s rules to meet the challenges of the global digital economy and to provide for sustainable development should be brought to a successful conclusion.

“The process of systemic reform, called for by the G20 leaders and trade ministers, should begin in earnest with WTO Members deliberating concrete proposals, restoring the WTO to its intended place

“where negotiations are successfully concluded;

“where disputes are settled within a universally accepted structure; 

“actively served by a strong, dedicated, professional Secretariat. 

“In an era of political and economic stress, the WTO must be made fit for purpose.  It must be seen to deliver fairness to all who participate in or are affected by global commerce. 

“A robust, sustained and inclusive economic recovery requires open and predictable international trade, supported by a well-functioning world trading system.  

“Spurred by the determination expressed by you as trade ministers, informed by the Riyadh Initiative, under a new leader, the WTO can fulfill its promise.”

Will Members Come Forward With Proposals and Work for Reform?

As reviewed in prior posts, there have been many proposals for reform floated by individual Members and there are important initiatives underway either multilaterally (fisheries subsidies) or plurilaterally (Joint Statement Initiatives). The U.S., EU and Japan have been working for several years on proposals dealing with industrial subsidies, state owned enterprises and forced technology transfer. No proposals on these topics have yet been submitted by these Members.

The U.S. and others have presented proposals for improved transparency on notifications. The U.S. has pushed for changes to which Members are entitled to special and differential treatment and has pushed for addressing whether economies that are not market economies can be disciplined within the WTO under the existing rules. The U.S. has also shut down the Appellate Body based on longstanding concerns with deviations by the Appellate Body (AB) from the limited mandate provided the AB by the Dispute Settlement Understanding. The U.S. has also raised concerns about the structure of bound tariffs noting the high rates of many Members with rapid rates of economic development, but the U.S. has not made a specific proposal to address its concerns on this matter as of yet.

Other proposals from other Members have also been made.

In remarks made by the European Commission’s Executive Vice-President Valdis Dombrovskis on September 21 at the informal meeting of EU trade ministers, Mr. Dombrovskis outlined the EC’s objectives for the WTO including reform. The link to Mr. Dombrovskis’ speech is here, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_1720:

“Let me start with the WTO, which is currently selecting its new Director General.

“The discussions today have shown strong agreement amongst ministers that the EU needs a Director General, who is capable of managing a profound reform of the organisation.

“This reform should focus on three main things:

“1. Fixing the dispute settlement system,

“2. Reinitiating global trade negotiations,

“3. Addressing the current challenges of international trade, in particular sustainability and the need for a level-playing field.

“To be credible, the new leader of the WTO:

“1. must enjoy the trust of WTO members and

“2. be able to present balanced views that reflect the diverse nature of the WTO Membership.

“The EU will view the remaining five candidates in this light.”

The three broad categories of reform that the EU supports were discussed at some greater length in EC President von der Leyen’s State of the Union speech earlier this month. The trade elements of the speech were reviewed in an earlier post. See September 18, 2020:  Trade elements of EC President von der Leyen’s State of the Union address at the European Parliament plenary on 16 September 2020, https://currentthoughtsontrade.com/2020/09/18/trade-elements-of-ec-president-von-der-leyens-state-of-the-union-address-at-the-european-parliament-plenary-on-16-september-2020/.

There should be a joint statement from the G20 trade ministers later today which presumably will similarly reemphasize the need for moving WTO reform forward.

What isn’t clear is whether the collective understanding of the need for reform will actually result in serious reform efforts in the coming years. The large differences in views of Members, the serious lack of trust among Members, and the apparent lack of an ongoing common vision of the purpose of the WTO are major impediments to forward movement, just as they have been in the last two decades.

Conclusion

All of the candidates to become the next Director-General of the WTO understand the need for major reform to maintain or restore the WTO’s relevance. The WTO Secretariat continues to do its support part to articulate the value and need for reform and to encourage Members to conclude negotiations that are underway and to come forward with concrete proposals for the membership to discuss and consider.

While there are many proposals for reform that have been presented, Members have put proposals forward on a somewhat ad hoc basis and without a more formal process for compiling and considering the proposals. The major economies are at very different positions on many reform agenda items that have been identified, though there is some commonality among at least several of the majors on a few reforms. Other than fisheries subsidies and some of the Joint Statement Initiatives, other reforms seem unlikely to occur in the next several years. If that proves to be correct, the WTO will likely suffer a continued drift towards irrelevance.

OECD data on services trade and latest UNWTO World Tourism Barometer — continued drag of travel and tourism on global trade

The OECD’s International Trade Pulse, updated September 2020, released on September 18, shows the continued recovery of merchandise trade by OECD members and China, although only China has recovered to levels achieved in 2019. Canada, the United States, Germany, Japan and Korea are roughly 90% of 2019 levels in July; Brazil is slightly above 90% in August; China was about 110% in August. See http://www.oecd.org/sdd/its/international-trade-pulse-oecd-updated-september-2020.htm.

The OECD information on services shows for certain major countries the percent growth or contraction over 2019 broken into three categories — transport, travel and other. Data are provided for China, France, Japan and the U.S. for both services exports and services imports. For all countries reviewed, travel services are from 40% to over 60% below 2019 levels through the first seven months of the year. Total trade in services for Australia, Brazil, Canada, China, France, Germany, Japan, Korea, Russia, United Kingdom and the United States is provided in Table 2 of the September International Trade Pulse.

The UNWTO’s latest World Tourism Barometer

The global challenge shown in data from the OECD International Trade Pulse on travel services is confirmed with significantly more detail in the UN World Tourism Organization’s World Tourism Barometer, Volume 18, Issue 5, August/September 2020, https://www.e-unwto.org/doi/epdf/10.18111/wtobarometereng.2020.18.1.5.

The UNWTO publication reviews data through June 2020 and in some cases partial data for July and August. The publication notes that global international tourism is down some 65% in the first half of 2020 for a loss of 440 million international arrivals and some USD 460 billion in export revenues. Page 1. Based on preliminary estimates the UNWTO has for international travel in July and August, the publication forecasts a full year decline of some 70% with some recovery in 2021 but not returning to 2019 levels for 2 1/2 to 4 years. Id.

All regions of the world have seen massive declines in international travel and tourism. As measured by international tourist arrivals, the region of Asia and the Pacific saw the greatest decline in the first half of 2020, 72% below 2019 levels. Europe was down 66%; Africa and the Middle East were down 57%; and the Americas were down 55%. Id. at 3. On a sub-regional level, North-East Asia had the largest decline, 83%, while Southern/ Mediterranean Europe had the second largest decline at 72%. Id. at 4. For all regions and sub-regions, the decline in the second quarter of 2020 exceeded 90%, ranging from 90.3% for North America to 99.5% for Subsaharan Africa. Id. at 6.

Some regions have started to ease travel restrictions for travel from some countries which has resulted in some improvements in levels of international tourists in June and from press reports in July and August.

Europe has seen both the largest loss of international tourist arrivals (213 million through June) and also engaged in easing of travel restrictions in June, though the resurgence of cases in July to the present has resulted in some reversals on travel openings. Id. at 7.

The UNWTO report also provides the latest data from international organizations that monitor international passenger demand, international air capacity and hotel occupancy, revenue per available room and average daily rate. Id. at 5. The International Air Transport Association (IATA) has reported a decline in global air passenger demand of 67% for the first seven months, with July being down 92% vs. June of -97%. Id. The International Civil Aviation Organization (ICAO) has indicated that international air capacity worldwide was down 59% in the January-July 2020 period versus 2019, with July being down 75% vs. June -88%. However, load factors were 46% lower than 2019 levels despite the drastic reduction in capacity. Id. Airlines around the world are in financial difficulties. In the United States, major airlines have indicated that major layoffs will occur in October without additional government relief. Despite a House bill providing additional stimulus support having been passed months ago, there has been no agreement with the U.S. Senate and White House on an additional stimulus package. With the White House and Senate focused on a highly divisive effort to race through a nomination and confirmation of a new Supreme Court Justice following last week’s death of Justice Ruth Bader Ginsburg, it is highly unlikely that another stimulus package gets approved ahead of the election with the likely result of tens of thousands of additional layoffs in the airline industry come October (and potentially hundreds of thousands of layoffs of state and local government employees as states reduce employment without additional relief). The U.S. stock market has reacted today to the likely lack of an additional stimulus package with declines in the markets.

On the hotel front, the UNWTO report includes information from Smith Travel Research (STR), an organization that prepares reports tracking supply and demand data for the hotel industry. Data reported by the UNWTO report indicates that globally hotels are suffering “double-digit declines in the three metrics, namely revenue per available room (RevPAR), average daily rate (ADR), and occupancy, with performance at low levels across all world regions in July 2020. Occupancy in July reached record lows of 17% in Africa, 19% in Central and South America, 27% in Europe, 35% in the Middle East, 46% i Asia and the Pacific and 47% in the United States.” Id.

While another major part of travel and tourism is not covered by the UNWTO World Tourism Barometer, restaurants and bars are also in deep distress in many parts of the world with many countries requiring the closure of bars and restaurants or dramatically reduced capacities or hours of operation. Because of the large number of small businesses in this sector, job losses are high and the likelihood of massive closures a continuing high risk.

Efforts to lift travel restrictions

The UNWTO’s Seventh Report on COVID-19 Related Travel Restrictions, A Global Review for Tourism (as of 10 September 2020), https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2020-09/200909-travel-restrictions.pdf, provides detailed information on the status of countries who have either reopened in part or whole, who remain shut down. The Seventh Report shows some significant movement by countries to reopen or ease restrictions on international travel (a total of 115 countries, up 28 countries from July, now 53% of all destinations). The easing of restrictions are typically partial. Europe has the most countries which have eased restrictions since the start of COVID-19 and the initial lockdowns (44 countries). The Americas has seen liberalization in 27 countries (including 18 Small Island Developing States (SIDS). Africa has seen easing in 26 countries. Asia and the Pacific has seen easing in 13 countries including 5 SIDS. And there have been easing of restrictions in five countries in the Middle East. There are also 93 countries that have complete closure of their borders to international tourism travel including 26 SIDS.

What doesn’t exist are internationally agreed rules for when international tourism should be resumed and hence restrictions eased, what trade policies would facilitate reopening, what infrastructure needs may exist for SIDS and for many developing countries to be able to reopen safely and what assistance international organizations whether the WTO, WHO, IMF, World Bank, regional development banks or others can provide. Development of vaccines and therapeutics are obviously an important part of helping all nations get the virus under long term control. And how quickly and equitably vaccines and therapeutics can be made available to all peoples when approved remains a critical aspect of global control of the virus and improved consumer confidence to travel if restrictions are eased. But greater coordination and cooperation ahead of the availability of these medical products could provide important relief to hundreds of thousands of small businesses around the world.

Conclusion

The largest drag on the global economy from COVID-19 appears to be the extreme contraction of international travel and tourism (along with reduced domestic travel and tourism).

With the projections from the UNWTO being that the world will not regain the level of strength in the global travel and tourism sector for a number of years, there is an urgent need for all nations and the international organizations to up their game to prevent the massive dislocations that are occurring and likely to occur otherwise in the sector.

WTO Director-General selection process — what do results from first round of consultations suggest are key criteria for WTO Members in next Director-General?

Last week, five of eight candidates advanced to the second round of consultations when the WTO’s Chairman of the General Council reviewed with the membership the results of the first round of consultations. The second round of consultations starts this week. WTO Members’ preferences in the second round will result in the field being reduced from five to two candidates before the third round selects the candidate viewed as most likely to achieve consensus among the WTO Members. The selection process should end by November 7, 2020

Can anything be gleaned from the results of the first round results?

  1. The three candidates who did not advance

The three candidates eliminated were Dr. Jesus Seade Kuri of Mexico, Mr. Abdel-Hamid Mamdouh of Egypt and Amb. Tudor Ulianovschi of Moldova.

Dr. Seade has had personal involvement with the GATT during the Uruguay Round and was not only Mexico’s Ambassador to the GATT but then a Deputy Director-General of the GATT at the end of the Uruguay Round and one of the original Deputy Directors-General when the WTO was set up in 1995.

Mr. Mamdouh similarly has had a long and distinguished history with the GATT and WTO that stretches back to the Uruguay Round and continued in various capacities within the Secretariat ending with a sixteen year stint as Director of the Trade in Services and Investment Division.

Thus, if one was putting primacy on technical expertise or a deep understanding of the origins of the WTO (arguably relevant to current crisis issues like the impasse over the Appellate Body), then one would have expected both of these individuals to get past the round one consultations. As they didn’t, it follows that depth of technical capability was not a driving consideration for Members in the first round of consultations.

Although Dr. Seade has held various government positions including Under Secretary for North America and chief negotiator for the US-Mexico-Canada Agreement), he has never served as a Minister (Secretary) in the Mexican government. Moreover, Mexico, while part of North America, is typically referred to as part of Latin America. Since the last Director-General was from Brazil (also included in “Latin America”), this fact could have been viewed as a negative for Dr. Seade.

For the enormous history that Mr. Mamdouh has had with the WTO, he never served as either an Ambassador or took the position of Minister for the Egyptian government. Thus, to the extent Members were putting primacy on candidates who had served in a high political position for their host government, Mr. Mamdouh would have been viewed as not meeting that criteria.

Amb. Ulianovschi served both as Moldova’s Ambassador to Switzerland and Liechtenstein (including being Ambassador/Permanent Representative to the WTO) and later served as a Minister of Foreign Affairs. Thus, he has both familiarity with WTO issues and had a prior senior political position. Since Moldova is part of Europe and most Directors-General of the GATT and WTO have been from Europe, this could have been viewed as a negative for Amb. Ulianovschi (though the same was also true for Dr. Liam Fox of the United Kingdom who has advanced to the second round of consultations).

2. The five candidates who have advanced to round two

Of the five candidates who have advanced, all have served as a Minister in their home government with four — Dr. Ngozi Okonjo-Iweala of Nigeria, H.E. Amina C. Mohamed of Kenya, H.E. Mohammad Moziad Al-Tuwaijri of Saudi Arabia and the Rt Hon Dr. Liam Fox MP of the United Kingdom having served two terms or in two different Minister positions. The fifth, H.E. Yoo Myung-hee of the Republic of Korea is the current Minister for Trade in Korea.

The differentiation between those who advanced and those who didn’t thus seems to hinge in significant part of the perception of political weight a candidate would bring based in part on the senior government role each has played. While Amb. Ulianovschi of Moldova did not advance and yet was a Minister, his being from a European country may have been the distinguishing factor. He was also the youngest candidate by more than a decade which may have been another factor for some.

Moving into the second round of consultations, what considerations may influence who makes the next cut?

The Chairman of the General Council indicated that WTO Members viewed all eight candidates as highly qualified and respected. This means for many Members the important factors may be less about the qualifications but more about geographical diversity of the membership. The Procedures adopted at the end of 2002 for the selection of Directors-General has a paragraph dealing with the representativeness of candidates (WT/L/509 at para. 13):

“Where Members are faced in the final selection with equally meritorious
candidates, they shall take into consideration as one of the factors the desirability of reflecting the diversity of the WTO’s membership in successive appointments to the post of Director-General.”

As there has not been a Director-General from Africa or from the Middle East and only one from Asia, geographical diversity could have aided four of the five candidates who advanced to the second round of consultations.

In addition, no GATT or WTO Director-General has been a woman to date. One of the UN Sustainable Development Goals (SDGs) is gender equality (SDG 5). Three of the candidates who have advanced are female. A fourth, Dr. Liam Fox, committed to ensuring that half of the senior WTO Secretariat would be women if he were selected as the next Director-General.

While all eight candidates indicated their preference for the selection to be of the best qualified candidate, it is certainly likely that other criteria will weigh in the second and third round consultation process which leads to the selection of a single candidate.

The three women candidates

Among the three women candidates, H.E. Mohamed has a proven track record on trade within the WTO and as Chair of the 2015 Nairobi Ministerial. H.E. Yoo’s career has been entirely in trade, and she has dealt with each of the U.S., China and the EU in her trade capacity for Korea. Dr. Okonjo-Iweala has never been Minister of Trade though her role (twice) as Minister of Finance for Nigeria included some trade-related areas (customs, trade facilitation) and she had a distinguished career at the World Bank and is now active in various organization relevant to the recovery from COVID-19 such as GAVI (focused on getting vaccines to countries in need).

Obviously two of the three women candidates have serious trade/WTO backgrounds. The third is often viewed as having the largest political profile. Depending on how large the preference is for a strong leader with significant political experience or a strong leader with significant understanding of the trade problems before the WTO, this could lead to Dr. Okonjo-Iweala and H.E. Mohamed as being the top two women candidates or H.E. Mohamed and H.E. Yoo filling that role.

Possible wild cards that could hurt one or two of the women candidates are (1) the ongoing Japan-South Korea conflict that H.E. Yoo has been involved in; (2) China’s view towards H.E. Yoo if concerned about whether China will maintain a Deputy-Director General slot going forward if an Asian candidate is selected as the next Director-General; (3) the late disclosure that Dr. Okonjo-Iweala is a dual Nigerian-U.S. citizen and whether that is problematic for China or other Members.

The two remaining male candidates

It is unlikely that Dr. Fox makes it to the third round based simply on the Paragraph 13 indication of importance of geographical diversity and the long history of European Directors-General. He would bring a unique viewpoint to the Director-General position being the only candidate who has repeatedly stood for election in his country. His commitment to ensure half of the senior WTO Secretariat are women may also be a plus for him if only one of the women candidates advances.

Similarly, unless the membership decides that what they want as a Director-General is someone who will move the organization to a more business-like functioning approach, it is unlikely that H.E. Al-Tuwaijri makes it past round two. He has the advantage of being from an area (Middle East) that has not had a Director-General. Moreover, he has worked closely with G20 countries which could be a plus if only one of the women candidates advances to round three.

Likely outcome of Round Two Consultations

The second round of consultations starts on September 24 and concludes on October 6. At the meeting of the Heads of Delegation that follows the close of the consultations (probably October 8), it is likely that H.E. Amina C. Mohamed and Dr. Ngozi Okonjo-Iweala advance to the third round of consultations.

Who will likely emerge as the sole remaining candidate after Round Three?

If H.E. Mohamed and Dr. Okonjo-Iweala advance beyond round two, the selection of a candidate most likely to achieve consensus among the WTO Members in round three will depend on whether Members prefer a candidate who has a record of achieving results in the WTO or prefer a candidate with a large record of in-country reform and of achievement within the World Bank and ability to focus Members on post COVID-19 recovery needs.

Either would be an interesting choice and would bring great energy to what will be a very challenging job at a time of multiple crises for the WTO and concerns about its continued relevance. Based on what seems to have mattered in Round One of the consultations, I would predict that Dr. Ngozi Okonjo-Iweala will be the next Director-General with the one caveat of whether her dual citizenship with the U.S. in addition to her home country of Nigeria becomes problematic in fact. If the caveat applies, then look for H.E. Amina C. Mohamed to be the next Director-General.

Trade elements of EC President von der Leyen’s State of the Union address at the European Parliament Plenary on 16 September 2020

State of the union speeches in countries are typically a time for optimism with a review of the challenges that are presently being addressed and a host of policy initiatives to take the country in the direction the Executive believes is important. The European Commission’s President von der Leyen presented her State of the Union 2020 Address earlier this week before the European Parliament. The Address lays out the vision the Commission has for the road forward to “building the world we want to live in”.

The starting part of the address deals with COVID-19 and the EU response and actions needed to prevent the same type of challenges in the future. When the address turns to moving Europe forward, the first topic is the efforts to address climate change, focusing on the European Green Deal and various initiatives to make the Green Deal operative and effective. Other areas of focus include digital with attetion to data, technology and infrastructure.

President von der Leyen then turns to the need for collaboration to address global issues such as the pandemic citing both sharing of protective equipment to countries in need and the EU effort to set up fund “research on vaccines, tests and treatments for the whole world.” “Vaccine nationalism puts lives at risk. Vaccine cooperation saves them.”

The EU supports cooperating in international bodies whether the UN, the WTO or the WTO. The EC President recognizes the pressing need to “revitalize and reform the multilateral system” and wants the EU to lead reforms in both the WTO and WHO.

On China, EC President von der Leyen notes the complicated relationship and the need for China to live up to its commitments in areas like climate change. “There is still hard work to do on fair market access for European companies, reciprocity, and overcapacity. We continue to have an unbalanced trade and investment partnership.”

On the topic of trade generally, the EC President had this to say:

We will continue to believe in open and fair trade across the world. Not as an end in itself – but as a way to deliver prosperity at home and promote our values and standards. More than 600,000 jobs in Europe are tied to trade with Japan. And our recent agreement with Vietnam alone helped secure historic labour rights for millions of workers in the country.

We will use our diplomatic strength and economic clout to broker agreements that make a difference – such as designating maritime protected areas in the Antarctica. This would be one of the biggest acts of environmental protection in history.

We will form high ambition coalitions on issues such as digital ethics or fighting deforestation – and develop partnerships with all like-minded partners – from Asian democracies to Australia, Africa, the Americas and anyone else who wants to join.

We will work for just globalisation. But we cannot take this for granted. We must insist on fairness and a level playing field. And Europe will move forward – alone or with partners that want to join.

“We are for example working on a Carbon Border Adjustment Mechanism.

“Carbon must have its price – because nature cannot pay the price anymore.

“This Carbon Border Adjustment Mechanism should motivate foreign producers and EU importers to reduce their carbon emissions, while ensuring that we level the playing field in a WTO-compatible way.

“The same principle applies to digital taxation. We will spare no effort to reach agreement in the framework of OECD and G20. But let there be no doubt: should an agreement fall short of a fair tax system that provides long-term sustainable revenues, Europe will come forward with a proposal early next year.

I want Europe to be a global advocate for fairness.” [Emphasis in original]

The full text of President von der Leyen’s Address is embedded below.

State_of_the_Union_Address_by_President_von_der_Leyen_at_the_European_Parliament_Plenary

The State of the Union — WTO Reform Priorities for the EU and Potentially Problematic Priorities

While EC President von der Leyden indicates she wants the EU to lead reform in both the WTO and the WHO, there is no set of agenda items identified as such in the State of the Union. That said, there are many areas addressed within the State of the Union where WTO reforms could be helpful. One can start with keeping markets open for the movement of goods and services during pandemics. Other pandemic response issues are more relevant to possible reforms at the World Health Organization.

The EU has been an active participant in the plurilateral negotiations on digital trade at the WTO and the Address’s focus on digital issues supports the need for completing those negotiations.

Similarly, the central place of addressing climate change and implementing the European Green Deal suggest that the EU would support greater activity in the Trade and Environment Committee as well as its work on the Paris Agreement on emissions reductions. Moreover, the carbon tax issue mentioned in the Address may require WTO negotiations to ensure WTO consistency or result in serious WTO disputes and possible unilateral responses by trading partners.

EC President von der Leyen’s discussion of the EU’s bilateral relationship with China raises issues on “fair market access, reciprocity and overcapacity”. This presumably includes the EU’s efforts with the US and Japan to address industrial subsidies, state-owned enterprises, forced technology transfer and more.

Finally, the digital services tax issue, while potentially being addressed within the OECD and G20 has the potential to result in serious trade consequences with the United States if not resolved to the U.S.’s satisfaction.

Conclusion

The European Union is a critical global player in trade and many other areas. The State of the Union Address by EC President von der Leyen at the European Parliament Plenary given on Wednesday this week lays out a comprehensive set of objectives for Europe, many of which have trade implications.

While the EU has an important role in the WTO, time will tell whether its desire to lead the reform process plays out. While it views itself as having been a constructive player in the Appellate Body impasse, as viewed from the U.S., the EU is one of the largest reasons for the departure of the Appellate Body from its agreed-to mandate. While the EU led a number of Members to create an interim arbitration system, from the U.S. perspective, the interim system attempts to shift arbitration to being a pseudo Appellate Body and is more objectionable in some respects than the now dysfunctional Appellate Body.

With the need for comprehensive reform of the WTO understood by most delegations, constructive leadership by any of the Members is certainly welcome. Hopefully, the EU will be such a leader in 2021.

Race for becoming the next Director-General of the WTO — five candidates advance; three are asked to withdraw

At a Heads of Delegation meeting held at the World Trade Organization this morning (11:00 a.m. Geneva time), the Chairman of the General Council, Amb. David Walker, and his facilitators, Amb. Dacio Castillo of Honduras (Chairman of the Dispute Settlement Body) and Amb. Harald Aspelund of Iceland (Chairman of the Trade Policy Review Body) informed the WTO Members that their consultations with Members had identified the five candidates (of eight total) who had received the broadest and deepest support and hence would be moving on to round two of the consultation process.

The five candidates who move to the second round of consultations include (in order that they were put forward as a candidate by their government):

Dr. Ngozi Okonjo-Iweala of Nigeria;

H.E. Yoo Myung-hee of the Republic of Korea;

H.E. Amina C. Mohamed, of Kenya;

H.E. Mohammed Moziad Al-Tuwaijri of Saudi Arabia;

The Rt Hon Dr. Liam Fox MP of the United Kingdom.

The three candidates who have been asked to withdraw based on the results of the first round of consultations include:

Dr. Jesus Seade Kuri of Mexico;

Mr. Abdel-Hamid Mamdouh of Egypt;

Amb. Tudor Ulianovschi of Moldova.

The WTO press release can be found here, WTO members narrow field of DG candidates, https://www.wto.org/english/news_e/news20_e/hod_18sep20_e.htm

A field that had originally consisted of five men and three women with two being Europeans, three being Africans, one being from the Middle East, one being Asian, and one being North American (Latin) is now a field of three women and two men with one from Europe, two from Africa, one from the Middle East and one from Asia.

As the biographies posted on the WTO webpage and the candidates prepared statement to the General Council, subsequent press conference, and interviews, webinars and other press report make clear, the eight candidates were all highly qualified individuals with a good grasp of issues currently facing the WTO and the challenges of reform. This fact and that all eight candidates were respected by the Membership was confirmed by Amb. Walker at today’s Heads of Delegation meeting.

The elimination of the three candidates removes two with the longest engagement with the GATT/WTO — Dr. Jesus Seade and Mr. Abdel-Hamid Mamdouh and the youngest candidate, Amb. Tudor Ulianovschi.

Of the five remaining, only two have extensive WTO/trade experience — H.E. Amina C. Mohamed, H.E. Yoo Myung-hee, although Dr. Liam Fox served as the U.K. Secretary of State for trade for a period of time as well and H.E. Al-Tuwaijri has a broad portfolio with trade issues included. Dr. Ngozi Okonjo-Iweala has extensive experience as Nigeria’s Finance Minister (with customs responsibilities) and as a senior official at the World Bank.

Second Round of Consultations

During the Heads of Delegation meeting, Amb. Walker announced that the second round of consultations would start on September 24 and run until October 6 after which there will be another Heads of Delegation meeting to review which two candidates advance to the third and final round of consultations.

During the first round, each Member was asked to identify four candidates as preferences. During the second round, each Member will be asked to identify two candidates as preferences. The three Ambassadors who are conducting the consultations with Members will then announce the results further narrowing the field from the current five to just two candidates.

Third Round of Consultations

The timing of the third round of consultations will be announced at the next Heads of Delegation meeting when the second round is completed. It is anticipated that the third round and its results will be completed ahead of November 7 consistent with the procedures adopted by the General Council back in December 2002. Procedures for the Appointment of Directors-General, WT/L/509. The results of the third round of consultations will be the candidate that is viewed as most likely to achieve consensus from the Membership. If consensus is likely, a General Council meeting will be called to confirm the selection. If consensus is not achieved, the process forward is unclear but can include taking a vote instead of pursuing consensus.

Conclusion

The selection process to date is running smoothly. The WTO was fortunate that so many talented individuals were willing to step forward to seek to become the next Director-General of the WTO and go through the grueling process that has characterized the first three months. Congratulations to the five candidates who advance. Heartfelt thanks go out to the talented candidates whose run is now ended.

The procedures adopted in 2002 seem overly complicated and time consuming to many who look in from the outside. Complicated and time consuming the procedures certainly are. However, the procedures were adopted in an effort to have Members focus on the positive question – who is your preference — and avoid Members politically committing to who was unacceptable as had happened in 1999.

Let’s hope that the remainder of the selection process proceeds smoothly and without incident.

WTO Chairman of the General Council to Announce Outcome of First Round of Consultations on the Candidates for Director-General this Friday (18 September 2020)

The Chairman of the General Council, Amb. David Walker (New Zealand), emailed the heads of delegations today that there would be an informal meeting of the Heads of Delegation on Friday 18 September 2020 at 11 a.m. (Geneva) at which Amb. Walker with his two facilitators (Amb. Castillo of Honduras, Chairman of the Dispute Settlement Body; Amb. Aspelund of Iceland, Chairman of the Trade Policy Review Body) would “report to the membership on the outcome of the first round of consultations, as required under the Procedures.” Since 7 September until today, the three Chairs have held confessionals with delegations to learn which four of the eight candidates for the position of Director-General of the WTO each Member supports. After compiling the information received, Amb. Walker and his facilitators will determine which five candidates have the best chance at achieving consensus. The three candidates not included in that list will be asked to withdraw. The five candidates who go on to Round 2 of the consultations will be identified at the informal meeting this Friday.

Amb. Walker will also announce when the second round of consultations will commence. During the second round, Members will be asked to present the names of two candidates whom the individual Member supports. When the consultations are concluded, the Chairman of the General Council and his facilitators will again review the results and inform the Membership of which two candidates have been viewed as most likely to achieve consensus and hence will move on to the third round of consultations. The other three candidates will be asked to withdraw.

The third round of consultations will then be conducted to find the candidate that, based on Members information to Amb. Walker and his facilitators, is viewed as most likely to achieve consensus.

If Members agree that the candidate has the support of the Membership, the Chairman of the General Council will call a General Council meeting at which the selection can be confirmed by consensus.

It is anticipated that all three rounds of consultations will be concluded by November 7.

Today’s email from Amb. Walker is embedded below.

09-18-HoDs-convening-notice-first-round

WTO panel decision in United States – Tariff Measures on Certain Goods from China increases the need for comprehensive WTO reform

On September 15, 2020, the WTO panel considering China’s challenge to certain additional duties on its products imposed by the United States flowing from an investigation under Section 301 of the Trade Act of 1974, as amended, released its report and concluded that the U.S. action was inconsistent with most favored nation (MFN) obligations under GATT 1994 Art. I and U.S. tariff bindings under GATT 1994 Art. II(a) and (b) and was not justified under GATT 1994 Art. XX(a) as action to protect public morals.

The U.S. Trade Representative issued a press release which is copied below.

WTO Report on US Action Against China Shows Necessity for Reform

“09/15/2020

“Washington, DC – U.S. Trade Representative (USTR) Robert Lighthizer today criticized a World Trade Organization (WTO) panel report that stated that actions taken by the U.S. to combat China’s widespread and damaging theft of American technology and intellectual property were inconsistent with WTO rules.

“’This panel report confirms what the Trump Administration has been saying for four years: The WTO is completely inadequate to stop China’s harmful technology practices,’ said Ambassador Lighthizer. ‘Although the panel did not dispute the extensive evidence submitted by the United States of intellectual property theft by China, its decision shows that the WTO provides no remedy for such misconduct. The United States must be allowed to defend itself against unfair trade practices, and the Trump Administration will not let China use the WTO to take advantage of American workers, businesses, farmers, and ranchers. It is important to note that this report has no effect on the historic Phase One Agreement between the United States and China, which includes new, enforceable commitments by China to prevent the theft of American technology.’

“USTR issued a Section 301 report in 2018 documenting how China had engaged in unfair forced technology transfer practices, such as exploiting its foreign ownership and administrative requirements to extort U.S. intellectual property rights or supporting commercial cyber theft from U.S. entities. The report cited hundreds of sources and thousands of pieces of evidence, including reports from governments, firms, business associations, think tanks and researchers, and others. These unfair trade practices and other actions by China have cost U.S. innovators, workers, and businesses
billions of dollars every year.

“The actions USTR took in response to these practices led earlier this year to the historic Economic and Trade Agreement Between the United States of America and the People’s Republic of China (the ‘Phase One’ Agreement).

“Background: China initiated this WTO dispute – United States-Tariff Measures on Certain Goods from China (DS543) – in April 2018, and subsequently amended its request for consultations. In January 2019, the WTO established a panel at China’s request. The dispute covers two of the trade actions in the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation: the $34 billion trade action announced in June 2018, and the $200 billion trade action announced in September 2018.”

The Panel Report, WT/DS543/R

The panel report is relatively short (56 pages plus table of contents and list of disputes cited). The panel rejected two preliminary U.S. arguments and then addressed the core issues.

The U.S. had argued that the U.S. and China were engaged in negotiations and were handling the matter outside of the WTO and had reached a Phase I Agreement all of which meant the panel should not issue a report. That argument was rejected as China’s position was that no mutually satisfactory solution had been reached. Similarly, the U.S. effort to restrict the Chinese claim on the second action by the U.S. to 10% on $200 billion of trade and not the later increase to 25% was rejected.

On the two main challenges by China, that the tariffs imposed were inconsistent with most favored nation treatment under GATT Art. I and that the additional tariffs violated U.S. tariff bindings, the United States did not present argument. Thus, the panel reviewed whether China presented a prima facie case of violation and, when it so concluded then found U.S. actions to be inconsistent with those provisions.

The United States argument was limited to its right to deviate from other WTO obligations because of GATT 1994 Art. XX(a), actions taken necessary to protect public morals.

As reviewed in the panel report (para. 7.100), “The United States asserts that any inconsistency of the measures at issue with provisions of the GATT 1994 is justified as necessary to protect US public morals pursuant to Article XX(a) of the GATT 1994. This is because, according to the United States, China’s acts, policies, and practices addressed in the relevant Section 301 Report amount to ‘state-sanctioned theft and misappropriation of U.S. technology, intellectual property, and commercial secrets’182 which violates
the public morals prevailing in the United States.183″ [footnotes omitted]

“7.113. The United States asserts that the measures at issue protect public morals within the meaning of Article XX(a) because they have been adopted to ‘”‘obtain the elimination” of conduct that violates U.S. standards of rights and wrong, namely China’s unfair trade acts, policies, and practices’.201 In support of its argument, the United States has submitted evidence of several
domestic instruments that reflect prevailing US ‘standards of right and wrong’ and outlaw some (although not all) of the Chinese practices documented in the Section 301 Report.202 The United States contends that acts, policies, and practices of China referred to in the Section 301 Report violate US ‘standards of right and wrong’, in particular the prohibition of theft, extortion, cyber-enabled theft and cyber-hacking, economic espionage and the misappropriation of trade secrets, anti-competitive behaviour, as well as the regulation of governmental takings of property (hereafter referred to as ‘the public morals as invoked by the United States’).” [footnotes omitted]

The panel generally agreed with the United States that public morals objectives could include those identified by the United States and were not negated because there were economic effects as well. The U.S. argument was as follows:

“7.3.2.2.3 The public morals objective invoked by the United States

“7.127. The United States asserts that China’s actions documented in the Section 301 Report violate prevailing US ‘standards of right and wrong’ as reflected in US domestic legislation.226 The United States has submitted as evidence several domestic instruments that reflect prevailing US ‘standards of right and wrong’ and that outlaw some (although not all) of the Chinese practices documented in the Section 301 Report.227 Specifically, the United States refers to:

“• state and federal laws, under which the act of “theft” is universally deemed a criminal offence228;

“• US laws that generally prohibit extortion229;

“• US laws that criminalize cyber-enabled theft and cyber-hacking230;

“• US laws that criminalize economic espionage and the misappropriation of trade secrets (including though acts of ‘bribery’ or ‘extortion’)231;

“• US laws against anti-competitive behaviour (in particular the prohibition and criminalization of monopolization)232, which reflect ‘fundamental concepts of fair competition and fair play’233, and the breach of which the United States views as ‘a threat to the ‘preservation of our democratic political and social institutions”234;

“• US laws on contracts and torts235;

“• US laws on patents236; and

“• civil and criminal laws on, and governmental takings, of property.237

“7.128. The United States explains that the economic concerns underlying some of these legal instruments are related to notions of fair competition and fair play238, and that the United States does not view unfair competitive practices merely as a detriment to business and innovation, but
also as a threat to the preservation of its democratic political and social institutions.239 The United States also explains that it ‘imposes constraints on behavior based on national concepts of right and wrong to ensure market-oriented outcomes’.240 According to the United States, China
‘uses coercion and subterfuge to steal or otherwise improperly acquire intellectual property, trade secrets, technology, and confidential business information from U.S companies with the aim of advantaging Chinese companies and achieving China’s industrial policy goals.’241 The United States, considers that these acts, policies, and practices relating to intellectual property and technology transfer violate these US standards of right and wrong and thus implicate US public morals within the meaning of Article XX(a).242″ [footnotes omitted]

In the end the panel faulted the United States for not being able to demonstrate that the actions taken were necessary to achieve its public morals objective, looking at the number of products where there hadn’t been a showing that the products benefited from the Chinese government actions or where exclusions could be made for products where such actions were present but where there were economic reasons to exclude the product. The panel looked at List 1 and List 2 separately. The panel’s characterization of the U.S. position on each list is useful in understanding U.S. concerns.

“7.163. The United States argues that the additional duties at issue are “necessary” to protect public morals because they ‘play a necessary role toward the goal of eliminating China’s unfair trade acts, policies, and practices by raising the cost of such practices and reducing China’s incentive to continue engaging in such conduct going forward’.316 According to the United States, ‘it is reasonable to conclude that China will continue to pursue its unfair trade acts, policies, and practices while it is advantageous to China to do so, for example, until the economic costs of doing so begin to approach or outweigh the economic benefits’317, and for that reason, ‘to protect U.S. interests in moral (right or wrong) economic behaviour, it is necessary for the United States to adopt measures that are capable of changing China’s economic cost-benefit analysis’.318 The United States also asserts that the measures are necessary to achieve the public morals objective as invoked by the United States because it was only after their adoption that China agreed to enter into negotiations with the United States to address the concerns documented in the Section 301 Report.319 Finally, the United States asserts that so long as a WTO Member can establish that a measure that aims to influence the policies or practices of another Member is necessary to protect public morals, that measure can be justified under Article XX(a).320″ [footnotes omitted]

“7.216. The United States adopted and implemented the additional duties on List 2 products through the Notice of 21 September 2018. This Notice explains the rationale of the imposition of additional duties on List 2 products as follows:

“China’s unfair acts, policies, and practices include not just its specific technology transfer and IP polices referenced in the notice of initiation in the investigation, but also China’s subsequent defensive actions taken to maintain those policies. China has decided to impose approximately $50 billion in tariffs on U.S. goods, with the goal of encouraging the United States to drop its efforts to obtain the elimination of China’s unfair policies. Thus, instead of addressing the underlying problems, China has increased tariffs to further protect the unreasonable acts, policies, and practices identified in the investigation, resulting in increased harm to the U.S. economy.

“[…]

“The judgment during the period of investigation, based on then-available information, was that a $50 billion action would be effective in obtaining the elimination of China’s policies.

“China’s response, however, has shown that the current action no longer is appropriate. China has made clear – both in public statements and in government-to-government communications – that it will not change its policies in response to the current Section 301 action. Indeed, China denies that it has any problems with respect to its policies involving technology transfer and intellectual property.445” [footnotes omitted]


“7.218. The United States explains that ‘List 2 measures apply to a broader class of products than those found to directly benefit from the unfair trade acts, policies, and practices documented in the Section 301 Report’.446 The United States asserts that it imposed additional duties on List 2 products ‘after China “made clear – both in public statements and in government-to-government communications – that it [would] not change its policies’ and instead ‘responded … by increasing duties on U.S. exports to China”‘.447 According to the United States, the imposition of additional duties on List 2 products is ‘derivative’ of the imposition of additional duties on List 1 products.448 For that reason, the United States argues that the imposition of additional duties on List 2 products is ‘also necessary to protect public morals in part because to fail to respond to China’s economic retaliation would demonstrate that the United States Government is willing to acquiesce in theft and forced transfer of U.S. technology by one of its largest trading partners’.449” [footnotes omitted]

Reaction to the Panel Report

Much of the panel report is straight forward and unobjectionable. However, on the question of the GATT 1994 Art. XX(a) public morals provision, the analysis of core issues is too wooden and ignores the realities of government operations. The United States has worked for years to get China to address the myriad issues laid out in the 301 investigation which the panel accepts as important public morals issues for the United States. The effect of the many practices has been of major concern to the Untied States, to its businesses and workers for more than a decade. Duties were imposed exactly because prior efforts to get China to address the serious problems were never fruitful, and following the 301 investigation, China opted not to negotiate with the United States. The List One products were largely items known to benefit from one or more of the programs and the intent was to apply the tariffs until China would negotiate and resolve the matters. Thus, on the list one necessity issue, one can only conclude that the panel’s construction was too narrow. Similarly, finding fault with U.S. action because some products were excluded that may have benefited from the programs of concern ignores the political realities of applying pressure without imposing unintended consequences.

Conclusion

The U.S.-China trade dispute is obviously important bilaterally and multilaterally. While the China challenge to the U.S. action is understandable from their perspective, what is clear is that the panel report will make reform at the WTO more difficult and will likely result in the U.S. filing an appeal so that the dispute is not concluded in the foreseeable future.

On reform, China has taken the position on the question of the definition of “public body” that the issue is not subject to negotiations because of an Appellate Body report favorable to China. Similarly, despite the array of problematic practices of China that are not presently subject to WTO rules, the panel report will likely result in China refusing to negotiate on the underlying issues in an effort to kick the can down the road before the myriad Chinese policies that are inconsistent with market principles are ever brought under WTO rules.

At the same time, the panel report supports the views of the current U.S. Administration that the WTO doesn’t address many of China’s practices and rather restricts market-economy countries from addressing distortions not covered by existing rules to get conditions of fair trade established or restored. Thus, one should expect continued reluctance on the part of the U.S. to permit restoration of the Appellate Body with an expanded list of reform needs to cover the expanded list of inadequacies of the existing WTO rule book.

On appeal of the panel report, there is no reason for the U.S. not to file an appeal and there are likely interesting issues for an eventual appeal on the interpretation of GATT 1994 Art. XX(a). The U.S. did not pursue a case on the various retaliations undertaken by China — none of which would presumably pass WTO muster as they were taken without WTO authorization. As China has already taken and is maintaining retaliation, the two countries are presumably in the posture they intend to maintain until there is a broader resolution of their trade differences. While the U.S. may change its posture on the dispute if there is a different Administration, I would not expect a change in direction under the current Administration.

The Bill and Melinda Gates Foundation’s 2020 Goalkeepers Report, COVID-19, A Global Perspective is a Reminder of the Critical Importance of Global Collaboration

In its annual report on progress on various UN Sustainable Development Goals (“SDGs”) released on September 15, 2020, the Bill and Melinda Gates Foundation calls out the reversal in trends on many sustainable development goals caused by the world’s effort to deal with the COVID-19 pandemic and provides a strong call for collaboration and cooperation among governments and the private sector to address the pandemic and ensure global access to therapeutics and vaccines on an equitable and affordable basis. The report is an important document that should help governments, international organizations, business associations and other NGOs focus on the pending challenges/risks and potential forward movements that are achievable. One of the stunning statements from Bill and Melinda Gates in recent interviews is that availability of vaccines has been set back twenty-five years in the past twenty-five weeks. See Business Insider, September 15, 2020, Bill Gates says the pandemic wiped out 25 years of vaccine progress in 25 weeks, https://www.businessinsider.com/bill-gates-pandemic-wiped-out-25-years-progress-vaccines-2020-9. The link to the Gates Foundation report is here, https://www.gatesfoundation.org/goalkeepers/report/2020-report/#GlobalPerspective.

While the bulk of the report does not directly deal with trade, trade is certainly an important element in global collaborative efforts needed to help with the recovery from the pandemic — whether it is movement of medical goods including therapeutics and vaccines as they get developed, movement of agricultural goods, restoration of services critical for many economies – like travel and tourism, trade facilitation efforts, aid for trade, trade finance, development of rules on digital trade and more.

The report reviews the series of catastrophes flowing from the pandemic. On the economic catastrophe, the report references information from the International Monetary Fund that projects that the global economy will contract by some $12 trillion by the end of 2021 despite some $18 trillion in stimulus spending by governments to reduce the economic impact of the pandemic. “The last time this many countries were in recession at once was in 1870, literally two lifetimes ago.” (Page 7) The report notes that the ability of many countries to provide economic backstops to their economies is quite limited regardless of their economic growth in recent years or effectiveness of management of their governments. Thus, stimulus funding by G20 countries has averaged about 22% of GDP compared to just 3% for countries in sub-Suharan African countries. (Page 8)

The results of the economic impact from the pandemic has been a 7.1 percent increase in the number of people living in extreme poverty in just a few months after some twenty years of progress in reducing those numbers. The rising number of people in poverty are more likely to be women than men reflecting both women’s heavy participation in the informal sector and their handling of such a huge portion of unpaid care work. (Pages 9-10)

The report has a section entitled, “Innovating with Equity in Mind” on pages 14-17 which reviews the need to get the virus under control.

“To get it under control, to end the pandemic, the world should collaborate on three tasks as quickly as possible:

“1. Develop diagnostics and treatments to manage the pandemic in the short term and vaccines to end it in the medium term.

“2. Manufacture as many tests and doses as we can, as fast as we can.

“3. Deliver these tools equitably to those who need them most, no matter where they live or how much money they have.” (Page 14)

The report reviews the low percentage of vaccine candidates that historically have proven successful which supports the need for many candidates to be supported. The report also notes that even with the funding provided by some governments, there is a severe shortage of manufacturing capacity at the present time meaning a likely “longer pandemic, more deaths and a longer global recession.” (Page 15) The report includes the results of a model run by Northeastern University which looks at likely changes in the number of deaths if 2/3rds of vaccine doses are taken by high-income countries compared to the situation where vaccine doses are distributed to all countries based on population. The model’s projection is that a much higher proportion of deaths would be averted where there is equitable distribution of vaccine doses (61% of deaths averted) than if the high income countries take two-thirds of vaccines (33% of death averted). (Page 16)

The report notes that the costs of achieving equitable and affordable distribution of vaccines are high but tiny in comparison to the economic costs to the global economy.

“To be clear, funding these organizations and other key partners adequately will cost a lot of money — but not compared to the cost of a festering pandemic. Every single month, the global economy loses US$500 billion, and a collaborative approach will shave many months off of the world’s timeline. Countries have already committed US$18 trillion to economic stimulus to treat the symptoms of the pandemic. Now they need to invest a small portion of that total to root out its cause.” (Page 17)

The remainder of the report looks at projections for a series of sustainable development goals (SDGs) and particular elements of individual SDGs. The projections provide best case, worst case and a reference scenario as well as showing the 2030 target within the UN SDGs. Elements looked at include poverty, stunting, agriculture, maternal mortality, neonatal mortality, HIV, tuberculosis, malaria, neglected tropical diseases, family planing, universal health coverage, smoking, vaccines, education, gender equality, sanitation, and financial services for the poor. (Pages 21-45) For nearly all of these issues, progress went from positive to negative in 2020 and the projections typically show even the optimistic scenario as being far off of the 2030 UN SDG target following the pandemic.

Conclusion

The 2020 Goalkeepers Report makes a convincing case that the extraordinary costs of the COVID-19 pandemic have harmed all countries and have generated greater inequality among countries and worsened the outlook for global reforms agreed to by nearly all nations in 2015. The end of the Introduction explains the need for a collaborative response and the costs of not pursuing one:

“There is no such thing as a national solution to a global crisis. All countries must work together to end the pandemic and begin rebuilding economies. The longer it takes us to realize that, the longer it will take (and the more it will cost) to get back on our feet.”

Hopefully the world is listening.

COVID-19 cases increase in last two weeks, setting new global record for new cases in fourteen day period.

In my last two posts of August 30 and August 16, I suggested that it appeared that the global spread of COVID-19 may have peaked or plateauted. See August 30, 2020, The global number of confirmed COVID-19 cases passes 25 million with more than 843,000 deaths – increased race to lock-up vaccine supplies, https://currentthoughtsontrade.com/2020/08/30/the-global-number-of-confirmed-covid-19-cases-passes-25-million-with-more-than-843000-deaths-increased-race-to-lock-up-vaccine-supplies/; August 16, 2020, Is the world at the peak of the COVID-19 pandemic?  Last two weeks suggest a peaking of the growth of global infections may be at hand, https://currentthoughtsontrade.com/2020/08/16/is-the-world-at-the-peak-of-the-covid-19-pandemic-last-two-weeks-suggest-a-peaking-of-the-growth-of-global-infections-may-be-at-hand/. However, data compiled by the European Centre for Disease Prevention and Control for the August 31-September 13 period shows a return to growth in new cases. The latest two weeks show total new cases of 3,780,469. This compares to the total new cases for the August 17-30 time period of 3,558,360, 3,624,548 for August 3-16 and 3,568,162 for the July 20-August 2 period. Total cases since the end of December 2019 are now just shy of 29 million.

The United States which has more confirmed cases (6,486,108) than any other nation and more confirmed deaths from COVID-19 (193,701), had a third two-week decline in new cases. The U.S. recorded the extraordinary number of 908,980 new cases during the fourteen day period July 20-August 2. That number declined to 740,721 during August 3-16 and further declined to 600,417 new cases in the August 17-30 period and was further reduced to 524,526 new cases in the August 31-September 13 period. The most recent period is still 28.21% higher than what had been the prior peak during April 13-26 of 409,102 new cases. Even with the significant reduction in new cases in the August 31-September 13 period, the United States had the second largest number of new cases, following only India whose number of new cases is continuing to rapidly increase, and were 1,211,623 in the last two weeks (the first country to have more than one million cases in a two week period). Brazil maintains its hold on third place though its new cases are also falling since July 20-August 2 (633,017 new cases) to 609,219 new cases during August 3-16, 529,057 new cases during August 17-30 and 469,534 new cases during August 31-September 13. India, the United States and Brazil accounted for an extraordinary 58.34% of the new global cases during the last two weeks and account for 54.01% of all cases confirmed since late December 2019. The United States with 4.3% of global population has accounted for 22.52% of total confirmed cases since December 2019. With the continued declining numbers in the last two weeks while the overall total of new cases grew, the U.S. was still 13.87% of new cases during August 17-30 or roughly three times the U.S. share of global population.

Continued growth of cases in the developing world

With the number of new cases in the United States declining, the trend to new cases being focused on the developing world continues although there has been some significant resurgence of new cases in a number of developed countries during the summer vacation period with a renewal of at least some international travel. While India and Brazil had by far the largest number of new cases from developing countries, they were followed by Argentina (143,681), Colombia (109,050), Peru (83,397), Mexico (72,261), Iraq (59,332), Indonesia (45,562), the Philippines (44,732), South Africa (25,663) and then dozens of other countries with smaller numbers of new cases.

Developed country resurgence in new cases

With the reopening of some international travel and with the end of the summer holiday season, there has been a noticeable surge of new cases in a number of developed countries, particularly in Western Europe. Spain showed the largest increase of a developed country that had gotten the COVID-19 spread under control until recently. For August 17-30, Spain saw an additional 96,473 new cases. The August 31-September 13 period saw a further large increase for Spain to 127,040 cases. France nearly doubled the large number it had experienced in the August 17-30 period (57,009 new cases) in the latest two weeks, with new cases reaching 101,381. Germany was up slightly from the prior two weeks (17,538 new cases) at 17,657 new cases. Italy added 19,444; Romania added 16,553; the United Kingdom added 32,422; the Netherlands increased by 11,374; Czechia increased by 11,307. Other countries in Europe (Russia and Ukraine) as well as Israel also saw significant additional new cases.

Deaths/100,000 population

The United States has the largest number of deaths of any country to date (193,701) and had the second largest number of deaths in the last two weeks (10,922) behind only India (15,088), though the U.S. number of new deaths declined from the prior two weeks while India’s number of new deaths continued to climb. The countries with the highest number of deaths per 100,000 population for the last two weeks were the following: Ecuador (24.91), Bolivia (20.49), Colombia (7.29), Argentina (6.48), Peru (6.11), Mexico (5.32), Brazil (5.09), Panama (4.05), Chile (3.77), Puerto Rico (3.65), Costa Rica (3.41) and the United States (3.32). All other countries (including all other developed countries) had lower rates of death per 100,000 population. For all countries, the death rate over the last two weeks was 1.02 deaths/100,000 population in the last two weeks.

If looking at the entire period since the end of December 2019 through September 13, the average number of deaths for all countries per 100,000 of population has been 12.13 deaths. The ten countries (of 71 which account for 98% of total deaths) with the highest death rates/100,000 for the full period are: Peru (94.10), Belgium (86.59), Bolivia (63.38), Spain (63.38), Chile (62.76), Ecuador (62.53), United Kingdom (62.45), Brazil (62.17), Italy (58.98), the United States (58.86). With the exception of Bolivia, Brazil, Chile, Ecuador, Peru and the United States, each of the other top countries overall has shown a drastic reduction since their peaks in April and as reflected in the experience in the last two weeks (the European countries were typically less than 1 death per 100,000).

Conclusion

The world in the first eight months of 2020 has struggled to get the COVID-19 pandemic under control. While many countries in Europe and some in Asia and the major countries in Oceania have greatly reduced the number of new cases over time, there has been some resurgence in many of these countries as their economies reopen, travel restrictions are eased and as schools reopen in many countries. But the number of new cases continues to rage in much of the Americas (other than Canada), in parts of Asia (in particular India) and in parts of Africa. Since most new cases are now in developing countries, it is unclear how many of these countries will be able to handle a significant number of cases, whether their healthcare infrastructure will be overwhelmed and whether they will have the medical goods needed to handle the cases safely.

The August 31-September 13 period has seen the global number of new cases growing after six weeks of what appeared to be a peak or plateau. That is not good news for the world as in many parts of the world schools are reopening and fall and winter will bring greater time indoors likely resulting in continued growth in new cases.

The progress on developing safe and effective vaccines is encouraging and has been sped by the willingness of major economies like the U.S. and the EU to fund manufacturing ahead of actual approval of the promising vaccines. Still the results of the phase three trials are not yet in and as a temporary delay by AstraZeneca with its phase three trial shows, the timing of outcomes remains unknown though anticipated by the end of 2020 and first part of 2021. Still the rollout of vaccines if approved will take time to get large parts of the global population vaccinated. This will likely place a large cloud over much if not all of 2021 even in an optimistic scenario.

Whether the world will rise to the challenges in terms of improving access to medical goods, to maintaining an open trading system, to aiding not only national populations but ensuring assistance to the most vulnerable, and when vaccines are approved to ensuring an equitable and affordable access by all are open questions. If the world is not able to collaborate on these issues, the 2020s will be a lost decade and will threaten global security.

U.S.-China Phase 1 Trade Agreement — How is China doing to Meet Purchase Commitments for the First Year; a Review of U.S. domestic exports through July 2020

As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020. The big question mark on the Phase 1 Agreement has to do with whether the agreement to increase imports from the United States is likely to be met. Prior posts on the U.S.-China Phase 1 Agreement can be found here: August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

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

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, the U.S. continues to report that China intends to honor its purchase commitments in this first year (assumed to be February 14, 2020-February 13, 2021).

A six month review of progress on the overall Phase 1 Agreement by the U.S. and China was held by phone on August 24, 2020. The U.S. Trade Representative’s summary of the call is copied below and can be found here – https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/august/statement-call-between-united-states-and-china.

“Statement on Call Between the United States and China

“08/24/2020

“Washington, DC – Ambassador Lighthizer and Secretary Mnuchin participated in a regularly scheduled call this evening with China’s Vice Premier Liu He to discuss implementation of the historic Phase One Agreement between the United States and China. The parties addressed steps that China has taken to effectuate structural changes called for by the
Agreement that will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer. The parties also discussed the significant increases in purchases of U.S. products by China as well as future actions needed to implement the agreement. Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement.”

As reviewed in earlier posts, some goods categories have data issues on the U.S. side (aircraft (orders and deliveries) show $0 exports for the entire period between 2017 and July 2020). Moreover, Amb. Lighthizer has testified to Congress that China has made some large agricultural purchases for shipments later in the year that don’t show up in the U.S. export data at the present time. Similarly, U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. However, services trade data with China for 2020 are not yet available. Total U.S. exports of services in the first half of 2020 to all countries was down 14.83%. Travel services were down more sharply, 46.32%. While the Phase 1 Agreement has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels), the data doesn’t presently exist to measure progress on services under the Phase 1 Agreement, though it is believed that China is far behind on its commitments to increase U.S. exports of services.

Looking just at U.S. domestic export data for goods to China for the period March – July 2020, China is far behind meeting the ambitious purchase commitments made with the United States for the first year of the Agreement.

Looking at total U.S. domestic exports to China for the period March-July 2020, U.S. exports were $38.963 billion ($7.792 billion/month) compared to $45.054 billion in 2017 ($9.011 billion/month). These include both products covered by the Annex 6.1 commitments and other products.

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

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $49 billion in 2017 (full year). For the period March – July, 2020 figures for the 18 categories have increased 4.19% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 36.10%, and total exports to China are down 13.52%.

Thus, the first five months of the 1st year of the U.S.-China Phase 1 Agreement suggest that U.S. domestic exports of the Annex 6 goods will be $71.496 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $31.306 billion, for total U.S. domestic exports to China of $102.802 billion. This figure would be far below 2017, below 2018 and just 9.25% above 2019. It is obviously dramatically below the target of $184.0 billion.

Even accepting the steep decline in non-covered goods, the first year should result in total U.S. domestic exports of $166.321 billion if the increase in covered goods is achieved — an amount 61.79% greater than current trends for total U.S. exports. To achieve that level of U.S. exports in the August 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $108.705 billion ($15.529 billion/month) an amount nearly three times the monthly rate of exports of the 18 categories to China in the March – July 2020 period ($5.262 billion/month).

Chinese data on total imports from all countries (in U.S. dollars) for January-July show a decline of 5.7% from the first seven months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, July 2020 (in USD). China’s imports from the U.S. were down 3.5% during the same time period. Total U.S. domestic exports to China are down slightly more for the first seven months vs. 2019, 4.151%. China data for August are also available. Total imports into China for the first eight months of 2020 are down 5.2%, those from the United States down 2.9%.

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

Product categoryMarch-July 2017March-July 2020% change 2017-2020 March-July$ Value needed in next seven months to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery
$4,598.5

$5,142.9

+11.84%
2. electrical equipment and machinery
$1,780.1

$2,018.5

+13.39%
3. pharmaceutical products $1,082.5 $1,191.1
+10.03%
4. aircraft (orders and deliveries)* NA NA NA
5. vehicles
$4,472.0
$1,560.8
-65.10%
6. optical and medical instruments
$1,309.1

$1,431.8

+9.37%
7. iron and steel
$516.0
$206.3
-60.02%
8. other manufactured goods $4,319.7 $5,884.5
+36.22%%
Total for mfg goods
$18,077.9

$17,435.9

-3.55%

$58,121**
Agriculture
9. oilseeds
$1,221.3

$567.2

-53.56%
10. meat
$252.4

$1,363.8

+440.33%
11. cereals
$679.6

$783.7

+15.32%
12. cotton
$363.2

$661.6

+82.16%
13. other agricultural commodities
$1,986.4

$1,682.1

-15.32%
14. seafood
$460.9

$330.7

-28.25%
Total for agriculture
$4,963.8

$5,389.1

+8.57%

$27.995
Energy
15. liquefied natural gas
$68.7

$344.7

+401.75%
16. crude oil
$1,251.0

$2,541.5

+103.16%
17. refined products
$707.9

$573.4

-19.00%
18. coal
$183.0

$25.5

-86.07%
Total for energy
$2,210.6

$3,485.1

+57.65%

$22,589
Total for 1-18$25,252.3$26,310.1 +4.19% $108.705**
  • HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-July 2020 period based on U.S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
  • The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries (and from the United States) are down in the first eight months of 2020. Thus, whether China will or can expand imports from the U.S. to the extent envisioned by the U.S.-China Phase 1 Agreement in the first year of its implementation is yet to be seen, but seems highly unlikely despite the position taken by the U.S.

Conclusion

The U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun and will not begin before 2021 at the earliest.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement, there has been very little forward movement in expanding U.S. exports to China. Indeed with the sharp contraction of U.S. exports of products not included in Annex 6.1 of the Phase 1 Agreement, the current trend lines will have U.S. total exports of goods to China coming in lower than was true in either 2017 or 2018 and only somewhat higher than the depressed 2019 figures. More importantly, the trend line of U.S. domestic exports would result in China missing its first year target for purchases of U.S. goods by $63.5 – 81.2 billion. By back loading purchases of various U.S. agricultural products, China can project greater efforts to meet purchase targets and yet not actually take the goods ahead of the forthcoming Presidential elections.

With the process of selecting a new Director-General for the World Trade Organization entering the final phase where Members will be winnowing down the list of eight candidates to one which hopefully will receive consensus support by early November, it is unclear when and if the WTO will be able to engage in meaningful reform efforts such that the large bilateral concerns between the U.S. and China can be brought back under the WTO or whether the world is in for many years of bilateral tensions with actions outside of the system the norm and not the exception.

Making the WTO relevant to businesses and workers — the example of travel and tourism

Each of the eight candidates to become the next Director-General of the World Trade Organization correctly noted that the WTO’s relevance was at risk without significant reform and the ability to make the three pillars of the multilateral trading system function properly (negotiations, transparency/monitoring, dispute settlement). Some candidates talked about the need for the WTO to take actions that can be clearly seen by businesses, workers and consumers as being relevant to their lives. Most have also talked about the need for the WTO to review how it can provide greater resilience and predictability in the context of a pandemic like COVID-19. Some candidates were also asked questions about how the WTO can be more involved in helping the world achieve the sustainable development goals (SDGs) laid out by the UN in 2015 with a targeted completion date of 2030. Most candidates also commented on the need to improve coordination with other multilateral organizations to see that the capacity needs, financing and other elements often needed for progress on improving integration of smaller and less developed countries into the global trade system are met.

One issue that intersects all of the above needs/concerns is the travel and tourism sector. It is the third largest trade export sector, has been one of the hardest hit sectors globally by the fallout from the COVID-19 pandemic with some 100-120 million jobs at risk this year with the potential closure of hundreds of thousands or millions of businesses – most mciro-, small- and medium enterprises (MSMEs) — and a sector that directly or indirectly is relevant to most of the UN’s SDGs. It is also a sector where there has been a great deal of activity by other multilateral organizations and the U.N.

While travel and tourism is important for nearly all countries, it has an outsized importance for small island developing states (SIDS), least developed countries (LDCs) and many countries in Africa. Thus, an effort by the WTO to prioritize actions that would help restore the international trade dimension of the travel and tourism sector and in a way that is supportive of the actions of other international organizations would have meaningful effects for businesses, workers and consumers globally.

United Nations, Policy Brief: COVID-19 and Transforming Tourism

On August 25, 2020, UN Secretary-General Antonio Guterres released a policy brief entitled COVID-19 and Transforming Tourism. The video of his statement when releasing the study can be found here, https://www.unwto.org/news/un-secretary-general-it-is-imperative-that-we-rebuild-the-tourism-sector (news release with video of statement towards bottom). The press release from the UN World Tourism Organization is copied below (emphasis in original).

UN SECRETARY-GENERAL: ‘IT IS IMPERATIVE THAT WE REBUILD THE TOURISM SECTOR IN A SAFE, EQUITABLE AND CLIMATE FRIENDLY MANNER

“Madrid, Spain, 25 August 2020 – As part of the wider UN response to COVID-19, the UN Secretary-General António Guterres released today a thematic brief on the impact the pandemic has had on tourism. Drawing on the latest data from the World Tourism Organization (UNWTO), the lead author of the publication, it warns that as many as 100 million direct tourism jobs are at risk, and the massive drop in export revenues from tourism could reduce global GDP by as much as 2.8%. The brief stresses that tourism is an essential pillar of the SDGs and the most vulnerable workers and nations at greatest risk.

“Tourism has been among the hardest hit of all sectors by COVID-19 and no country has been unaffected, with restrictions on travel and a sudden drop in consumer demand leading to an unprecedented fall in international tourist numbers.

“The ‘COVID-19 and Transforming Tourism’ Policy Brief from the Secretary-General of the United Nations, António Guterres, makes clear the impact that the pandemic has had on global tourism and how this affects everything from jobs and economies to wildlife conservation and the protection of cultural heritage.

“Mr Guterres said: that ‘It is imperative that we rebuild the tourism sector‘ in a ‘safe, equitable and climate friendly’ manner and so ‘ensure tourism regains its position as a provider of decent jobs, stable incomes and the protection of our cultural and natural heritage’. The UN Secretary-General further underscored that tourism is one of the world’s most important economic sectors, providing ‘livelihoods to hundreds of millions more’, while it’“boosts economies and enables countries to thrive’, and at
the same time allowing ‘people to experience some of the world’s cultural and natural riches and brings people closer to each other, highlighting our common humanity’.

“The Brief warns that the impacts of the pandemic on tourism are already placing conservation efforts in jeopardy. Citing case studies from around the world, it warns that the sudden fall in tourism revenues has cut off funding for biodiversity conservation and, with livelihoods at risk in and around protected areas, cases of poaching and looting are expected to rise. Again, the impact on biodiversity and ecosystems will be particularly critical in SIDS and LDCs. Furthermore, with 90% of World Heritages Sites having closed as a result of the pandemic, both tangible and intangible heritage is at risk in all parts of the world.


Five points priorities moving forward

“UNWTO Secretary-General Zurab Pololikashvili said: ‘Tourism touches on nearly every part of our societies and is a cornerstone of growth and employment, both in developed and developing economies. The United Nations Secretary-General echoes the five key priority areas that UNWTO has identified for tourism to return and drive wider recovery, and both governments and the private sector now have a duty to put this plan into
action.’

“The Policy Brief notes that women, youth and workers in the informal economy are most at risk from job losses and business closures across the tourism sector. At the same time, destinations most reliant on tourism for jobs and economic growth, including SIDS) and Least Developed Countries (LDCs) are likely to be hardest hit, including through an anticipated fall in foreign direct investment (FDI).

“In addition to calling for strong support for the sector in mitigating these massive impacts, the Brief stresses that this crisis represents an opportunity to rethink tourism, including how it contributes to the SDGs. To this end, the Policy Brief provides Five Priorities for the restart of tourism, all aimed at ensuring a more resilient, inclusive and carbon neutral sector. These priorities are:

“1. Mitigate socio-economic impacts on livelihoods, particularly women’s employment and economic security.

“2. Boost competitiveness and build resilience, including through economic
diversification and encouragement of MSMEs.

“3. Advance innovation and digital transformation of tourism

“4. Foster sustainability and green growth

“5. Enhanced focus on coordination, and responsible leadership

“Alongside penholder UNWTO, a further 11 United Nations agencies contributed to the Policy Brief, highlighting the sector’s unique importance and outreach.”

The policy brief is embedded below.

SG-Policy-Brief-on-COVID-and-Tourism

There are a set of slides that lay out what is at stake for the world from the impact of COVID-19 on tourism. International tourist arrivals are down 56% in the January – May time period for the world, with the range by region being between 47% (Americas and Africa) and 60% (Asia and the Pacific). The loss in revenue in five months was US$320 billion with an annual projection of lost revenue from US$910 billion to US$1.2 trillion. The most optimistic projection has international tourism revenues declining to a level last seen in 2003.

The small island developing states (SIDS) and least developed countries (LDCs) most at risk include 21 which have international tourism exports accounting for 50-90% of total exports of goods and services and an additional 20 countries where international tourism exports are between 30 and 50% of total exports of goods and services. Macao (China), Palau, Bahamas, Saint-Lucia, Maldives, Turks and Caicos, and Aruba are all 80% or higher; St. Maarteen and Anguila are 70-79%; Cabo Verde, Antigua & Barbuda, Sao Tome & Principe, Barbados, Vanuatu, and Samoa are all 60-69%; Jamaica, Montenegro, Gambia, Fiji, Comoros, and Dominica are all 50-59%; Tonga, Ethiopa, Belize, Lebanon, Montserrat, Georgia, French Polynesia, and Jordan are all 40-49%; and Mauritus, Seychelles, Haiti, Dominican Republic, Bermuda, Albania, St. Vincent & Grenadines, Croatia, Tanzania, Curacao, Grenada, and St. Kitts and Nevis are all 30-39%.

One of slides shows that women make up 54% of the workforce of accommodation and food services supporting the point that women are among the most vulnerable in terms of job security during the pandemic.

The slides are embedded below.

UN-Tourism-Policy-Brief-Visuals

Conclusion

As WTO Members look at their responses to the COVID-19 pandemic in general with a focus on export restraints and other restrictions, consider how trade can speed economic recovery and consider steps that should be taken to reduce the challenges should there be another health pandemic in the future, it is important that the Members consider the travel and tourism sector with a sense of urgency. Cooperation and coordination among WTO Members on when and how to reopen international travel and other needs of travelers, businesses, workers and host governments is obviously critical. Also coordination with the WHO, UNWTO, IMF, World Bank and regional development banks is critical to see that the special needs of SIDS, LDCs and the MSMEs are identified and addressed.

Race for WTO Director-General — additional material on The Rt Hon Dr. Liam Fox MP (United Kingdom)

The two month period for candidates for the position of Director-General of the World Trade Organization to make themselves known to the WTO Members ends today, September 7, 2020. The Chairman of the General Council along with the Chairs of the Dispute Settlement Body and Trade Policy Review Body will now start the process of holding “confessionals” with WTO Members to receive in confidence the four candidates whom each Member believes could generate consensus among the membership as part of the first round of reducing the candidates from eight to five. Two other rounds will follow to reduce the candidates from five to two and then from two to one.

Today I review some other press articles about the candidate from the United Kingdom to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. The other seven candidates were reviewed previously. Yesterday, I posted material about H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia), the day before on H.E. Amina C. Mohamed (Kenya), on September 4 on H.E. Yoo Myung-hee (Republic of Korea), on September 3 on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 6, 2020, Race for WTO Director-General – additional material on H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia), https://currentthoughtsontrade.com/2020/09/06/race-for-wto-director-general-additional-material-on-h-e-mohammad-moziad-al-tuwaijri-saudi-arabia/; September 5, 2020, Race for WTO Director-General – additional material on H.E. Amina C. Mohamed (Kenya), https://currentthoughtsontrade.com/2020/09/05/race-for-wto-director-general-additional-material-on-h-e-amina-c-mohamed-kenya/; September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

As noted above, today’s post looks at a few articles featuring The Rt Hon Dr. Liam Fox MP from the United Kingdom, the eighth and final candidate nominated for the position of Director-General.

  1. The Asean Post, September 5, 2020, Pandemic Is ‘Kiss of Death’ For Managed Trade, https://theaseanpost.com/article/pandemic-kiss-death-managed-trade.

“The coronavirus pandemic has heaped pressure on the troubled World Trade Organization (WTO), a WTO leadership candidate said, warning the crisis could spell the end of rules-based international trade altogether.

“Liam Fox, Britain’s first post-Brexit international trade secretary and one of eight candidates vying to become the WTO’s next director-general (DG), voiced concern that countries might turn their backs on its multilateral trading model.

“‘The reaction of some countries to the COVID emergency will be to seek solace in protectionism and to believe that they will get more resilience by … closing themselves off, if you like, from the global economy,’ he said Thursday in an interview.

“‘Exactly the opposite I believe is true,’ he explained during a conversation using the video link Zoom, insisting that countries will find more security by opening up and ensuring diversity of supply.

“‘For the rules-based trading system, COVID could be the kiss of life if we embrace the right policies – or the kiss of death if we don’t.'”

2. Government of the United Kingdom, Department for International Trade, 19 August 2020, Liam Fox pledges half his team will be women if he is the WTO DG, https://www.gov.uk/government/news/liam-fox-pledges-half-his-team-will-be-women-if-he-is-the-wto-dg.

“Dr Liam Fox has pledged that women will make up at least half of his senior leadership team if he is appointed the next Director General of the World Trade Organization (WTO).

“The UK has nominated former International Trade Secretary Dr Fox to be a candidate to replace current Director General Roberto Azevedo who stepped down this month after seven years.

“Dr Fox, the only elected politician in the running for the role, believes changes need to be made to attract more women into senior trade roles at the WTO. He states:

  • “Women’s economic empowerment through trade can only continue with widespread commitment to advancing the WTO and rules-based trading systems
  • “There is a need for the WTO to embrace the ‘talents, innovation and creativity’ of women to ensure it can lift another one billion people out of poverty
  • “Thirty years of progress is under threat from rising levels of unilateral actions and protectionism and those bearing the economic impact will disproportionately be women

“Dr Fox believes securing the input of women at a senior level at the WTO will help reduce the many barriers women face in accessing trading opportunities.

He said:

“‘As someone who trained and practised as a medical doctor I was used to half, and sometimes more, of my colleagues being female. But, despite real progress being made, women continue to face disproportionate barriers in accessing trading opportunities and markets due to discriminatory attitudes, poor conditions and harassment as well as unequal access to inputs such as credit and land.’

“‘And, as we look around us at the rising levels of unilateral actions and protectionism, we know that the remarkable achievement of the last three decades is under threat and that those bearing the brunt will be women.’

“Dr Fox believes the WTO and rules-based trading systems have created opportunities for women in both developed and developing countries which will be key to helping the global economy recover from the effects of the coronavirus pandemic.

“In 2016, McKinsey estimated that creating more opportunities for women to work, including in export-led sectors, could add $12 trillion to the global economy by 2025.

“Dr Fox said:

“‘What could be more counterproductive than failing to utilize the talents, innovation and creativity of half the planet’s population? Women’s economic empowerment through trade can and has played a key role in creating political stability and so the conditions for wider economic progress. This matters to all of us, wherever we are.’

“Currently, neither the Director General nor any of the four Deputy Director Generals at the WTO are female. The latest diversity breakdown of the WTO secretariat shows that of the 24 staff members in the most senior grades, only five were female.

Dr Fox said:

“‘To attract more women into the architecture of trade, we need to make changes at all levels.’

“‘We need more input for women, by women if the WTO is to play its part in taking another one billion people out of extreme poverty. That is why, if I am successful in my candidacy, women will account for at least half of my senior leadership team.'”

3. Inside U.S. Trade’s World Trade Online, September 2, 2020, Fox: Congress should leverage TPA renewal to resolve WTO appellate impasse, https://insidetrade.com/trade/fox-congress-should-leverage-tpa-renewal-resolve-wto-appellate-impasse.

The article reviews statements by Dr. Fox that his political thinking would identify outreach to the U.S. Congress after the upcoming election as a way to make progress in resolving the impasse on the WTO’s Appellate Body. Dr. Fox opines that the renewal of trade promotion authority (“TPA”) in the front half of 2021 gives Congress significant say on trade matters which could be used to find solutions on the Appellate Body impasse.

4.  Chatham House, 10 August 2020, In Conversation with The Rt Hon Dr Liam Fox MP: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/conversation-rt-hon-dr-liam-fox-mp-candidate-director-general-world-trade-organization.

Chatham House has conducted interviews with each of the candidates for Director-General. The session with Dr. Fox was held on August 10, 2020 and was on the record. My notes of some of the questions asked and of Dr. Fox’s responses are contained below.

Q:  You are a free trader.  Could you share your philosophy about international trade?  What is your vision of trade?

A:  One of the great benefits of international trade is its contribution to moving one billion people out of poverty in a generation, one of the greatest accomplishment in history.  We live in a very interdependent and interconnected world.  Trade is not an end in itself but a means to spread prosperity around the world which leads to security.  If countries try to block trade, there are consequences such as mass migration of peoples.

Q:  How do you deal with the view that many people in developed world feel that trade has undermined their prosperity?

A:  Such views flow from a failure to understand the benefits that come from free and open trade.  In developed countries we take benefits of trade for granted and simply look at the downside costs.  If you consider benefits to consumers from trade, the benefits include a much broader selection of goods and services at lower prices.  Countries always have the trade off between trade liberalization and protectionism.  Those seeking protection may have better lobbyists, but they don’t have better products.  Typically trade ministers don’t mention consumers at all when discussing trade policies.  Yet that is one of the basic advantages of trade – greater choice, lower prices.

Q:  What are the top three challenges you would face if selected as the next Director-General?

A: Dr. Fox views there are different types of issues facing the WTO.  The most important issue in his view is to get Members to reconnect with the vision of a shared endeavor.  One of the dangers of undermining the multilateral system is the resulting free-for-all that would result among countries which will hurt most countries including major countries like the United Kingdom and Germany.  Secondly, there are a host of practical issues – restoring the appellate body would be one. Without the ability to enforce rights and obligations, the WTO is denying Members one of the value added elements of membership. Other practical issues include dealing with and recovery from the COVID crisis and how we treat our members.  At the time of the webinar with Chatham House, Dr. Fox had done 72 bilaterals with Members. There is a common view that small members who are a nuisance get listened to as do the large members. However, the rest of the 164 Members don’t feel that they do get listened to. This is a big problem for the WTO.  For the organization to function well, the Members need trust among themselves. For Member who don’t feel that their views are being listened to, the trust breaks down.

Q:  Members will be much more involved in their own economies post-COVID.  What can WTO do to get ahead of this situation?

A:  Governments will be much more concerned with domestic issues in the post-COVID world.  The focus on domestic needs will potentially lead to more protectionism, greater subsidies and other trade distorting measures. The key point for Members and the WTO is the resilience of the multilateral system.  What we have learned during the COVID pandemic is that the way we have organized global value chains has shifted from a structure of resilience to one of efficiency. The world will likely get some rebalancing of global value chains to improve resilience. The role of the WTO is to make the case openly and constructively that resilience is to be found in greater diversity of supply, not from massive onshoring or attempting to go it alone.  If a country onshores everything, the country potentially will be more vulnerable in another crisis.  During the COVID pandemic, one can see many elements of global trade that have been disrupted.  Vessels ended up in the far east disrupting timing of the movement of goods. With far fewer passenger flights, there has been less air cargo which has raised costs. The lock down in countries has led to less government work on various trade related ares (e.g., certifications).  Yet all of these problems we have seen during the pandemic are not technical in nature but rather political.  That is the reason Dr. Fox believes that the next Director-General of the WTO needs to have a political background.  Many issues will be sorted out in capitals based on political will and not in technical discussions in Geneva.

Q:  How would you engage the big players, like the U.S., China and the EU?

A:  Engaging the major players is about getting the political commitment from them to wok within the system.  What their voters want is a successful economy. In Dr. Fox’s view, a successful economy is enhanced by open trade.  In terms of the US-China dispute, typically disputes end when costs become too great for the disputants to sustain.  In a global environment like existed in 2018 and much of 2019 where growth was occurring, costs may have been sustainable by the U.S. and China.  Dr. Fox believes that the costs are less likely to be sustainable in the post-COVID world.  If true, one would expect there would be increased internal pressures to come to a compromise in the two countries.

Q:  UNCTAD has confirmed a major contraction of trade during the pandemic. What is most important for the WTO to do to facilitate dismantling trade barriers?

A:  The first task for the WTO and the next Director-General is to deal with the COVID export-restriction measures.  In Dr. Fox’s view, nothing is as permanent as temporary measures entered during a crisis.  The WTO needs to improve notifications (export restrictions or other barriers). Dr. Fox is worried how existing export barriers on medical goods may apply to vaccines when they are developed.  Moreover, many countries are dependent on open trade to avoid starvation.  Must understand of where we differ from the end of the financial crisis.  During the financial crisis only 0.7% of G20 trade was subject to trade restrictions. In 2018 more than 10% of G20 trade was covered by trade restrictions.  This change is a major problem. The G20 countries have to lead by example in terms of eliminating trade restrictions.  Getting an understanding that we are in a bad place and likely to worsen is important.  We cannot have business as usual.

Q: As the next Director-General, if selected, would you try to pick a particular sector (e.g., digital trade) to make progress?

A:  Dr. Fox believes that the next Director-General needs to look at connected problems – trade crisis, COVID crisis and environmental crisis — and see where the crises intersect.  Fisheries subsidies is all about sustainability.  The WTO needs to get NGOs and the young people who are concerned to put pressure on their governments.  As stated before, it is not just what happens in Geneva that is important but what happens in capitals.  An Environmental Goods Agreement is another potentially important issue.

Q:  The EU has been talking about a border carbon tax/tariff.  Where should WTO stand on carbon border adjustment mechanisms?

A:  This is going to be a big issue for the WTO.  For developed countries, a price should be paid to achieve reduced carbon levels.  The difficulty will come in the concept of a green subsidy.  If the subsidy becomes distortive in areas like agriculture, that will be problematic for many Members.  Then again the question of a carbon border adjustment mechanism is a political issue.  If we want to see environmental objectives met there will be a price to pay.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Fox are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Race for WTO Director-General — additional material on H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about H.E. Amina C. Mohamed (Kenya), the day before on H.E. Yoo Myung-hee (Republic of Korea), on September 3 on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 5, 2020:  Race for WTO Director-General – additional material on H.E. Amina C. Mohamed (Kenya), https://currentthoughtsontrade.com/2020/09/05/race-for-wto-director-general-additional-material-on-h-e-amina-c-mohamed-kenya/; September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Mohammad Moziad Al-Tuwaijri from Saudi Arabia, the seventh candidate nominated.

  1. Inside U.S. Trade’s World Trade Online, August 17, 2020, Saudi DG candidate aims to quantify and deliver outcomes at the WTO, https://insidetrade.com/daily-news/saudi-dg-candidate-aims-quantify-and-deliver-outcomes-wto.

Inside U.S. Trade conducted interviews with each of the eight candidates for the Director-General position. The publication’s write-up of its interview with Minister Al-Tuwaijri was posted on August 17th. As reviewed in earlier posts, Minister Al-Tuwaijri brings a business approach to the position of Director-General if selected.

“‘My delivery-oriented approach is all about regaining trust and regaining confidence in the organization. And I am a great believer that if that’s the case, I think the big powers – the big countries – will go back to negotiation,’ he told Inside U.S. Trade in an interview on Monday.”

His first priority if selected as the Director-General would be to do a review of the challenges the WTO faces to identify priorities for addressing by the Members, but noted Members viewed fixing the dispute settlement system and bringing life back to the negotiating function as two broad agenda issues.

Minister Al-Tuwaijri views an approach that includes developing information that shows the effects of particular policies or actions on Members as critical to helping solve various problems including how special and differential treatment is applied and various Chinese practices that are causes of the U.S.-China tensions.

2.  Chatham House, August 17, 2020, In Conversation with H.E. Mohammad Maziad Al-Tuwaijri, https://www.chathamhouse.org/file/conversation-he-mohammad-maziad-al-tuwaijri.

Chatham House has done a series of webinars with each of the candidates vying for the WTO Director-General position. On August 17, Chatham House featured Minister Al-Tuwaijri of Saudi Arabia. What follows are my notes on some of the questions asked and Minister Al-Tuwaijri’s responses.

Q:  What is your overarching philosophy of international trade and your vision for the WTO as a 21st century organization?

A:  Recovery from COVID-19 will be different for each country and each region.  Minister Al-Tuwaijri has reviewed the stimulus programs put in place by various governments to cushion the economic effects of addressing the COVID-19 pandemic, and he designed the stimulus plan for Saudi Arabia. There are questions of whether the stimulus provided will be sufficient and how quickly economies will rebound.  The economic uncertainty and unpredictability is harmful to business activity and investment.  Looking at the WTO, there is no question that reform is needed.  But the question is what type of reform is needed.  Another question is what type of candidate is needed (an insider or someone with a fresh set of eyes).  Minister Al-Tuwaijri views himself as the right candidate.  The WTO faces many challenges. Digital trade is a game changer, but there are currently no WTO rules.  The WTO has accomplished relatively little in its first 25 years.  The WTO faces challenges on all three pillars — negotiations, disputes, and notifications and transparency.  There are increased tensions geopolitically.  The WTO must in Minister Al-Tuwaijri’s view go back to its core principles.  In G20 one of the objectives has been to gather political will of the G20 countries to support reform at the WTO. 

Q:  What are the three most important challenges that the WTO faces?

A:  For Minister Al-Tuwaijri, the three pillars of the WTO — negotiations, transparency, disputes — are interconnected.  However, the root cause of the WTO current situation is the failure of the negotiating function to provide results.  If the negotiating process can be improved, WTO Members can regain trust. As Director-General, Minister Al-Tuwaijri would start a process where the WTO can identify early warning signs that negotiations are not proceeding.  On transparency, the WTO needs to understand why countries are not as transparent as required by the WTO.  If the reason is technical, such as lack of infrastructure in certain Members, then the WTO need to address through technical assistance.  If the issue is really political, the Director-General needs to do outreach to capitals. Similarly, if rules need to be modified, the WTO needs to address that as well.  Minister Al-Tuwaijri believes the next Director-General needs to ask the tough questions to identify the root causes of issues before the WTO Members try to fix the issues.  The next Director-General can facilitate the WTO Members making some successes to show the organization can move forward and be relevant.  But unless the WTO adopts an holistic approach to the needs and causes, the WTO will be back to the same dysfunctional state in the future.

Q:  What would you do in the first 100 days?  You have mentioned creating a delivery unit in the Director-General’s office and shifting to annual Ministerials. Are these some of the actions you would take in the first 100 days?

A:  In Minister Al-Tuwaijri’s view, the intensity of trade-relevant events is happening frequently which requires more frequent Ministerial meetings.  But having more meetings is not an end in itself. The key is how to prepare for the meetings, how to make the meetings more impactful.  Minister Al-Tuwaijri would want to include voices of the business community within the Ministerial.  In his first 100 days as Director-General, Minister Al-Tuwaijri would engage with all members to understand their views on issues. For example, he would look at ideas around the appellate body impasse (Amb. Walker’s proposal, the MPIA) and discuss why these proposals haven’t resolved the impasse.  He would complete the deep dive into all matters pending before the WTO and potential reform issues and tracking the root causes. This would be important to do in the first 100 days.

Q:  On the politics of trade, re US and China, the U.S. Trade Representative Robert Lighthizer has said that it is important for the next Director-General to understand that large state-run economies aren’t adequately disciplined under existing WTO rules. Do you agree?

A:  Both the United States and China are important members of the WTO.  Minister Al-Tuwaijri was pleased to see that the two countries were able to reach a Phase 1 agreement which shows they can negotiate some of their differences.  The WTO needs both countries to go back to negotiations.  The WTO is a Member-driven organization, so what gets negotiated is a matter of Members agreeing.  It is clear that resolving the tensions between the two Members matters to businesses in both countries.  If selected as the next Director-General, Minister Al-Tuwaijri would encourage both countries to go back to negotiations within the WTO.

Q:  How do you plan to fold trade sustainable development goals (SDGs) into WTO reform program?

A:  Minister Al-Tuwaijri indicated that he was privileged to implement the SDGs in the Kingdom of Saudi Arabia.  He believes it would be helpful to have some unified definitions and fresh thoughts on the SDG issues.  There is ongoing work within the WTO on some of the SDGs, and many members are working on the issues.  Minister Al-Tuwaijri believes that addressing SDGs in the WTO, like many other issues, goes to how do Members implement objectives and measure progress.  Only way that progress was made in Saudi Arabia was to map SDGs and the Saudi 2030 program and connect the dots. Minister Al-Tuwaijri would look forward to working with WTO Members to address SDGs as appropriate in the WTO reform program.

Q:  on deglobalization, what are best steps DG can take to address the problem?  With export restriction measures and subsidy measures from Pandemic response, does this make WTO more relevant?

A:  Minister Al-Tuwaijri understands nations responding to the shock of the COVID-19 pandemic with panic and restrictive measures.  He believes that the pandemic provides the WTO membership a huge opportunity.  Every crisis teaches us something.  The pandemic provides an opportunity for the WTO to be more relevant.  The question is how.  Minister Al-Tuwaijri belives that the WTO needs to do an impact analysis of all the actions taken.  As Director-General, he would undertake that analysis.  Minister Al-Tuwaijri stated that the WTO is still needed.  He has seen that in the G20 process where the G20 countries have talked about the need for reform in the WTO and the G20 support for reform.  It is important to evaluate whether the reform ideas are doable and doable in a timely manner. Minister Al-Tuwaijri believes that there are many issues that can be resolved that can bring back trust and confidence in the organization. 

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Al-Tuwaijri are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for the last candidate, The Rt Hon Dr. Liam Fox MP (United Kingdom).

Race for WTO Director-General — additional material on H.E. Amina C. Mohamed (Kenya)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about H.E. Yoo Myung-hee (Republic of Korea), the day before on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Amina C. Mohamed from Kenya, the sixth candidate nominated.

  1. Financial Times, August 4, 2020, Leading WTO candidates back US bid for dispute system reforms, https://www.ft.com/content/f4830e2b-df7b-474a-8104-6336992ca193.

“The two leading candidates to run the World Trade Organization have called for reform to address US criticisms that have paralysed the institution’s legal body and risk undermining the entire organisation.

“Kenya’s Amina Mohamed and Nigerian Ngozi Okonjo-Iweala are the favourites to be appointed WTO director-general after incumbent Roberto Azevedo steps down in September. In interviews with the Financial Times, both said that American criticisms of judical over-reach by the organisation’s dispute settlement system were valid.

* * *

“Asked by the FT whether the US criticisms were fair, Ms Mohamed, a former diplomat and trade minister, said: ‘Yes, I think that the US concerns are real.’

“She added: ‘The feeling in Geneva among very many members is that they [the appellate body] went outside the mandate that was granted to them.’

“WTO member governments should reassert their authority over rulemaking in the organisation, Ms Mohamed said.

“‘We need to make sure . . . that the appellate body members understand that is the only mandate that they can have, that they cannot add to or diminish the rights of parties. Those rights were negotiated by member states,’ she said. The body’s habit of deliberately creating legal precedent to apply to other cases involving other governments ‘was not right’, she added.”

2. Inside U.S. Trade’s World Trade Online, July 21, 2020, Kenya’s Mohamed says she has delivered at the WTO before and will again, https://insidetrade.com/daily-news/kenya’s-mohamed-says-she-has-delivered-wto-and-will-again.

As part of the publication’s interviews with all WTO Director-General candidates, Inside U.S. Trade interviewed Minister Mohamed in July. Minister Mohamed repeated views she has expressed at the WTO and in various webinars. The WTO has serious problems including a negotiating function that is stalled, the impasse on the dispute settlement system and more. As a member-driven organization, it is the Members who will have to set the reform agenda, though the Director-General can help facilitate Members’ efforts. Reform will require support from all Members including the largest, such as the U.S. and China.

Minister Mohamed noted that the issues the U.S. has raised, whether on the operation of the Appellate Body or other issues, are of concern to other Members as well and need to be addressed if the WTO is to maintain relevance. Both the U.S. and China have been major beneficiaries of the trading system. Tensions between the major players is in part due to lack of reform. The rule book needs to be updated and added to to ensure it reflects the realities of 21st century trade developments.

3.  Chatham House, 6 August 2020, In Conversation with Ambassador Amina Mohamed: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/conversation-ambassador-amina-mohamed-candidate-director-general-world-trade-organization.

Chatham House has conducted a series of webinars with each of the eight candidates for the Director=General position. The webinar with Minister Mohamed was held on August 6, 2020. My notes on some of the questions and Minister Mohamed’s responses follows.

Q:  what is your overarching philosophy for international trade?

A:  Following the Great Depression and World War II, the creation of the Bretton Woods institutions focused on multilalteral cooperation.  Multilateral cooperation and trade liberalization led to unprecedented growth and development.  Trade was a big part of the progress.  Minister Mohamed has seen the dynamism that trade can have to help countries  develop and integrate into the global economy.  However, there have been instances where countries haven’t had the ability to integrate, where assistance was needed

Multilateral trade rules have not kept up to  date.  There are many developments and challenges facing global trade — digital trade, environmental challenges, sustainable development, and now the pandemic.

The WTO will need reform, recovery, and renewal to play the role it needs to play.

Q:  Based on the economic effects from the COVID-19 pandemic, the WTO is predicting a huge trade decline in 2020 with a smaller recovery in 2021.  What does WTO need to do to help countries deal with the pandemic and recover?

A:  The WTO needs to do what the WTO does best, insist on transparency.  Out of  fear at the start of the pandemic. Members of  the WTO erected trade restrictions on the export of medical goods and some on agricultural goods.  Members were focused on national needs versus working on international cooperation.  The WTO must be sure  that the gateways of trade are open.  The WTO must  look at members’ responses  to the pandemic.  For outside observers, the WTO’s monitoring/transparency function is often overlooked.  In the pandemic, the transparency function of the WTO has become incredibly important.  The WTO must make sure the transparency mechanism works well.  If  WTO Members put in place trade facilitation measures, Members can get out of  the pandemic all together and quickly.  WTO Members must be sure medical supplies  and agricultural goods are available to all, particularly those who don’t produce medical goods and must import them.

Q:  There is a crisis in the WTO’s dispute settlement system.  How would you address?

A: In Minister Mohamed’s view, the whole WTO system is a complete system.  Negotiations, monitoring, disputes,  If you take one piece out, you create a gap which must be filled.  The WTO dispute settlement system is a two-tiered system.  If rules are not obeyed, you need an effective system or the rules lack legitimacy.  Based on Minister Mohamed’s outreach to Members, she knows that there is broad support for reform of the dispute settlement system.  If Members don’t  agree on and complete reform, Members will put in interim measures.  The way to  create reform is to get proposals out  on the table.  There are important questions such as why does the AB not exist any more?  Where did we get off  track?  How can we get it back on track?  Members are interested in getting dispute settlement back on track.  There have been a number of proposals.  One, from Amb. Walker, has  been gaining traction.  The process must include all Members in the discussion and get agreement on how to proceed.

Q:  Where is the aid for  trade initiative going?

A:  Minister Mohamed was at the WTO when the aid-for-trade initiative was adopted.  Members need such an initiative to permit integration of least developed  and some developing countries where capacity building is required to permit participation (e.g., developing standards).  The WTO came up with a program that attracted funding from countries that could  help.  It has worked really, really well.  If Minister Mohamed becomes the Director-General, she would work with other international organizations to increase financing.  She noted that all other multilateral organizations have trade desks.  A key objective is to ensure the aid-for-trade initiative has the resources to help as many countries as possible.  It is a critical initiative, but needs a lot  of support.

Q:  What role will sustainable development goals have on WTO moving forward?.

A:  Minister Mohamed noted that sustainable development has been an aspect of WTO work and will continue to be going forward..  She focused on this at the Nairobi Ministerial in 2015 and obtained an agreement on agricultural export subsidies which goes to reducing hunger by eliminating distortions in agricultural trade which should permit more food to be produced locally.  At the present time, the WTO has fisheries subsidies negotiations underway.  An agreement, when reached, is important for trade but also for sustainable development.  Other issues have effects on sustainable development as well – agricultural negotiations on domestic  support), plurilateral negotiations on digital trade (must be sure that benefits area shared on an MFN basis and have provisions that will help address the digital divide).  And the WTO looks at issues involving trade and the environment..

Q:  On climate change, as Director-General of the WTO how will you ensure WTO is engaged on climate change?

A:  At the WTO, there are a range of issues that look at trade and another topic.  Thus, the WTO has a Trade and Environment Committee.  When Minister Mohamed was Ambassador to the WTO, the Committee was very active and did  a lot  of work.  For example, the Committee started on a list  of goods and services that were environmental goods.  If Minister Mohamed becomes Director-General, she would try to  energize the Committee, update the list and ensure that the WTO is engaged in global discussion on environmental issues.

Q:  What  strategy do you have to build cooperation within WTO? 

A:  As Director-General, Minister Mohamed would deal with tensions in the system by addressing reform to deal with shortcomings in the rules.  Must update the rule book which Members feel is outdated.  The needs from the Pandemic, the rise of digital trade, sustainable development goals — all are topics where a review and revision of the rule book are required.  There are old issues that need new rules or updated rules. There are new issues that need new rules.   Without updated rules, the WTO will face continued tensions.  The Director-General can create the space  for  parties to negotiate, be an honest broker and help facilitate progress.

Q:  Looking at the tension between the US  and China, how can you convince the U.S. that multilateralism is in the U.S.’s interest?

A:  There is no real question that multilateral trade has been beneficial for all.  The purpose of GATT was to see that trade disputes were resolved according to agreed rules, without going to conflict.  At present, there are heightened tensions because the WTO rules are weak or are absent.  So must put in place the conditions to permit parties to confidentially meet and resolve matters.  The Director-General acts as an honest broker.   Tensions have existed in the past and have been resolved within the GATT and now the WTO.  Need to build confidence among Members and need to put issues on the table and discuss.  There is no doubt in Minister Mohamed’s mind that trade issues can be resolved within the WTO. 

Q:  Concerned about the Doha Round not being active.  This is a question of how we use  trade as a means of development?

A: This is a concern raised by a number of countries.  The Doha Development Agenda (DDA) was launched in 2001.  Followed 9-11 where needed to show international community could come together and achieve  something  significant.  DDA remains unfinished.  However at  the 2015 Nairobi Ministerial, WTO Members resolved the issue of export subsidies.  If the WTO can deal with domestic  support, market opening, fisheries subsidies will have resolved a number  of important  matters from the DDA.  So some DDA issues have been resolved already, others are under negotiation.  Need to see that the other two pillars of the agriculture package will be restarted again (domestic support, market liberalization).  Will try to get  agreement to reopen these at next Ministerial and move for progress on remaining agricultural issues (including  cotton).

Q:  The Trade Facilitation Agreement (TFA) is the only multilateral agreement since the start of the WTO.  What lessons for WTO going forward?

A:  TFA is a new generation agreement.  By that Minister Mohamed means that the agreement bases the flexibilities and the concessions on the abilities and needs of individual Members.  That approach of fashioning exceptions to obligations to the needs of specific Members is likely to be typical of future agreements. There may also be capacity building and other similar features.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Mohamed are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

WTO Director-General candidates — Nigeria’s Dr. Ngozi Okonjo-Iweala and the United Kingdom’s Dr. Liam Fox generate potential controversy

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala is Nigeria’s candidate to become the next Director-General. When she was put forward by the Nigerian government her biographical sketch submitted did not contain information on her having also become a citizen of the United States in 2019. Her biography as available from the WTO webpage is embedded below.

bio_nga_e

In the highly politicized atmosphere that characterizes the current dysfunction at the WTO, omitting her U.S. citizenship may become a liability to Dr. Okonjo-Iweala’s chances of becoming the next Director-General. Chinese and other news reports raise that very issue. See, e.g., South China Morning Post, September 4, 2020, Ngozi Okonjo-Iweala’s US passport will not help her chances in WTO leadership race, Chinese trade experts say, https://www.scmp.com/economy/global-economy/article/3100280/ngozi-okonjo-iwealas-us-passport-will-not-help-her-chances; Naija247News, September 2, 2020 (posting a Bloomberg News piece), WTO Hopeful Economist Okonjo-Iweala Balances Nigeria, U.S. Citizenships, https://naija247news.com/2020/09/02/wto-hopeful-economist-okonjo-iweala-balances-nigeria-u-s-citizenships/#.X1OeZ5PsZ9A.

The Rt Hon Dr. Liam Fox MP (United Kingdom)

In an article earlier this week, Inside U.S. Trade reported that Dr. Fox had indicated that the next Director-General should prioritize the U.S. Congress over the U.S. Administration (President and USTR) to seek a resolution of the WTO’s Appellate Body impasse, seeking Congress to mandate a resolution as part of its consideration of renewal of Trade Promotion Authority. See Inside U.S. Trade’s World Trade Online, September 2, 2020, Fox: Congress should leverage TPSA renewal to resolve WTO appellate impasse, https://insidetrade.com/trade/fox-congress-should-leverage-tpa-renewal-resolve-wto-appellate-impasse.

Congress may well have an interest in the topic as part of trade promotion authority. However, for a candidate seeking to be selected as the next Director-General of the World Trade Organization to suggest the path to progress is by circumventing the U.S. Administration seems likely to raise concerns about his objectivity. Circumventing the U.S. Administration essentially indicates Dr. Fox’s belief that the problem at the WTO on the issue is U.S. intransigence. While that may be the European Union view, articulating such a position is unlikely to win friends at USTR. While Dr. Fox apparently believes he has the U.S. support, his statement on the approach he would take as Director-General may result in the U.S. supporting others. The Inside U.S. Trade piece quotes Dr. Fox as saying that when he is being frank, it usually gets him in trouble. Time will tell whether his recent comments repeat that self appraisal.

Race for WTO Director-General — additional material on H.E. Yoo Myung-hee (Republic of Korea)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Amb. Tudor Ulianovschi (Modolva), the day before on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Yoo Myung-hee from the Republic of Korea, the fifth candidate nominated.

  1. Hankyoreh, August 9, 2020, S. Korea’s candidate for WTO director-general emphasizes reform, http://english.hani.co.kr/arti/english_edition/e_international/957072.html.

“Speaking with reporters at the Government Complex in Sejong on Aug. 6, Yoo provided an explanation on the current situation with the director-general election.

* * *

“’What I detected from my conversations with dozens of ministers is that many countries are feeling disappointed and frustrated with the WTO’s inability to do its job. They all agreed that there need to be reforms to restore the WTO’s functions in terms of negotiations, disputes, and implementation,’ Yoo said. Regarding the methods of carrying out WTO reforms, she said she planned to ‘hold discussions involving several different approaches,’ noting that there were ‘large differences of opinion among member countries on the role and authority of the Appellate Body.’

“Yoo also stressed that the WTO ‘will need to guarantee free movements of products and services, particularly in the event of another future crisis like the COVID-19 pandemic, while ensuring that [such a crisis] is not abused as an opportunity for applying protective trade measures.’”

2. Inside U.S. Trade’s World Trade Online, August 5, 2020, Korea’s DG candidate on retoling the WTO: ‘Success breeds success,’ https://insidetrade.com/daily-news/korea%E2%80%99s-dg-candidate-retooling-wto-%E2%80%98success-breeds-success%E2%80%99.

As part of Inside U.S. Trade’s series of interviews with each of the eight candidates, Minister Yoo was interviewed in early August. In the August 5 write-up by the publication on the interview, Minister Yoo covered both her experience as a trade negotiator and her ability to close deals as strengths in her candidacy and stressed that achieving some successes at the next WTO Ministerial Conference was crucial to permit the organization to move forward and rebuild trust and be able to address the larger reform issues before the WTO.

Restoring the negotiating function is key to progress, to helping major members like the U.S. and China see that their concerns can be handled through the WTO and would take pressure off of the dispute settlement system.

On dispute settlement, all Members want an effective system, but there are wide differences on what that means. Minister Yoo would urge engagement by Members, outreach to capitals to encourage political will, and perhaps outside input for novel possible solutions.

3. Chatham House, 25 August 2020, In Conversation with Minister Yoo Myung-Hee:  Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/file/conversation-minister-yoo-myung-hee-candidate-director-general-world-trade-organization; https://www.youtube.com/watch?reload=9&v=8ebGAH4MYOM.

The webinar was part of Chatham House’s series talking to each candidate for the Director-General post. The event was an “on-the-record” event. Below are my notes on some of the questions posed to Minister Yoo and her responses

Q:  Tell us about your overarching view of international trade? 

A:  Minister Yoo stated that trade has been the engine for global economic growth and has contributed to a very large reduction of poverty.  Trade is a means not an end.  Since 1995 trade has increased from $5.2 trillion to over $19 trillion in 2018 with a significant reduction in global poverty occurring during the same time.  But the trading system must adapt, change and evolve.  The world has seen slowing economic growth, rising protectionism, and in the last year the emergence of the COVID-19 pandemic.  Global trade contracted last year for 1st time since the 2008-2009 financial crisis and will do so again this year.  At the same time, there has been concern among some as trade is affecting more aspects of our lives than ever before.

Minister Yoo believes that in a rapidly changing world, the WTO has not been able to pull its weight. The WTO has struggled with all three pillars of the system – negotiations, transparency, dispute settlement.  She states that the WTO needs to come out of the crisis stronger than before.  To do that, Minister Yoo believes the next Director-General must work with Members to achieve what she describes as her three Rs – relevance, resilience and responsiveness. First, the WTO must be relevant. To do that, the WTO rule book must evolve with the changing realities of 21st century trade. It is critical that the WTO reenergize its negotiating function and restore the two-tier dispute settlement system.  Second, the WTO must be resilient.  The WTO must address the needs of countries who haven’t gotten many benefits from WTO membership. Third, the WTO must be responsive to future emergencies.  In times of crisis, like the current COVID-19 pandemic, the WTO must be there to ensure stability and predictability.  Historically, in times of crisis, world collaboration has emerged to help the world move forward. This was true at the end of World War II with the creation of the Bretton Woods organizations and during the 2008-2009 financial crisis with the emergence of the G20.  So the current COVID-19 crisis could be an opportunity to move the global trading system forward.   

Q:  The U.S. led the Bretton Woods efforts, but today the U.S. is skeptical of global collaboration.  How can the WTO foster the role of global engagement?

A: The U.S. has shown continuing interest in the multilateral trading system as can be seen from their various proposals for WTO reform and their extensive materials on dispute settlement.  But over the last 25 years, there have been no major trade agreements at the WTO other than trade facilitation. This lack of ability to update the rule book has led to frustration and loss of trust in the WTO not just by the U.S. but by others as well.  So we need to use this moment to reform the WTO to revitalize the system. Such revitalization could provide an important reason for countries to handle problems through the WTO rather than outside of the system.  Minister Yoo, based on her conversations with trade ministers around the world and ambassadors in Geneva, sees the same frustration with the WTO from many Members.  However, Members are committed to the multilateral system.  COVID-19 provides an impetus for taking action.  Minister Yoo believes that the WTO needs successes. The WTO needs to go step by step; success will spur success and permit addressing larger issues over time.

Q:  You mentioned the slowing down of the global economy and the COVID-19 pandemic.  What role should the WTO play in COVID-19?  

A: Minister Yoo believes that the WTO can and should play many roles.  COVID-19 is both a health crisis and an economic crisis.  First, the WTO can enhance transparency of trade restrictive measures adopted and ensure that such measures are consistent with WTO obligations (e.g., targeted, temporary).  Second, the WTO needs to ensure the free flow of goods and services (during the pandemic this is basically medical and agricultural goods and services).  The WTO should review its rules to ensure that in a future crisis, the WTO can in fact ensure stability and predictability in the trade arena.  Third, the WTO can work with other multinational organizations to overcome both the health and the economic crises.  On the health crisis, the WTO should work with the WHO and other organizations dealing with availability and affordability of medical goods, on the promotion of R&D so we can have vaccines and therapeutics and so that there can be equitable and affordable availability to the people of the world.     On the economic crisis, the WTO should work with IMF, the World Bank, regional development banks and others to reduce the damage caused by the pandemic and to promote a quick recovery and build back better.  For vulnerable economies (and sectors within economies), there is likely ongoing needs for assistance from the WTO and other organizations to weather the pandemic.  Minister Yoo believes that there are also many other roles that the WTO could play.

Q:  There have been growing trade tensions between the U.S. and China, but specifically when it comes to industrial subsidies, S&D in the WTO, what role should WTO take to reduce tensions.

A:  In Minister Yoo’s view, the WTO must revitalize the multilateral trading system. This is important to permit countries to handle trade issues within the WTO versus taking action outside of the system.  On bilateral issues, such as industrial subsidies, the WTO should look at the spillover effects of such policies on other WTO Members and examine the existing rule book.  If rules address the specific problem, then the issue may be enforcement of existing obligations.  But if rules are unclear or don’t cover the policy involved, then Members need to be open to revising existing agreements or adopting new agreements consistent with basic principles of the WTO (e.g., fair competition).  While this is a member-driven organization, the Director-General plays the role of facilitator.

Q:  On WTO dispute settlement, what needs to be changed?

A:  Restoring a functioning dispute settlement system is a top priority issue for the next Director-General.  Why is there the current impasse at the WTO on the Appellate Body?  Minister Yoo believes that the impasse flows from longstanding different views of Members on the role of dispute settlement.  Some are concerned that the Appellate Body is creating rights or obligations — that is overreaching their authority — contrary to the limits in the Dispute Settlement Understanding.  Other Members say that the Appellate Body’s actions are necessary as the Appellate Body is tasked with finding a positive resolution to a case and that may lead to interpretations of gaps or silence or ambiguous language.  Minister Yoo believes that the lack of progress in negotiations may have led Members to overly rely on dispute settlement for issues that could have been resolved through negotiations.  Still, based on her extensive discussions with ministers and ambassadors, Minister Yoo understands that Members share the value of having an effective dispute settlement system.  There are some proposals for reform before the WTO. The Walker proposal addresses some suggestions on procedural and some substantive issues.  US has put forward their views on the problems.  But, as said before, there are very fundamental differences in the views of Members.  Minister Yoo believes that the next WTO Director-General needs to put all proposals on the table and have Members engage in discussions.  She believes that outreach to capitals will also be necessary to secure Members’ buy-in to resolving the current impasse.

Q:  What should WTO do to address the environmental crisis (e.g., coordinate carbon taxes)?

A;  COVID-19 has put a focus on the need for sustainable development.  The pandemic could wipe out economic progress over the last decade.  Thus, it is important to pursue sustainable development.  The question is how to achieve sustainable development in trade, or how to operationalize sustainable development goals in trade?  Minister Yoo started by reviewing what the WTO is currently doing. She noted that the fisheries subsidies negotiations are ongoing. A conclusion of the negotiations would advance sustainable development goals.  Similarly, the WTO has had a Committee on Trade and Environment.  WTO Members and the next Director-General should look at the Committee’s agenda and see if Members are open to updating the agenda. Finally, there used to be negotiations to liberalize trade in environmental goods. Hopefully, such negotiations can be resumed.

As to anti-carbon measures, Minister Yoo understands that the objective is to reduce carbon gases  It is important that trade agreements and environmental agreements be able to work together.  Some countries have expressed concerns about environmental objectives being applied to discriminate against trade from certain countries.  Minister Yoo states that it is important that any such measures be done on a nondiscriminatory basis.  If selected as the next Director-General, Minister Yoo hopes to help Members to find mutually acceptable solutions on these matters.

Q:  On developed and developing countries, should there be different obligations in the environmental area?

A:  WTO Members understand that developing countries may need additional policy space when adopting various agreements.  So during negotiations, it is often the case that Members adopt flexibilities for developing and least developing countries.  In trade negotiations, Members negotiate those flexibilities.  The key in Minister Yoo’s view is to focus on the actual needs of Members. Those needs may be longer implementation periods, the need for technical assistance, the need for capacity building, etc.  The WTO should be able to provide technical assistance and capacity building where needed.

Q:  Currency in U.S.-China trade affects the value of other currencies in Asia and elsewhere.  How can you deal with these trade tensions?

A:  In many areas, there are tensions between U.S. and China.  At the WTO, Members can deal with trade-related tensions.  The WTO can provide a meaningful platform to address trade-related issues.  The WTO has not fully addressed currency issues as curency is largely in the IMF’s area of expertise.  Minister Yoo noted that the WTO has received no official proposal to address currency at the WTO.  It is an issue that can be addressed in some trade remedy cases.  But there is limited actual case law, so it is too early to consider the issue at the WTO.  On other issues, WTO can be part of the solution through both dispute settlement and by updating the rule book.  The WTO should provide a platform for the U.S. and China to address trade issues between them.  This could permit building up new rules.  Even small successes between the Members would permit addressing larger issues.

Q:  WTO must be able to deal with state capitalism.  Is there an inevitability of increased tension? 

A:   On state capitalism, rather than addressing the economic model itself, the WTO should look at specific government policies since those can have spillover effects on other countries. If the policies have negative effects on trade that are inconsistent with WTO principles, then WTO Members should review the rule book and see if Members need to be updated existing rules or if new rules are needed or if the question is simply enforcement of existing rules.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Yoo are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Amb. Tudor Ulianovschi (Moldova)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Mr. Abdel-Hamid Mamdouh (Egypt), the day before on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Amb. Tudor Ulianovschi from Moldova, the fourth candidate nominated.

  1. Inside U.S. Trade’s World Trade Online, August 24, 2020, Moldovan DG hopeful: WTO needs a ‘dynamic,’ courageous leader, https://insidetrade.com/daily-news/moldovan-dg-hopeful-wto-needs-%E2%80%98dynamic%E2%80%99-courageous-leader.

As part of Inside U.S. Trade’s series of interviews with candidates for the Director-General position, the publication published its summary of the interview with Amb. Ulianovschi on August 24. A good part of the article reviews Amb. Ulianovschi’s views on his strengths as a candidate and the need for reform for the WTO.

On substantive priorities, Amb. Ulianovschi is focused on deliverables for the next Ministerial to be held in 2021, mentioning a fisheries subsidies agreement and various plurilaterals (Joint Statement Initiatives) that were under negotiation among various members. He would also seek a Ministerial Declaration on the role of the WTO in alleviating the negative trade consequences from COVID-19.

Amb. Ulianovschi views the need for Members to address the challenges from COVID-19 as a means for building momentum to deal with other pressing issues like tightening rules on industrials subsidies or how special and differential treatment is handled for countries at different stages of economic development.

On WTO reform, Amb. Ulianovschi, in addition to updating the rule book to reflect 21st century trading reality, stated that deep reform is needed. He would encourage Members to review all WTO rules and decide which rules needed to be rethought and which ones have not been implemented properly.

2. Xinhuanet, August 8, 2020, Interview: Moldova’s WTO candidate urges new, inclusive digital trade rules, http://www.xinhuanet.com/english/2020-08/08/c_139273598.htm.

Amb. Ulianovschi stated in the interview that rulemaking on e-commerce was needed now and called for more inclusiveness for least-developed and developing countries in the digital economy. There are capacity issues for many least-developed countries and developing countries that need to be addressed. He pointed to the importance of digital trade during the COVID-19 pandemic and noted that further development of digital trade would improve resilience.

3. Chatham House, September 2, 2020, Webinar: In Conversation with Ambassador Tudor Ulianovschi: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/webinar-conversation-ambassador-tudor-ulianovschi-candidate-director-general-world-trade.

Chatham House has done a series of on-the-record webinars with the candidates for Director-General of the WTO. What follows are my notes on some of the questions posed and answers given by Amb. Ulianovschi.

Q:  What is your overarching attitude towards international trade?

A:  Amb. Ulianovschi is a strong advocate of free and fair trade; he favors multilateral trade.  He believes that the WTO has done good for its Members during its existence and that it will continue to do so.  However, any organization needs to adapt to 21st century realities (e.g, the COVID-19 pandemic, the rise of protectionism, the financial crisis, changing nature of trade).  Key issues for the WTO include how are rules negotiated; how are the rules followed; and how are disputes between Members handled.  Amb. Ulianovschi takes a very holistic approach to the WTO and its future.  He states that it is better to have a system than not to have a system.  So in Amb. Ulianovschi’s view, the question is how to adapt the WTO to the 21st century.  The WTO very clearly needs reform.  Pursuing reform must be an overarching priority for the next Director-General.  Amb. Ulianovschi believes that the WTO needs to help increase economic development of people who are lagging behind.  While the WTO and liberalized trade have helped many people get out of poverty, there remain many more who need help.  COVID-19 has highlighted the inequalities that exist today. In his view, the WTO is more necessary than ever to help address the inequalities and expand world trade for the benefit of all.

Q:  is free trade always fair trade?  Where are the limits?  If you remove all subsidies immediately, what would happen? Aren’t there problems with over-regulation and with under-regulation too?

A:  Amb. Ulianovschi stated that if governments go to extremes at either end of the spectrum, the WTO system won’t work.  The key for the WTO is finding the right balance.  How fast can you liberalize trade flows free?  Amb. Ulianovschi believes that the WTO must refocus the organization to integrate those Members who haven’t benefited to date from the WTO.  The WTO must help Members with capacity building needs and be sensitive to those concerned with potential adverse effects from opening up home markets to imports too fast. 

Amb. Ulianovschi noted that the COVID-19 pandemic has hurt industries in both goods and services.  The WTO must help strengthen least developed countries and developing countries and ensure that regional or plurilaterals help all nations (e.g., by providing benefits on an most favored nation basis).  Amb. Ulianovschi stated that micro-, small and medium businesses (MSMEs) should be the focus of the WTO as such entities make up some 95% of many developing countries’ and least-developed countries’ economies.  there should be a focus on trade facilitation measures for many of these countries.  This is the way to move forward.

Finally, on monitoring and notification requirements, every WTO Member must promptly notify any domestic measures taken. Prompt notifications will improve transparency which should help reduce the risk of spillover effects on other economies from actions taken.

Q:  what role precisely can the WTO play in avoiding the worst effects of a global recession and negative effects of COVID-19?

A:  According to Amb. Ulianovschi, COVID-19 should be seen as a wake-up call to Members for the need for greater transparency. The key role of the WTO during a pandemic is to keep trade flows open and non disrupted for goods and services because of global value chains.  Where there are disruptions, improved transparency will help focus on what is needed.  Amb. Ulianovschi believes that the WTO must work much closer with WHO and FAO to be sure there is a more holistic approach to dealing with COVID-19 effects and recovery.  On vaccines, Amb. Ulianovschi believes Members must avoid nationalization of vaccines.  The WTO must make sure there are as few barriers as possible on vaccines, so all peoples can receive vaccines.

In Amb. Ulianovschi’s view, COVID-19 has caught most or all countries off-guard.  Many governments focused initially on protecting their own citizens and their economies.  As required, restrictive measures should be notified to WTO promptly. Any such measures are not to be permanent. Governments must reduce and then eliminate such measures based on lack of continued need.

Q:  On climate change and environmental degradation – what is the connection between global trade and sustainable development?  Is there a tension?  Can they be connected?

A:  Trade doesn’t need to be at odds with sustainable development. There are multilateral negotiations ongoing on fisheries subsidies.  These negotiations are not only important for WTO Members but also for the achievement of one of the UN Sustainable Development Goals, 14.6. So trade can be connected to achieving sustainable development goals.

Q:  Where do you see US and EU aligned and where are the major differences?

A:  Amb. Ulianovschi noted that he has had discussions with major capitals in Europe, the Americas and Asia.  On a fundamental level, while there are concerns in the U.S. and the EU that the current system is not fully beneficial for them, they and China and other major countries are all in favor of a multilateral system.  This is a good starting point.  However, there is great mistrust within the organization among Members.  Some of the concerns expressed by both the EU and US on the dispute settlement system are important for the next Director-General to address at the political level to get Members willing to deal with reform of the dispute settlement.  On digital trade, the WTO must see that digital trade is made an empowering tool.  However, there are many regulatory issues (e.g., privacy, customs duties, localization, etc.) that need to be addressed in the discussions as these are important for businesses to be able to operate.  In Amb. Ulianovschi’s view, it is critical that WTO Members avoid a vacuum of rules in any area of importance (e.g., digital trade) .  Where there is a vacuum of multilateral or plurilateral rules, then conflict is likely.  The US is concerned about lack of rules and application of rules on different issues.

Q:  do you consider the challenges to be primarily technical or primarily in political?

A:  Amb. Ulianovschi has indicated that the current challenges are a bit of both, but he leans towards political as the most important.  The next Director-General must have both political and technical skills and background.  Looking at issues where both elements are needed, Amb. Ulianovschi identified unfinished business on agriculture as an example. Many items raised in the Doha Development Agenda remain unresolved after nearly 20 years. In Amb. Ulianovschi’s view, the WTO needs technicians to come forward with new approaches to moving elements forward, but the WTO also needs political will from Members to agree to forward movement.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Amb. Ulianovschi are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Mr. Abdel-Hamid Mamdouh (Egypt)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Dr. Ngozi Okonjo-Iweala (Nigeria) and the day before on Dr. Jesus Seade Kuri. See September 1, 2020:  Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Mr. Abdel-Hamid Mamdouh from Egypt, the third candidate nominated.

  1. Daily News Egypt, August 25, 2020, Reviving WTO role as guarantor for stable international trade is my priority: Director General Candidate, https://dailynewsegypt.com/2020/08/25/reviving-wto-role-as-guarantor-for-stable-international-trade-is-my-priority-director-general-candidate/.

“In an interview with Daily News Egypt, Mamdouh highlighted that,
should his election campaign prove successful, his priority will be to
revive the organisation’s role as the guarantor of stability and
predictability in international trade relations.

“Mamdouh noted that the WTO was created to promote the growth and
expansion of world trade through a rules-based system guaranteeing the
rights and obligations of its members.

“He added that the organisation has suffered from a serious breakdown in
its three vital functions, namely dispute settlement, negotiations, and its
monitoring and deliberative capacities. These three functions are closely
interconnected, and the system was designed to operate with balance
across these three pillars.

“’My first priority will be to revive the three functions, starting with the
negotiating function,’ Mamdouh said, ‘If we cannot bring people to the
table to negotiate solutions to problems, we will get nowhere.’

* * *

“Regarding the challenges facing the organisation, in my view, over the
past quarter of a century, the WTO has suffered from a chronic
imbalance across all its vital functions. That is, dispute settlement,
negotiations, and the transparency/deliberative functions.

“In any legal system, there needs to be a balance between the ‘legislative’
and the ‘judicial’ functions. For the WTO, these are the negotiating and
the dispute settlement functions. While dispute settlement has gained
strength due to the inherent automaticity of procedures, the negotiating
function has broken down. This has created an unsustainable imbalance.

“At the same time, the international trade landscape has dramatically
changed, and the WTO system has been unable to update its rule book.
This has caused unsustainable pressure on the dispute settlement
function, which produced the current breakdown in the Appellate Body,
and as the saying goes, if you cannot negotiate, you litigate.

“The world of trade has changed, and so have the dynamics within the
organisation. Whereas the General Agreement on Tariffs and Trade
(GATT) started its journey back in 1947 with merchandise trade across
borders, we have now expanded into trade in services and intellectual
property.

“Today, the way we trade links goods, services, ideas, capital, and
regulation. That requires a comprehensive and coherent approach by the
WTO, that leads to a ‘deal’ that is truly inclusive of all sectors and
interests of Members.

“For example, I see the role that digitalisation has played for many
industries across the economy, with technology-driven business models.
At the same time, I also see the rising tide of legitimate domestic
regulation in areas like privacy, consumer protection and cyber-security.
The interface between the two needs to be managed, to ensure the lowest
trade restrictiveness of regulatory measures, while not intruding on
regulatory sovereignty.

“To complete the picture of where we stand today, we must look at the
crisis caused by the novel coronavirus (COVID-19) pandemic, and make
sure that we retain the lessons we are currently learning. The world will
need a strong and stable WTO to support the post-crisis economic
recovery.

* * *

A lot of challenges await the WTO’s new head, including the
increasing US-China tensions. How do you evaluate these
challenges and how you will deal with them?

“In my view, the tensions between the US and China are, to a very large
extent, a result of the WTO malfunctioning. The organisation was
specifically designed to avoid such tensions, by providing a forum for
resolving trade problems, not only through discussions and deliberations,
but also by updating the rule book through negotiations.

“The WTO Director General should use his or her soft power to persuade
the two parties that the organisation could be part of the solution, not the
problem. The best way to resolve such tensions would be through
seeking multilateral rule-base solutions, as opposed to bilateral deals.

“Furthermore, such tensions also have serious implications that go far
beyond the two parties directly involved. They affect a very wide range
of other WTO Members. Similarly, resolutions of such tensions will also
concern other parties, and that should be considered. Therefore,
multilateral solutions of such problems will always be the best option.

“I don’t believe that we should look at such situations in terms of having
winners and losers, but rather in terms of how we can find win-win
outcome through good mediation and creative negotiating solutions that
involve trade-offs acceptable to all.”

2. African Business Magazine, 13 August 2020, ‘The honest broker’ — Egypt’s Abdel-Hamid Mamdouh sets out his WTO leadership bid, https://africanbusinessmagazine.com/in-the-news/the-honest-broker-egypts-abdel-hamid-mamdouh-lays-out-his-wto-leadership-bid/.

“Promising not to repeat the same mistakes, Mamdouh believes the difference between the ‘Doha Round’ and the successful ‘Uruguay Round’, which led to the creation of the WTO in 1995, was the lack of strategic balance that kept the latter moving forward.

“’In the Doha Round that is not what we did,’ he says.

“’We had a big agenda with balance inside it, but we did not actually preserve the integrity of the balance as we proceeded. What happened really was the collapse of the negotiating process.’

* * *

“’We really are facing a situation where the system is threatened to fall apart,’ he says.

“’But let’s not let this crisis go to waste. Let’s use this crisis to mobilise all the political will and to move forward.’

“The first step is to ‘recall and reconstruct’ the common purpose of the WTO, based around the principles that trade is important for economies and that the best way to benefit from trade is to ensure the predictability and stability of trading conditions.

“The next step is to reform the 1947 General Agreement on Tariffs and Trade; the WTO’s underlying treaty to eliminate trade barriers that was successfully built upon during the Uruguay Round and less so during the Doha Round.

“Moving towards the next ministerial meeting in Kazakhstan in 2021, specific areas of focus include negotiations on fisheries subsides, e-commerce, investment facilitation, domestic regulation services, trade and women empowerment and SMEs.

“To make the reforms possible the WTO must reimagine itself as an institution that can accommodate the demands of all its different members even though they often hold competing points of view.

“’What we need is a political vision that advances the different interests of different constituencies to bring everyone around the table, because the system can serve the interests of all,’ he says.

“’Successful relationships do not depend on how much we agree on, they depend a lot more on how we deal with our differences.’”

3. The National, August 13, 2020, WTO is in system meltdown according to the Egyptian who wants to run the body, https://www.thenational.ae/world/europe/wto-is-in-system-meltdown-according-to-the-egyptian-who-wants-to-run-the-body-1.1062808.

“Speaking at a webinar hosted by the London-based think tank Chatham House, Mr Mamdouh said the WTO had not been faced with comparable problems since it replaced the General Agreement on Tariffs and Trade (GATT).

“’The WTO is facing a stress test that reminds me of the stress test on the GATT when I came to Geneva in [1985], when the reform was necessary,’ he said.

“Mr Mamdouh explained that the systems within the WTO were now in a state of ‘complete breakdown’ because of ‘excessive pressure’ on its dispute settlement function.

“’That was not sustainable, so it failed as well,’ he said.

* * *

“The Egyptian nominee for the WTO’s top post has said it would be his goal to hit the ground running with the body’s 12th ministerial conference, which is scheduled for June 2021.

“’I would say that there are two sets of issues that I would have as my priorities. The first is to have a clear vision for a reform agenda and reform process. So we would agree that [the ministerial conference], what do we want to do with this organisation?’

“Secondly Mr Mamdouh said there were a number of crucial negotiations, foremost among which was fisheries subsidies negotiations, which needed to be concluded.

“’There are ongoing negotiations on eCommerce, investment facilitation, domestic regulation services, small and medium-sized enterprises, trade and women empowerment. We need to register concrete progress on those,’ he said.

“’We need to, we need to use the next ministerial to move the WTO into positive territory,’ Mr Mamdouh added.”

3. The Cairo Review of Global Affairs, July 29, 2020, The Race for the World Trade Organization (podcast of interview), https://www.thecairoreview.com/podcasts/the-race-for-the-world-trade-organization/. What follows are my notes on some of Mr. Mamdouh’s responses to questions

Mr. Mamdouh noted that there has been a Breakdown in negotiating function and in transparency/monitoring function. In his view, the first task is to get the negotiating function operating again.

In response to a question on how COVID-19 has affected world trade, Mr. Mamdouh distinguished between short-term and long-term issues.

Within the short-term, Mr. Mamdouh views that there has been a lot of panic analysis. The WTO system allows some restrictions to be applied, particularly export restrictions, and a number of countries have applied such restrictions. If such restrictions are imposed, they have to be transparent, notified to the WTO, used only to the extent necessary, and terminated when not needed. What the WTO needs to ensure now is that goods and services flow smoothly. Moreover, during the COVID pandemic, not all goods have been affected by restrictions. Rather, we are basically talking about medical products and food products. So the range of goods restricted by some Members is quite limited.

Mr. Mamdouh stated that once countries get past the short term, all will need a strong WTO to ensure predictability and stability to let trade serve its role in restoring growth.

On a question dealing with negotiating issues important to developing countries, Mr. Mamdouh responded that there are negotiating items on the table now that need to be resolved which support developing country development by securing stability and predictability and which should take account of special needs of developing countries. Mr. Mamdouh believes that the WTO Members need to ensure that all three legs of the organization (negotiations, transparency/monitoring, and dispute settlement) function properly, so the organization doesn’t find itself back in the dysfunctional situation Members now find themselves in. One of the important opportunities for developing countries is the issue of digital trade, but many developing countries are presently unable to take advantage of the technological developments. Stated differently, there is a digital divide. So an important issue is how can trade negotiations at the WTO and work by the WTO with other multilateral organizations support addressing the digital divide.

How trade has changed? Mr. Mamdough responded that the trend over the last 20 years has been towards a more global value chain model of trade which depends on the smooth cross-border movement of goods and services. WTO Members need a clear and predictable trade regime to permit the smooth movement of goods and services. Many developing countries have not focused on the growing importance of the role of services in global value chains (e.g., transport, logistics, electronic payments, R&D, production engineering, etc.). Governments need to look at their regulation of services to be sure they are competitive. The third way in which trade has changed, is the digitalization of trade. Thus, how we produce, trade and consume goods and services have all changed.

On dispute settlement, Mr. Mamdouh stated that the WTO needs reform. But major surgery is not needed. The concerns expressed are not about the rules as such but how the rules are applied. Moreover, in looking at reform of dispute settlement, WTO Members must keep in mind the role that the breakdown in the negotiating function and the monitoring/governance function has had in putting undue pressure on dispute settlement. Restoring balance among the key functions will reduce the pressure on dispute settlement.

4. Inside U.S. Trade’s World Trade Online, June 15, 2020, Egypt’s Mamdouh: WTO needs to find its ‘common purpose’ again, https://insidetrade.com/daily-news/egypt%E2%80%99s-mamdouh-wto-needs-find-its-%E2%80%98common-purpose%E2%80%99-again.

Inside U.S. Trade has conducted interviews with all of the eight candidates for the Director-General position. The interview with Mr. Mamdouh was an early one conducted by the publication in mid-June.

Mr. Mamdouh takes instruction from the reform success of the Uruguay Round which succeeded because the reform agenda was balanced such that all participants had items of importance to them in the negotiations. This resulted in Members having a common purpose. Mr. Mamdouh doesn’t believe Members currently have a common purpose and that has prevented there being a viable negotiating function.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Mr. Mamdouh are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest..

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Dr. Ngozi Okonjo-Iweala (Nigeria)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Dr. Jesus Seade Kuri. See August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Dr. Ngozi Okonjo-Iweala from Nigeria, the second candidate nominated.

  1. The Australian, August 17, 2020, Should WT address antai-dumping measures?, https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a_GGL&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusiness%2Fleadership%2Fshould-wto-address-antidumping-measures%2Fnews-story%2F995b960b1de450c1d983f4aabeca2351&memtype=anonymous&mode=premium&nk=1fc9f182863545ef2c82ab30edd82766-1598966889

The summary of the article states that “Ngozi Okonjo-Iweala says the WTO should investigate whether Australia was inappropriately using anti-dumping provisions to keep out foreign steel.” I am not a subscriber to the Australian and so the information provided above is limited.

2. Nikkei Asian Review, July 13, 2020, Good listener or strong negotiator? WTO candidates make case for top job, https://asia.nikkei.com/Editor-s-Picks/Interview/Good-listener-or-strong-negotiator-WTO-candidates-make-case-for-top-job.

Ngozi Okonjo-Iweala

* * *

Q: How would you go about navigating reforms at the WTO amid a rise of unilateralism and U.S.-China trade clashes?

A: This is the topical question of the hour, the growing nationalism, the divide. But if you listen carefully, you find that there’s some intersecting interests. After all, the same big powers that seem to have a big divide are sitting across each other at the table and negotiating some deals. 

“The WTO should work with all members including the big ones to find out what are those intersecting areas — however small they may be — how do we begin to deliver to make the two sides see their common interests that we can work on and build trust.

“It will take time, it will be challenging, there’s no magic wand to it, but you need someone with the energy, the passion, who is not a quitter, and who can deliver and work with these powers and listen — listen to them, because sometimes they feel they’re not even listening to the big powers.

Q: Could you talk about your visions for reforms?

A: First, updating WTO rules to the 21st century to take account of 21st-century issues, such as e-commerce and the digital economy, such as climate change, the green economy and biodiversity and circular economy … the issue of women and trade and micro-, medium and small enterprise. Even technology, what technology is doing to supply chains.

“Then you’ve got to look at existing rules and see whether they are serving the purpose. There are some members who feel that some rules may be leading to circumvention and disturbing the balance of rights and obligations of members. Issues like special and differentiated treatment, which developing countries feel very strongly about [but] developed countries have a different view.

“The dispute settlement system is paralyzed. You cannot have a rules-based organization, which is the sole place where people can take their grievances and complaints, but rules are not being followed. 

“A third area I would mention is transparency and notification. Transparency is so vital to the multilateral trading system, and notification for businesses. If something is going to be done in a country,  businesses  need to know that you’re willing to take one action or another, otherwise they can’t function.

“The WTO has to start achieving more outcomes. If it doesn’t do that then people continue to see it as irrelevant. 

Q: How should the WTO address Washington’s complaint about China’s state capitalism and developing country designation?

A: Those are some critical issues that members will need to discuss and debate on. But let’s put it this way, we must make sure that all members of the WTO feel that the balance of rights and obligations for all members of the WTO is about a fair system. So, that’s why it’s important to listen to who feels it’s not fair and then restore that balance of rights and obligations that members need to undertake.”

3. Nairametrics, August 12, 2020, WTO Job: Okonjo-Iweala reveals how to resolve rift between US and China, https://nairametrics.com/2020/08/12/wto-job-okonjo-iweala-reveals-how-to-resolve-the-rift-between-us-and-china/.

“On healing the rift between the US and China, Okonjo-Iweala admitted that it is going to be challenging and not be easy. She said:

“‘Well this is not going to be easy, if it was easy, it could have been done a long time since. So it would be very challenging but it is not an impossible job. It is very clear that both the US and China have been helped and benefitted from the multilateral trading system in the past. Hundreds of millions have been lifted out of poverty. They have experienced shared prosperity in the economies and their countries.’

“The Nigerian candidate pointed out that it is important to remind the US and China of this shared prosperity. She then disclosed that she would listen to both countries to find out what really are the issues causing distrust among them. She said that she will not want to be involved in the larger political problems, but will rather separate the trade issues and focus on them and build this trust.

“Going further on how to settle their rift, Okonjo-Iweala said, ‘You need to begin to find areas where there can be confidence-building and trade. Building trust is not talking about it, you have to have areas where both can work together and agree and we have a golden opportunity in the fisheries subsidies negotiations that are going on now because the US is a party to it, China is a party, the EU, all other members.’

“‘It is a multilateral negotiation, so if they can sit around the table with others to negotiate this and have a successful outcome, that is one thing that will be shared in common between the 2. So that will begin to build confidence. Then reaching out both in the US and in China to talk to the policymakers, go where the decisions are made, talk to congress also in the US and begin to show the benefits of the system again.’

“She also said they will look at reasons why they need to work together because their rift may be causing negative externalities for other members. She is of the opinion that exposing all of these, working with them, and listening carefully will begin to build confidence.

“She believes that while achieving this will be difficult, focusing seriously on trade issues can create room for a breakthrough.”

4. P.M. News, August 4, 2020, Okonjo-Iweala: My priorities as WTO chief, https://www.pmnewsnigeria.com/2020/08/04/okonjo-iweala-my-priorities-as-wto-chief/.

“’I would be focusing, if I get the job, on the dispute settlement system. Because this is the fundamental pillar of the WTO,’ Okonjo-Iweala said.

”If you have a rules-based organisation, you must have a place where rules are arbitrated and that’s what happens with the dispute settlement system. So restoring that will be a top priority as well.’

* * *

“The candidate showed her confidence to ‘find a way to unlock the seeming division’ on the trade side, between China and the United States, underlining that finding areas of mutual interest and to build trust within the WTO trading system would be important.

“’Actually, if you listen to the two members, they have some things in common,’ Okonjo-Iweala added.

“’The dispute settlement system of the WTO is valued by both, they want it to reform, they don’t want it to disappear.’

“Okonjo-Iweala also noted that she hopes China will play the role of an economic growth engine in the current COVID-19 pandemic as it did during the 2008 global financial crisis.

“’I think the best thing China can do is to recover quickly. Because it’s one of the engines of growth in the world and it’s almost a quarter of world trade,’ she told Xinhua.

“’So if it recovers quickly, it means that it can help the rest of the world recover. So that’s the role I would see for China.’”

5. Financial Times, August 4, 2020, Leading WTO candidates back US bid for system reform, Amina Mohamed and Ngozi Okonjo-Iweala say American criticisms of over-reach are valid, https://www.ft.com/content/f4830e2b-df7b-474a-8104-6336992ca193.

Article also reviews Dr. Okonjo-Iweala’s view that the WTO should be taking a lead on COVID-19 and should take steps to see that the early introduction of export restraints on medical goods and medicines is not repeated.

6. Inside U.S. Trade’s World Trade Online, July 22, 2020, Nigeria’s candidate: Technical skill won’t solve WTO problems, https://insidetrade.com/daily-news/nigeria%E2%80%99s-candidate-technical-skill-won%E2%80%99t-solve-wto-problems.

Inside U.S. Trade has conducted interviews with each of the eight candidates. In its July 22 write-up of Dr. Okonjo-Iweala’s interview, the publication noted that Dr. Okonjo-Iweala would see who is behind on notifications and see if the problem is due to a lack of technical capability which is a real but solvable problem for many developing countries. For those with the ability to provide notifications but who haven’t, she would see what could be done including some proposals where “sticks” have been suggested to address non-compliance.

On U.S. concerns about China’s state-run economy, Dr. Okonjo-Iweala noted that the WTO doesn’t comment on Member’s economic systems but should address the consequences to the global trading system of different economic systems. She believes the WTO should start by establishing a definition of “public body” and look at improving rules on industrial subsidies and would urge the U.S., EU and Japan to table their proposal in that regard.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Okonjo-Iweala are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.).

Future posts will look at additional materials for other candidates.