The U.S.-China Economic and Security Review Commission 2020 Annual Report — recommendations to the U.S. Congress

In 2000 the U.S. Congress established the U.S.-China Economic and Security Review Commission (USCC) to “monitor and report on the national security implications of the U.S.-China economic relationship.” 2020 REPORT TO CONGRESS of the U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION, December 2020, at 27, https://www.uscc.gov/sites/default/files/2020-12/2020_Annual_Report_to_Congress.pdf. The annual report reviews the work undertaken by the USCC during the year and provides recommendations to the U.S. Congress to address matters viewed as of critical importance by the USCC. The report this year is another excellent review of concerns from the U.S. perspective of the directions China is pursuing and the challenges those directions pose to U.S. interests and the global order that has maintained relative peace and stability for the last seventy years. The issues and concerns raised highlight the likely challenges for WTO Members in finding a path forward to reforming the organization and updating the rules to ensure a global trading system that actually works for all trading nations. Below are copied two segments of the report — the Introduction (pages 27-30) and what the USCC considers the 10 key recommendations to Congress (pages 22-25). Because the USCC looks at both economic and security issues, the introduction provides the USCC’s views of the security implications of Chinese actions as well as the economic concerns raised by Chinese government policies. Similarly, many of the key recommendations are security related versus purely economic-centered.

INTRODUCTION

“In 2000, Congress established this Commission to monitor and report on the national security implications of the U.S.-China economic relationship. Over the years, we have tracked the People’s Republic of China’s (PRC) accountability to its global commitments, including those made in its accession to the World Trade Organization. Two decades later, the Chinese Communist Party (CCP) selectively adheres to its global economic, trade, and political obligations and has abandoned any concern for international opinion. Now the
CCP envisions itself atop a new hierarchical global order in which the world acquiesces to China’s worldview while supplying it with markets, capital, resources, and talent.

“The novel coronavirus (COVID-19) pandemic has focused public attention on China, but the PRC’s ambitions are neither new nor secret. For decades, the CCP has made its ambitions clear through industrial policy and planning documents, leadership speeches, and military directives. Under General Secretary Xi Jinping, however, the CCP is aggressively asserting its interests both domestically and globally.

“In the past, the CCP focused its attempts at economic dominance on legacy sectors of steel, aluminum, and transportation, among others. Its current goals are to dominate the world’s newest and most cutting-edge industries, including biotechnology, semiconductors, artificial intelligence, and clean energy. Though the focus of China’s industrial policies is changing, the government’s strategy and objectives retain the same mercantilist and coercive tools: compelling foreign entrants to transfer technology to their domestic competitors for limited market access, lavishing generous subsidies on state-owned enterprises and domestic national champions, and leveraging illicit methods, including cyber-enabled theft, to obtain valuable intellectual property and mountains of data.

“China’s security laws threaten the arrest of anyone who criticizes China, its leaders, or its policies. This threat now extends to Americans inside China as well as those who live in or travel to countries that have an extradition treaty with China. Foreign journalists live in fear of detention or expulsion.

“The CCP claims to protect the interests of the Chinese people. Its true purpose, however, is to protect its own existence and grow its power, no matter the costs. Party leaders judge any sign of criticism to be too great a risk to CCP rule. The CCP’s response is harsh and swift whether reacting to the single voice of a doctor raising health alarms about the emergence of COVID-19, to internal criticism, or to millions of peaceful prodemocracy demonstrators in Hong Kong. This year, the CCP undertook new levels of effort to silence critics and prevent the flow of information.

“The CCP’s actions in Hong Kong show the Party’s lack of tolerance for any sign of opposition to its interests and its lack of intent to honor its international commitments. Acting with swiftness and brutality, the CCP imposed draconian restrictions in Hong Kong, bypassing citizens’ rights, the local government, and the legislature with a law drafted and directed by Beijing. Moving mainland authorities into Hong Kong, the CCP has arrested hundreds and threatened thousands of citizens who have simply demanded China honor its pledge to guarantee Hong Kong a ‘high degree of autonomy’ in its legal, social, and economic life. That the CCP’s brazen assertion of power violated a legally binding treaty registered with the UN did not constrain its actions. Responding to global criticism, the head of China’s Hong Kong and Macau Affairs Office affirmed
the new CCP approach, replying, ‘The era when the Chinese cared what others thought and looked up to others is in the past, never to return.’

“From its mismanagement of the COVID-19 outbreak in Wuhan to its imposition of full and direct authoritarian rule in Hong Kong and continued militarization of the South China Sea, the PRC has
repeatedly violated its own pledges and international obligations. Enabled by its economic strength, China’s disregard for international rules and norms or censure from the international community raises grave concerns over future CCP policy choices and actions. The prospect is growing that the CCP will use military or other coercive means to forcibly absorb Taiwan. Taiwan’s thriving democracy and civil society stand as the ultimate rebuke to the CCP’s claim that Chinese people are not suited for democracy.

“As the CCP accelerates its aggressive pursuit of global power and leadership, this Report shows that the PRC considers its relationships with African countries to be a blueprint for building its new, Sinocentric world order. The PRC’s dominance of extractive industries on the African continent that are critical for technology and defense, combined with its influence over media and political parties, are key elements of a multidimensional approach it is now advancing in other regions, including Latin America and the Caribbean.

“China’s activities in Africa serve as the template for projecting power and influence far from China’s shores. Such activities include the establishment of a military base it calls a ‘logistics facility’ in Djibouti, the use of Chinese troops involved in peacekeeping operations in violation of the spirit if not the letter of its UN obligations, and political opportunism and interference enabled by predatory economic practices. Chinese companies’ construction of potentially dual-use ports and telecommunications networks along the ever-expanding Belt and Road Initiative are representative of the mutually reinforcing nature of its military-civil fusion strategy and expansionist goals.

“Meanwhile, the People’s Liberation Army is evolving into a formidable and increasingly modern force. It augments robust force projection capabilities in East and Southeast Asia with routine operations in the Indian Ocean, initial forays into the South Atlantic, and the asymmetric capability to project power globally in the
space and cyber domains. The CCP employs its armed forces as a coercive tool during peacetime, carrying out large-scale intimidation exercises around Taiwan and in the South China Sea. This year, it provoked the first deadly clash on the China-India border in nearly half a century.

“China’s rising aggression has not gone unnoticed. Policymakers, businesses, civil society leaders, and citizens around the world have been awakened to the ambitions and tactics of the CCP. Governments in developed and developing countries alike have become more cautious about accepting China’s coercive terms of trade, technology products, and services. No trend exemplifies this shift in opinion better than rising restrictions in many countries limiting access to 5G infrastructure for Chinese companies beholden to the CCP by its national security laws.

“In addition to reporting on the current state of the U.S.-China relationship, the Commission has focused on new theaters and emerging dimensions of the threat to U.S. interests posed by CCP policy choices. This year, we examined how the CCP advances its interests in new domains of competition. In international organizations, both those falling under the UN umbrella and those bringing together regional partners, China is positioning trusted officials, whether nationals of the PRC or others vulnerable to Chinese influence, in key
leadership posts. Long dependent on foreign technology, China is working to influence international technical standards for emerging technologies to promote Chinese companies and technologies as the basis for new global standards. The cumulative effect of China’s influence in these organizations was on full display this year when the director-general of the World Health Organization (WHO) publicly praised Beijing’s transparency and early response to the COVID-19 outbreak, despite the extreme measures Beijing took to lock down information while allowing infected persons to travel domestically and internationally, seeding a global pandemic. At the same time, the WHO, at Beijing’s behest, blocked Taiwan from meaningful participation
in the global pandemic response despite Taiwan’s early and open communication and model epidemic control and prevention efforts.

“While General Secretary Xi and the ruling CCP have sought to project an image of confidence, their tone-deaf response to global criticism suggests the possible hazards ahead. By suppressing all criticism and dissent, General Secretary Xi has created a dangerous echo chamber leaving China’s government vulnerable to miscalculation. The United States and its allies and partners cannot afford, however, to simply wait out the PRC’s current rulers with a false hope of reform or policy change. The CCP’s repression of the Chinese
people, and especially the atrocities it has committed against ethnic Uyghur and Tibetan minorities, may constitute crimes against humanity, even genocide. Concern about the Party’s abusive treatment of ethnic Mongolians is also rising.

“The CCP has launched determined and systematic efforts to hollow out global governance institutions, suppress internal opposition, subjugate free peoples in Hong Kong and around China’s periphery, dominate global economic resources, and project military power. These efforts threaten vital interests of the United States and the security and vitality of an increasing number of countries around the globe.

“Left unchecked, the PRC will continue building a new global order anathema to the interests and values that have underpinned unprecedented economic growth and stability among nations in the post-Cold War era. The past 20 years are littered with the CCP’s broken promises. In China’s intended new order, there is little reason
to believe CCP promises of ‘win-win’ solutions, mutual respect, and peaceful coexistence. A clear understanding of the CCP’s adversarial national security and economic ambitions is essential as U.S. and allied leaders develop the policies and programs that will define the conditions of global freedom and shape our future.”

THE COMMISSION’S KEY RECOMMENDATIONS


“The Commission considers 10 of its 19 recommendations to Congress to be of particular significance. The complete list of recommendations appears at the Report’s Conclusion on page 535.

“1. Congress adopt the principle of reciprocity as foundational in all legislation bearing on U.S.-China relations. Issues to be considered in applying this principle should include but are not limited to the following:

“• The ability of journalists and online media to operate without undue restriction;

“• The ability of nongovernmental organizations to conduct meaningful engagement with civil society;

“• Access to information, including but not limited to financial and research data;

“• Access for social media and mobile apps from U.S. companies;

“• Access for diplomatic personnel, including but not limited to diplomats’ freedom of travel and ability to meaningfully exchange views with the host country public; and

“• Market access and regulatory parity, including but not limited to companies’ ability to participate in trade, investment, and financial market transactions, cross-border capital transfer, and protections of intellectual property.

“2. Congress expand the authority of the Federal Trade Commission (FTC) to monitor and take foreign government subsidies into account in premerger notification processes.

“• The FTC shall develop a process to determine to what extent proposed transactions are facilitated by the support of foreign government subsidies.

“• The definition of foreign government subsidies shall encompass direct subsidies, grants, loans, below-market loans, loan guarantees, tax concessions, governmental procurement policies, and other forms of government support.

“• Companies operating in the United States that benefit from the financial support of a foreign government must provide the FTC with a detailed accounting of these subsidies when undergoing FTC premerger procedures.

“• If the FTC finds foreign subsidies have facilitated the transaction, the FTC can either propose a modification to remedy the distortion or prohibit the transaction under Section 7 of the Clayton Act, which prohibits mergers and acquisitions where the effect ‘may be substantially to lessen competition, or to tend to create a monopoly.’

“3. Congress direct the U.S. Department of State to produce an annual report detailing China’s actions in the United Nations and its subordinate agencies that subvert the principles and purposes of the United Nations. Such a report would at a minimum document the following:

“• China’s actions violating United Nations treaties to which it is a party;

“• China’s actions to influence the votes of United Nations members, including through coercive means;

“• China’s actions to nominate or support candidates for United Nations leadership positions that do not adhere to United Nations standards for impartiality or are subject to the influence of the Chinese government;

“• Actions by nationals of the People’s Republic of China and others currently holding United Nations leadership positions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;

“• Actions by nationals of the People’s Republic of China serving in functional positions in United Nations organizations impacting hiring practices, internal policies, and other functions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;

“• Actions by Chinese military and support personnel engaged in United Nations peacekeeping operations that are inconsistent with the principles governing these missions, including China’s deployment of these personnel to protect its economic interests and improve the power projection capabilities of the People’s Liberation Army; and

“• The number and positions of United States personnel employed by the United Nations and its agencies.

“4. Congress hold hearings to consider the creation of an interagency executive Committee on Technical Standards that would be responsible for coordinating U.S. government policy and priorities on international standards. This Committee would consist of high-level political appointees from executive departments with
equities relating to international technical standards, including the Department of Commerce, the Department of State, the Department of Defense, the Department of Energy, the Office of Science and Technology Policy, and other agencies or government stakeholders with relevant jurisdiction. The Committee’s mandate would be to ensure common purpose and coordination within the executive branch on international standards. Specifically, the Committee would:

“• Identify the technical standards with the greatest potential impact on American national security and economic competitiveness;

“• Coordinate government efforts relating to those standards;

“• Act as a liaison between government, academia, and the private sector to coordinate and enhance joint efforts in relation to standards;

“• Manage outreach to counterpart agencies among U.S. allies and partners;

“• Set funding priorities and recommendations to Congress; and

“• Produce annual reports to Congress on the status of technical standards issues and their impact on U.S. national security and economic competitiveness.

“5. Congress consider establishing a ‘Manhattan Project’-like effort to ensure that the U.S. public has access to safe and secure supplies of critical lifesaving and life-sustaining drugs and medical equipment, and to ensure that these supplies are available from domestic sources or, where necessary, trusted allies. Such a project would supplement the recommendation the Commission made in its 2019 Annual Report that Congress hold hearings with a view toward enacting legislation requiring the U.S. government to procure medicines only from U.S. production facilities or from facilities that have been certified compliant with U.S. standards.

“6. Congress enact legislation establishing a China Economic Data Coordination Center (CEDCC) at the Bureau of Economic Analysis at the U.S. Department of Commerce. The Center would be mandated to collect and synthesize official and unofficial Chinese economic data on developments in China’s financial markets
and U.S. exposure to risks and vulnerabilities in China’s financial system, including:

“• Data on baseline economic statistics (e.g., gross domestic product [GDP]) and other indicators of economic health;

“• Data on national and local government debt;

“• Data on nonperforming loan amounts;

“• Data on the composition of shadow banking assets;

“• Data on the composition of China’s foreign exchange reserves; and

“• Data on bank loan interest rates.

“7. Congress direct the Administration, when sanctioning an entity in the People’s Republic of China for actions contrary to the economic and national security interests of the United States or for violations of human rights, to also sanction the parent entity.

“8. Congress consider enacting legislation to make the Director of the American Institute in Taiwan a presidential nomination subject to the advice and consent of the United States Senate.

“9. Congress amend the Immigration and Nationality Act to clarify that association with a foreign government’s technology transfer programs may be considered grounds to deny a nonimmigrant
visa if the foreign government in question is deemed a strategic competitor of the United States, or if the applicant has engaged in violations of U.S. laws relating to espionage, sabotage, or export controls. Association with a foreign government’s technology transfer programs can include any of the following:

“• Participation in a foreign government-sponsored program designed to incentivize participants to transfer fundamental research to a foreign country via a talent recruitment program or in a foreign government-sponsored startup competition;

“• Acceptance of a government scholarship that requires recipients to study specific strategic scientific and technological fields, to return to the foreign country for a government work requirement after the scholarship term ends, or facilitates coordination with talent programs;

“• Association with a university or a department of a university that the U.S. government has designated as a participant in the foreign government’s military-civil fusion efforts; or

“• Status (current or past) as a scientist, technician, or officer for a foreign military, if the applicant does not disclose such information when applying for a visa.

“10. Congress direct the Administration to identify and remove barriers to receiving United States visas for Hong Kong residents attempting to exit Hong Kong for fear of political persecution.”

Recommendations from the USCC to Congress are just that. Congress may or may not take one or more of the recommendations into account in legislative activity in the coming year or years. It is also not the case that the recommendations will necessarily receive support from the incoming Biden Administration. But the report and recommendations provide background research on areas of actual or potential conflict between the United States and China and, as such, will be of interest to government and non-government actors.

Most of the recommendations deal with activities not trade related and even those that are trade related are not necessarily covered by the WTO’s set of existing agreements or current topics of ongoing negotiation. The need for secure supply lines for medical goods and medicines is a topic examined by Congress this year and likely to be of significant interest to the coming Administration. Access to medical goods and medicines is an issue of great interest to WTO Members generally and certainly during the pandemic. Onshoring, while opposed by some as potentially cost ineffective, is not necessarily in conflict with access to medical goods and medicines.

What is clear from the report and recommendations is that there are major differences between the United States and China that point to continued significant bilateral tensions moving forward even if both nations look for areas of cooperation and collaboration. Such tensions suggest great difficulties ahead in achieving meaningful reform within the WTO where many important issues for the United States (and others) will be likely blocked by China. May we live in interesting times.

WTO Accessions — perhaps the most valuable benefit for Members in the first 25 years of the WTO’s existence

Much has been written about the challenges facing the World Trade Organization twenty-five years after its birth at the beginning of 1995.

The Appellate Body (“AB”) has ceased functioning with the United States blocking the appointment of new AB members based on longstanding problems with the Dispute Settlement system that have not been addressed. There are fundamental differences among major Members in what the proper role of the dispute settlement system is. Because the AB’s view of its role has differed from that of at least some of the Members, many delegations have opted to litigate instead of negotiate on issues which are not covered by the actual language of existing agreements.

The negotiating function of the WTO has had limited success in the first 25 years of the WTO reflecting deep differences among Members in priorities and the core function of the WTO. The inability to update rules or develop new rules to address 21st century commercial realities has called into question the ongoing relevance of the organization Members have failed to honor agreement directions for periodic liberalization updates in agriculture and services trade. Members have also taken decades to tackle issues of pressing time sensitivity, such as fisheries subsidies.

And there are problems in the timeliness and completeness of notifications required by many agreements and the quality of the work of many of the Committees.

A bright spot for an organization in trouble has been the success of bringing additional countries and territories into the organization. Of the 164 members at present, 36 have joined since the WTO opened in 1995 and some 23 countries or territories are in the accession process at the moment. Some 98% of global trade is now covered by WTO Members. While there are many reasons for countries or territories to join the WTO, including integrating into the global economy and improving the competitiveness of the economy (Deputy Director-General Alan Wolff describes the benefits of accession as being a catalyst for domestic reform and economic growth), there is no doubt that accessions are of benefit to the global trading system and bring the benefits of liberalization in the acceding country or territory to the existing WTO membership. Indeed, commitments of acceding Members in terms of tariff liberalization and other obligations typically are far higher than the commitments of existing Members at the same economic stage of development. Yet, accession is of great benefit to acceding countries. See WTO press release, 8 November 2020, DDG Wolff: WTO accession is a catalyst for domestic reform and economic growth, https://www.wto.org/english/news_e/news20_e/ddgaw_06nov20_e.htm. DDG Wolff, in speaking to Arab countries in the accession process made the following comments:

“Furthermore, during the last eight months, the world has experienced unprecedented levels of disruptions in people’s daily lives and their economic activities due to Covid-19. The world is not near the end of this crisis. Despite these challenging times, trade has played a key role in addressing local shortages of food, medical supplies and other essentials during the pandemic.

“Trade will have to play an even greater role in supporting recovery of the global economy going forward. In this context, we should recognise the important role played by Saudi Arabia in steering the G20 during this difficult year, urging collective and multilateral cooperation. The Riyadh Initiative is a praiseworthy effort endorsed by the G20 nations.

“The Arab region has not escaped the dire economic consequences of this pandemic. For some, the steep fall in oil prices has aggravated existing problems. A crisis, however, also presents opportunities for closer international cooperation to limit the harm from the pandemic and to spur the recovery.

“These issues demonstrate that more, not less, global and regional trade integration is required. Integration into the world economy goes hand in hand with necessary domestic reforms. This is where WTO accession makes particularly valuable contributions. Those engaged in the reform-driven accession process are likely to experience a quicker recovery and greater resilience in the future.

“Based on evidence from the 36 accessions which have been successfully completed, the WTO accession process has served as an effective external anchor for domestic reforms, acting as a catalyst in realizing the potential of their economies. According to the last WTO Director-General’s Annual Report on WTO Accessions, Article XII Members have registered higher growth rates of GDP and trade (exports and imports), as well as increased flows of inward FDI stocks, in the years following their accession compared to the rest of the world. These results indicate that integrated, open economies tend to grow faster. In addition, by signalling a government’s commitment to international rules, WTO membership appears to also encourage the inflow of foreign investment.

“The accession process has been used by resource-based countries to diversify their economies. Economic diversification is one of the major priorities for the governments in the Arab region. Our 2016 study examined whether countries’ export structures became more diversified after gaining WTO membership. This was true for about half of the recently acceded
Members, which increased the number of exported products, measured in HS chapters, accounting for more than 60% of their exports after accession. This was achieved often through rebranding their economies with WTO membership and attracting increased FDI.”

From 1995-2016, the thirty-six countries or territories that joined the WTO included many of the major economies that were not original Members of the WTO. These included China, Chinese Taipei, Saudi Arabia, Vietnam, Ukraine, and the Russian Federation. The other countries or territories who have joined represent a wide cross-section of geographic regions and levels of development: Ecuador, Bulgaria, Mongolia, Panama, Kyrgyz Republic, Latvia, Estonia, Jordan, Georgia, Albania, Oman, Croatia, Lithuania, Moldova, Armenia, North Macedonia, Nepal, Cambodia, Tonga, Cabo Verde, Montenegro, Samoa, Vanuatu, Lao People’s Democratic Republic, Tajikistan, Yemen, Seychelles, Kazakhstan, Liberia, and Afghanistan. No accessions have been completed since 2016.

The twenty-three countries and territories that are in the process of accession often are countries or territories that have suffered from years of conflict. This has led the WTO to host the first “Trade for Peace Week” from November 30-December 4, 2020. See WTO press release, 25 November 2020, WTO to host first Trade for Peace Week, https://www.wto.org/english/news_e/news20_e/acc_25nov20_e.htm.

“In announcing the Trade for Peace Week, Deputy Director-General Alan Wolff noted: ‘The 2030 Agenda for Sustainable Development recognizes international trade as an engine for inclusive economic growth and poverty reduction that contributes to the promotion of sustainable development. This in turn can facilitate building and maintaining peace. The connection between trade and peace is the raison d’être for the creation of the rules-based multilateral trading system that led to economic recovery and prosperity after the devastation from World War II.’

“Currently, 23 countries are in the process of joining the WTO, and over a half of them suffer from a fragile situation from years of conflicts. Launched in 2017, the Trade for Peace initiative aims to assist fragile and conflict-affected (FCA) countries through WTO accession, with the emphasis on institution building based on the principles of non-discrimination, predictability, transparency and the rule of law. Based on experiences of former FAC countries, WTO accession can help set the conditions to move out of a state of fragility or conflict into a state of stability, economic well-being and peace.”

There are ten events this week. The public can register to participate in the virtual panels. See WTO Accessions, Trade for Peace Week, https://www.wto.org/english/thewto_e/acc_e/t4peace2020_e.htm.

DDG Wolff spoke at one of today’s event and his comments are embedded below. See WTO press release, November 30, 2020, DDG Alan Wolff – DDG Wolff calls for more structured WTO cooperation with humanitarian and peace communities, https://www.wto.org/english/news_e/news20_e/ddgaw_30nov20_e.htm.

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff-calls-for-more-s

The twenty-three countries and territories in the process of accession include: Algeria, Andorra, Azerbaijan, Bahamas, Belarus, Bhutan, Bosnia and Herzegovina, Comoros, Curacao, Equatorial Guinea, Ethiopia, Iran, Iraq, Lebanese Republic, Libya, Sao Tome and Principe, Serbia, Somalia, South Sudan, Sudan, Syrian Arab Republic, Timor-Leste, and Uzbekistan.

Conclusion

The genesis for the GATT and the other Bretton Woods institutions was a desire to provide an infrastructure and global rules to minimize the likelihood of future world wars. Cooperation, collaboration and integration would all reduce the likelihood of global conflict.

The WTO provides the opportunity for countries or territories struggling to escape violence to embark on a path of hope. That is a core mission of the WTO today just as it was for the GATT in the late 1940s.

Moreover, the record over the first twenty-five years of the WTO’s existence has been that those countries and territories who take the challenging steps to become Members of the WTO improve their economies and speed growth, development and foreign direct investment. Accessions also offer real improvements in market access for existing WTO Members. A true win-win situation.

For an organization struggling to maintain relevance amidst deep divisions among Members who seem to have lost the consensus on the core purpose of the organization, the pilgrimage of non-member countries and territories to join the organization is a beacon of hope. Serious reforms and updating of the rule book are desperately needed for a better functioning system where outcomes are based on underlying economic strengths and not the interference of governments. A willingness of Members to refocus on what the purpose of the WTO is in fact and to be supporters of contributing to the maximum of one’s ability will be key to forward movement. Inspiration can be drawn from the efforts of non-members to join.

World COVID-19 pandemic peaks on November 26 and starts to slowly recede

The most recent surge in COVID-19 cases (up from 3.57 million cases over a fourteen day period in early August to over 5 million for fourteen days on October 22 to over 8 million new cases for fourteen days on November 17), seems to have peaked on November 26 with 8,296,264 new cases over fourteen days and has been slowly receding for the last three days, down to 8,142,629 new cases during the period November 16-29. Total cases since the end of December 2019 now stand at 62,271,031 as of November 29 according to the European Centre for Disease Prevention and Control (ECDC) publication “COVID-19 situation update worldwide, as of 29 November 2020”.

The World Health Organization puts out a publication that tracks cases and deaths on a weekly basis. COVID-19 Weekly Epidemiological Update (data as of 22 November). While it breaks countries and territories into different configuarations that the ECDC, the publication shows new cases in the period November 16-22 declining 6% in Europe and in South East Asia while increasing 11% in the Americas, 5% in the Eastern Mediterranean, 15% in Africa and 9% in the Western Pacific. Because of the large spike in cases in the September – November period in many parts of the world, deaths in the November 16-22 period increased in all regions — up 10% in Europe, 15% in the Americas, 4% in South-East Asia, 10% in the Eastern Mediterranean, 30% in Africa and 1% in the Western Pacific. The latest report is embedded below.

20201124_Weekly_Epi_Update_15

The graphs in the WHO publication show by region the trajectory of new cases and deaths over time. The chart showing aggregate data show a flattening of total new cases in the last weeks of November while the number of deaths globally are sharply increasing.

The WHO Africa region peaked in the summer and has declined until the last few weeks when there has been some increase in both cases and deaths.

The Americas saw a peak in both new cases and deaths in the July period with some declines in new cases until the second half of September when the current surge started and accelerated in November. Deaths declined until early October before starting to grow again.

The Eastern Mediterranean peaked in May-June for both cases and deaths, declined through August/September and have surged to new heights with continued upward trajectory as of November 22.

The WTO European Region had an early surge of cases and deaths in the March-April period. Deaths receded sharply through August. While new cases have increased since summer, there was a massive increase in the September – end of October period in new cases and rising deaths through November.

The WHO South-East Asia region saw a huge increase in cases and deaths in the May-August period, peaking in early September and declining since then. Much of the data for the region reflect activity in India.

The Western Pacific Region has had several peaks in terms of deaths and in new cases, though the numbers are the lowest of any WHO region. The latest peak in new cases was in early August with some increase in the October-November period. Deaths last peaked in early September and have declined through November.

The United States

Turning back to the ECDC data, the United States continues to have more confirmed cases (13,246,651) than any other nation and more confirmed deaths from COVID-19 (266,063) than any other nation. The United States is also still experiencing a surge in new cases and rising deaths. October 31 was the first day that ECDC data show the U.S. recording 100,000 new cases in a single day. Since November 5, the U.S. has had more than 100,000 new cases every day up to November 29. It is the only country to record one million new cases in a week and the only country to record two million new cases in fourteen days. For the last fourteen days, the U.S. recorded 2,341,760 new cases. The U.S., which accounts for 4.3% of the global population, accounts for 21.27% of all COVID-19 cases that have been reported since December 2019 and accounted for 28.76% of new cases in the last two weeks. The rate of increase remains high for the United States — up 31.67% from the 1,778,530 new cases in the two weeks ending November 15. There are concerns that the number of new cases will continue to increase into the new year based on the high rate of infections in many parts of the country, major potential spreading events around holidays in November (Thanksgiving) and December, and limited compliance with basic requirements for limiting the spread of the virus.

The number of deaths from COVID-19 that the U.S. accounts for has declined from roughly 20% to 18.30% as of November 29. In the last two week, while the U.S. has the largest number of deaths in the two weeks, the percent of total deaths accounted for by the U.S. in the November 16-29 period was 14.65%. However, many cities, communities and even states are at or nearing the limits of the health care capacity with hospitalizations now about 90,000, limits on health care professionals with the surging cases and some challenges on personal protective equipment. Thus, models used by the government projects a continued rise in the number of deaths in the coming months.

While the first vaccine could receive emergency approval for distribution in the U.S. as early as December 10, and the U.S. could have two or three vaccines in distribution in early 2021, the United States will unfortunately likely be a major part of the continued high rate of infections and deaths well into 2021.

Europe

While Europe had faced early challenges in a number of western European countries in February-April and very high death rates in a number of countries, the second wave of cases following the relaxation of restrictions in time for summer vacations accounted for the vast majority of the incrase in new cases during the October and early November time period. In earlier posts, I showed that Europe and the U.S. accounted for nearly all of the increase from 5 million new cases in the two weeks ending October 22 to the more than 8 million new cases in the two weeks ending November 17. See November 17, 2020, New COVID-19 cases over a fourteen day period continue to soar past eight million, up from five million on October 22, https://currentthoughtsontrade.com/2020/11/17/new-covid-19-cases-over-a-fourteen-day-period-continue-to-soar-past-eight-million-up-from-five-million-on-october-22/

While some of the major countries, including France, Italy, Spain, the United Kingdom and others have seen significant reductions in the number of new cases in recent weeks from the extraordinary figures recorded in late October, early November, numbers remain very high for a number of countries including Poland, Portugal, Serbia, Croatia, Hungary, Lithuania and Luxembourg — all of whom had new cases/100,000 population in the last fourteen days that were higher than the United States.

Because deaths lag new cases by a number of weeks, it is perhaps less surprising that much of Europe had deaths/100,000 population in the last fourteen days that were higher than the United States, most at rates that were two-three times the U.S. rate. The rate for the world in total was 1.82 deaths per 100,000 population for the November 16-29 period. The U.S. was 3.38 times the global average at 6.22 deaths per 100,000 population in that two week period. The following 25 European countries exceeded the U.S. rate: France (11.76 deaths/100,000 population); Italy (16.04); Spain (8.31); United Kingdom (9.40); Armenia (12.81); Austria (13.47); Belgium (18.84); Moldova (6.50); Poland (16.65); Portugal (10.30); Romania (11.50); Serbia (7.11); Switzerland (14.98); Bulgaria (23.69); Croatia (15.92); Czechia (18.74); Greece (11.08); Hungary (16.12); Lithuania (8.12); Luxembourg (13.19); Malta (6.79); Slovenia (19.85); Bosnia and Herzegovina (20.75); Georgia (13.19); and North Macedonia (20.12).

With new restrictions in recent weeks bringing new cases down in a number of European countries, death rates should start to decline as well in the coming weeks. Challenges in terms of superspreader events in Europe include holiday travel and events and winter holidays and sports. Germany has proposed placing restrictions on the ski season to try to minimize increased cases from a sport popular across much of Europe. See DW, 26 November 2020, Coronavirus: Germany seeks EU-wide ban on ski trips, https://www.dw.com/en/coronavirus-germany-seeks-eu-wide-ban-on-ski-trips/a-55732273.

The EU has contracts with at least six pharmaceutical companies or groups for vaccines if approved. The EU and United Kingdom will start to see vaccine dosages within weeks assuming approval in their jurisdictions.

Other countries

While much of the rest of the world has not seen great increases in the number of cases that is not true for all countries. For example, Iran which had 136,753 new cases in the November 2-15 period showed 186,274 new cases in the November 16-29 period (+36.21%). Jordan, which has a total number of cases of 210,709 since the end of December has recorded 65.54% of that total in the last four weeks (68,698 new cases during November 2-15; 69,404 new cases during November 16-29). Similarly, Morocco which has a total of 349,688 cases since December 2019 has more than 37% recorded in the last four weeks (69,127 during November 2-15; 61,477 during November 16-29).

In the Americas the following countries in addition to the United States have two week totals to November 29 greater than 100,000 new cases: Argentina (108,531); Brazil (441,313); Colombia (108,609). The following countries besides the United States have more than one million cases since late December 2019: Argentina (1,413,362); Brazil (6,290,272); Colombia (1,299,613), Mexico (1,100,683). Eleven other countries have more than 100,000 cases (with Peru having 960,368). Other than the U.S., countries are facing different trend lines, many down, some showing increases (e.g., Brazil, Canada, Dominican Republic, Paraguay).

In Asia, while India continues to see declines in the number of new cases, Indonesia, Israel, Japan, Kazakhstan, Malaysia, Pakistan, Palestine, South Korea, showed increased in the most recent two weeks, some quite large. This is in addition to Iran reviewed previously.

In Africa, South Africa has the most cases and saw an increase from 23,730 new cases during November 2-15 to 35,967 during November 16-29. Morocco was reviewed above. Most other major countries in Africa saw declines in recent weeks.

Conclusion

The world in the first eleven months of 2020 has struggled to get the COVID-19 pandemic under control with several major surge periods. The global number of new cases seems to have plateaued over the last week or so at extraordinarily high levels and the death rates has been climbing after a long period where deaths appeared to be declining. It is likely that the death rate will continue to increase for the rest of 2020.

After a period during the summer and early fall where restrictions in a number of countries were being relaxed, many countries in the norther hemisphere are reimposing various restrictions in an effort to dampen the spread of the coronavirus. While trade has significantly rebounded from the sharp decline in the second quarter of 2020, services trade remains more than 30% off of 2019 levels driven by the complete collapse of international travel and tourism. Many WTO members have put forward communications on actions that could be considered to speed economic recovery. The most recent was the Ottawa Group’s communication about a possible Trade and Health Initiative. See November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/.

The WTO TRIPS Council has a request for a waiver from most TRIPS obligations for all WTO Members on medical goods and medicines relevant to COVID-19 on which a recommendation is supposed to be forwarded to the General Council by the end of 2020 though it is opposed by a number of major Members with pharmaceutical industries. See November 2, 2020, India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/.

With vaccines very close to approval in major markets like the United States and the European Union, there will be increased focus on efforts to ensure availability of vaccines and therapeutics and diagnostics globally on equitable and affordable terms. GAVI, CEPI and the WHO have been leading this initiative with the support of many governments and private sector players. Pharmaceutical companies also have global distribution plans being pursued in addition to the above efforts.

So there hopefully is light at the end of the tunnel that the COVID-19 pandemic has imposed on the world. But vaccines without vaccinations won’t solve the pandemic’s grip. So communication and outreach globally will be critical to seeing that available vaccines are properly used. And all peoples need to be able to access the vaccines, some of which will be less available simply because of the infrastructure needs to handle the vaccines.

Trade policy options to minimize trade restrictions coupled with global cooperation and coordination should result in the world being able to rebuild in 2021 and beyond as more and more of the world is vaccinated.

Multilateral efforts to help the poorest countries deal with debt, make available trade finance and other actions continue to be a pressing need. Better plans and preparation for pandemics of the future are clearly needed. Reports suggest that many of the poorest countries have experienced loss of a decade or more of economic advancement during the pandemic. Building back greener and in a sustainable manner is critical for all.

The efforts of developed country governments and others to provide the stimulus domestically to reduce the downward spiral of the individual national economies and the global economy has been critical to limiting the damage at home and abroad. But the assumption of large amounts of debt will also pose significant challenges moving forward because of the greatly heightened national debt/GDP ratios that have developed and may restrict options for individual governments moving forward.

What is certain is that 2020 will be remembered as a year in which a virus inflicted enormous damage to the global health and to the global economy. Collectively, the level of spread has been far greater than should have been possible. Many nations were not prepared. Some, like the United States, exacerbated the problems through a lack of national government planning and messaging. Others like many in Europe, having done a good job of controlling the spread in the early months, made major mistakes as they opened up for summer vacations and didn’t deal with the problems that resulted from the reopening and experienced breathtaking surges which roughly doubled the global daily rate of new cases in five-six weeks and have led to the reimposition of a series of restrictions to try to tame the pandemic a second time. We collectively are better than the results achieved to date. The number of deaths in advanced countries is simply disgraceful.

2021 offers the opportunity for the world to come together and put COVID-19 behind us. Whether we will come to the end of 2021 and feel that this global nightmare is behind us and that there are national and global game plans to rebuild in a greener and more sustainable manner with greater opportunities for all is the question. Hopefully, the answer will be yes.

The Ottawa Group’s November 23 Communication and Draft Elements of a “Trade and Health” Initiative

On Monday, Novemer 23, Canada hosted a virtual meeting of the Ottawa Group on WTO reform. The Group includes Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, Republic of Korea, Mexico, New Zealand, Norway, Singapore and Switzerland. Deputy Director-General Alan Wolff provided comments and urged the Members to “translate their statements about reforms to global trade rules into formal proposals and concrete requests at the WTO.” WTO, 23 November 2020, DDG Wolff calls on Ottawa Group to table formal reform proposals at WTO, https://www.wto.org/english/news_e/news20_e/igo_23nov20_e.htm. DDG Wolff provided seven options for the consideration of the Ottawa Group on WTO reform, the first four of which used trade and health as one example.

“First, an observation: the game must be in play for key players to conclude that they have to join. If negotiations are not under way, there may be a substantial delay in attracting participation.

“Declarations, such as on trade and health, should be turned into formal proposals as soon as possible and should be embraced by all WTO members.

“And if some Members won’t come along or seek to delay — a joint initiative is a practical way to proceed and could then be launched as a priority. The time of testing should not be so long as to make a response to the pandemic arrive too late to be responsive to the current crisis.

“Second, Members can ask the WTO Secretariat for and receive support for evaluations of aspects of WTO reform. For example, on trade and health, Members can —

“Request the Secretariat to upgrade its COVID-19-related trade monitoring activities to collect and publish the best information available, not relying solely on notifications and verification. (This would be a more comprehensive and in-depth activity than that which takes place at present, which in itself was an upgrade from pre-COVID monitoring.)

“Request the Secretariat to work with the WHO, relevant UN agencies and other stakeholders, to highlight trade issues affecting vaccine production and availability, and to propose ways to eliminate obstacles. (This would go beyond existing activities and result in proposals put to the WTO Member- ship).

“Third, Members can

“Propose that the Director General convene a small, representative, ambassador-level group of Friends of Trade and Health to identify how the trading system has performed during the pandemic and to issue preliminary conclusions and recommendations for useful changes in approach within a short, defined timeline.

“Propose that the WTO Secretariat embark now upon the necessary supporting work without delay.

“Propose that the Director General constitute other ‘Friends’ groups to advance consideration of institutional reform and other issues of current importance, and providing possible solutions, such as with respect to the relationship to current and future WTO Agreements of the Paris Accord on Climate Change, the disciplining of fossil fuel subsidies, addressing border adjustments likely with the adoption of carbon taxes, assessing the impact on markets of subsidies and other state interventions, employing trade to reduce income inequality, making the WTO more effective for economic development within and among Member economies, improving the trading system with respect to women in trade, providing WTO support for the African Continental Free Trade Agreement, and more generally strategic foresight.

“G20 Members clearly want to enhance preparedness for future pandemics and other crises. Flexible groups with appropriate balance but able to be nimble and responsive are one way to supplement but not supplant the work of committees and joint statement initiatives (JSIs).

‘Propose that an ad hoc horizontal mechanism be created promptly in the event of crises to address — in real time — trade measures that are of concern. The mechanism, similar to trade policy reviews, but not limited to any single WTO Member’s measures, trade restrictive and trade liberalizing, should be constituted immediately for the current pandemic and economic recovery measures.

“Fourth, Members can

“Propose that the signatories of the Pharmaceutical Agreement providing for duty-free trade be updated (last done in 2010), that major nonsigna- tories join and that essential medical supplies be added to the coverage.

“Propose that the signatories of the Information Technology Agreement review and update its coverage, including adding medical equipment.

“Propose that negotiations on the Environmental Goods Agreement re-start in earnest now, with the addition of services.”

The Ottawa Group agreed to put forward a communication seeking action by WTO Members. Each of Canada and the EU (and likely other members) put out press releases. See, e.g., Government of Canada, November 23, 2020, Minister Ng hosts successful ministerial meeting of the Ottawa Group on WTO reform, https://www.canada.ca/en/global-affairs/news/2020/11/minister-ng-hosts-successful-ministerial-meeting-of-the-ottawa-group-on-wto-reform.html; European Commission, Directorate-General for Trade, 23 November 2020, Ottawa Group proposes a global Trade and Health Initiative, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2215&title=Ottawa-Group-proposes-a-global-Trade-and-Health-Initiative.

The Canadian press release states in part, “As countries face a rise in COVID-19 cases, it is essential that governments minimize disruptions to trade flows in essential medical supplies. Today, members of the Ottawa Group took important steps toward a proposed WTO Trade and Health Initiative, which identifies short-term actions to strenghten supply chains and ensure the free flow of medicines and medical supplies.”

Similarly the European Commission press release stated that –

Today the Ottawa Group, a group of 13 like-minded World Trade Organisation (WTO) partners including the EU, agreed today on an initiative, calling on the WTO members to increase their cooperation and work toward enhanced global rules to facilitate trade in essential medical goods. The agreement took place as an outcome of the Ottawa Group Ministerial meeting, hosted virtually by Minister Mary Ng of Canada.

“The Ottawa Group members called for immediate actions in response to the coronavirus crisis such as exercising a restraint in using any export restrictions, implementing trade-facilitating measures in the area of customs and services, as well as improving transparency.

“They also called for further cooperation amongst members, and between the WTO and other international organisations.

“The group also encourages WTO members to refrain from imposing tariffs on essential medical goods during the crisis. Such actions are intended to strengthen the resilience of supply chains and contribute to an effective response to a public health emergency. They can serve as a basis for future permanent commitments on trade in essential medical goods.

“Commission Executive Vice President and Commissioner for Trade Valdis Dombrovskis said: ‘We are proud to promote this trade and health initiative. It aims to encourage stronger global cooperation at WTO level, by facilitating trade in healthcare products. This is critical in the current global health crisis and will also help us in future. But the Ottawa Group trade and health initiative is just the first step. Going forward, the EU will work to promote resilient global healthcare systems, as well as accessible and affordable healthcare products universally.’

“The communication will now be submitted later this week to the WTO secretariat, before being presented to the WTO General Council for discussion. It will be used to prepare the 12th Ministerial Conference of the WTO, due to be held in 2021.”

That same day, November 23, the Ottawa Group submitted to the WTO a communication entitled “COVID-19 and beyond: Trade and Health”. WT/GC/223 (24 November 2020). The document is embedded below.

223

The communication is ten paragraphs plus an Annex which is described as “Draft Elements of a ‘Trade and Health’ Initiative”. The communication reviews the social and economic impact of the COVID-19 pandemic and invites “all WTO Members to start working on a Trade and Health Initiative” referencing the Annex. Paragraph 6 of the communication summarizes the specific actions being proposed.

“6. With this objective in mind, we call on WTO Members to make their utmost efforts to prevent further disruptions in the supply chains of essential medical goods. As set out in the Annex to this Communication, we propose specific actions relating to export restrictions, trade facilitation,
technical regulations, tariffs, transparency and review, and call for the WTO to enhance its cooperation with other relevant international organizations, such as WHO, WCO, OECD as well as G20, given the context of the on-going evaluations of the global response to COVID-19. These proposed actions are not intended to be prescriptive and do not cover the universe of possible
measures that could support trade in essential medical goods. Rather, they reflect emerging best practices and should provide sufficient flexibility to be adapted to differing national circumstances.”

The Ottawa Group is hoping to get the support of all Members on a joint statement early in 2021 on a Trade and Health Initiative which could serve as a starting point for negotiations for new WTO commitments at the 12th Ministerial Conference in the summer of 2021 in Kazakhstan.

On export restrictions, the Annex calls for greater oversight of such restrictions without eliminating them outright.

On customs, services and technical regulations, the Annex calls for Members to share information and experiences on best practices in trade facilitation during a crisis (customs procedures, services (including freight, logistics, distribution and transport)) and on standards and technical requirements looking towards regulatory alignment.

On tariffs, the Annex calls on Members to “make best endeavours to temporarily remove or reduce tariffs on goods that are considered essential to fighting COVID-19 pandemic”.

On transparency and review, the Annex calls on Members to enhance transparency during the pandemic with the aim of identifying supply chain disruptions and avoiding such disruptions.

On the topic of cooperation of the WTO with other organizations, the Annex both encourages the WTO Secretariat to continue it outreach on measures related to COVID-19 and the studies developed by the Secretariat with a focus “on the causes and effects of the disruptions in the supply chains of essential goods and drawing on research of other international organizations.” The WTO Director-General is also encouraged to “intensify cooperation” with other organizations (including the G20) to improve “the analytical capacity of Members to monitor market developments in trade and production of essential medical goods.”

Finally, the Annex asks Members to review the effectiveness of the identified elements at the 12th Ministerial Conference “with a view to adopting possible commitments regarding trade in essential medical goods.”

Conclusion

There have been many communications put forward by different groups of Members at the WTO in the last eight months on actions that would make sense in terms of limiting export restraints on medical goods or avoiding such restraints on agricultural goods, about the need for effective trade facilitation measures to reduce barriers to movement of medical goods, and on other topics related to the COVID-19 pandemic.

The Ottawa Group’s communication from Monday is an effort to come up with an early possible deliverable that could garner broad WTO Member support. As a result it seeks a joint statement with agreement on the statement for early 2021. The Group also provides five draft proposals for such a joint statement. The proposals don’t eliminate existing flexibility (e.g., export restraints) but try to tighten disciplines via increased transparency. The proposals encourage development of best practices on a range of trade facilitation and regulatory alignment issues. The proposals also encourage what is obviously in most Members self-interest — reducing or eliminating tariffs on medical goods during the pandemic. The proposals also call on Members to do a better job on transparency on measure taken during the pandemic with a focus on identifying disruptions to supply chains and addressing the same in short order. Finally, while the WTO already cooperates with other organizations, the proposals point to specific areas where enhanced cooperation would be helpful.

In an organization where Members have a low level of trust in each other, a joint statement on the need for a Trade and Health Initiative such as proposed by the Ottawa Group is probably all that can be achieved in the short term. Something along the lines outlined in the Annex would indeed be a confidence builder if achieved early in 2021. The ability to review developments at the 12th Ministerial and start negotiations on trade in essential medical goods at that time will also be important if accomplished. The more ambitious options presented by DDG Wolff should be considered but realistically are unlikely to either happen or get started ahead of the 12th Ministerial.

Let’s hope that the WTO membership can come together to support the Ottawa Group proposal. The EC has indicated that the Communication will be taken up at the December General Council meeting. That will be an early opportunity to see if there is likely to broad support for the initiative.

Responding to a comment received on yesterday’s post, WTO subsidy disciplines — an update and coordination across areas is long overdue

Earlier today I received a comment from a well respected trade attorney in Washington, D.C., on my post of yesterday calling for an update of subsidy disciplines including exploring the logic of how subsidies are treated in different areas and whether distortions caused by subsidies from actors not presently covered should be covered in the update. As I haven’t sought permission to identify the commenter, I simply provide the comment below as it is one that may be shared by other readers of the post.

“A review of the big picture of WTO subsidy control efforts ought to at least mention the damage done, through DSB-adopted decisions, to the fairly decent set of disciplines the ASCM appeared to have when it was first brought live in 1995.  Today’s need for better ASCM rules is in substantial part the result of 25 years of bad interpretations of ASCM Art. 1, most of them rendered in pursuit of gutting the United States’ CVD remedy.

“To the extent Azevedo was suggesting that merely the passage of time is to blame for the current inadequate state of WTO subsidy rules, he is wrong.  Purposeful shredding has played a role too.”

Here is my response to the thoughtful comment provided. First, there is no doubt that some dispute settlement decisions have undermined the disciplines that exist in the Agreement on Subsidies and Countervailing Measures (“ASCM”). The U.S. Trade Representative’s Office paper on concerns with the WTO’s Appellate Body present various examples of egregious overreach by the Appellate Body, including a number of cases involving interpretations of the ASCM. See USTR, Report on the Appellate Body of the World Trade Organization, February 2020, pages 81-89 (public body), 105-109 (use of out of country benchmarks), https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf; February 14, 2020, USTR’s Report on the WTO Appellate Body – An Impressive Critique of the Appellate Body’s Deviation from Its Proper Role, https://currentthoughtsontrade.com/2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-critique-of-the-appellate-bodys-deviation-from-its-proper-role/.

I have written extensively over the years on the problem of overreach by the Appellate Body, and the damage caused to the balance of rights and obligations that the United States and others negotiated in the Uruguay Round. The problem has been most obvious in the trade defense agreements (antidumping, subsidies and safeguards), but exist in decisions involving other agreements as well as is reviewed in the USTR report. I have also suggested ways for the WTO, in addressing the impasse on the Appellate Body, to clarify DSU language and address specific instances of claimed overreach. See, e.g., July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/; November 12, 2019, Background Materials on WTO Appellate Body Reform Challenges – The Critical Issue of “Overreach”, https://currentthoughtsontrade.com/2019/11/12/background-materials-on-wto-appellate-body-reform-challenges-the-critical-issue-of-overreach/; November 4, 2019, WTO’s Appellate Body Reform – The Draft General Council Decision on Functioning of the Appellate Body, https://currentthoughtsontrade.com/2019/11/04/wtos-appellate-body-reform-the-draft-general-council-decision-on-functioning-of-the-appellate-body/.

So while I agree with the comment that the ASCM is less robust because of erroneous WTO Appellate Body reports, that fact does not change the intended message of the post. There is significantly different treatment of subsidies between industrial goods, agricultural goods and services that are not logical or justifiable. There have been major changes in the world economy and who the major trading nations are in the last twenty-five years which raise questions about a range of topics that are not specifically covered by the ASCM, the Agreement on Agriculture, GATS (where there are no subsidy disciplines at present) or other agreements. While the U.S., EU and Japan are concerned (rightly so) about the extreme damage being caused by massive industrial subsidies from economies with non-market economic systems and hence the need for enhanced rules, lack of coverage of services, more restrictive subsidy rules on agriculture than on industrial goods are issues that can and should be examined as well as the areas not covered by the existing ASCM.

My second point would be that if I suggested in my earlier note that former Director-General Roberto Azevedo was suggesting the problems with the ASCM were due to the passage of time, that was not the intention. Mr. Azevedo’s interview for the 25th anniversary program and the comment quoted was focused on a much broader question — where had the WTO not accomplished what was originally envisioned. Mr. Azevedo’s comment reflected his understanding that a properly functioning WTO would have Members engaged in negotiations on issues on an ongoing basis to ensure the WTO was maintaining its relevance to Members in the light of evolving global commerce and technology. The fact that there are no rules on ecommerce decades after the rise of ecommerce is an obvious case in point where the WTO has not been able to update the rulebook in a timely manner. I was using Mr. Azevedo’s general statement to undergird the propriety of examining the important topic of where distortions are caused by the subsidy actions of governments (and possibly private parties). Such an examination is needed as part of the WTO reform efforts that should be occurring going forward. But examining subsidy disciplines in the reform effort is not intended to excuse the problem of overreach by the Appellate Body that has resulted in the temporary shut down of the Appellate Body at the WTO. The WTO Members need to find a way in resolving the Appellate Body impasse to restore the rights of Members that had been agreed as part of the Uruguay Round but undermined by panel or Appellate Body reports.

For ease of reference for readers, yesterday’s post is copied below. I hope the above eliminates any confusion that my post yesterday may have caused.

Yesterday’s post

When the WTO came into being at the beginning of 1995, subsidy disciplines were fragmented. Agricultural subsidies were largely addressed under the Agreement on Agriculture although also subject to the ASCM. Industrial subsidies were covered by the Agreement on Subsidies and Countervailing Measures (ASCM). The General Agreement on Trade in Services has no disciplines on subsidies although negotiations on a possible article dealing with subsidies was one of the open issues where negotiations were supposed to continue after the WTO started up. And there was the separate plurilateral agreement on civil aircraft which had rules on subsidies as well.

While export subsidies were prohibited on industrial goods from the beginning, there are only loose controls on domestic subsidies. As the U.S., EU and Japan have articulated at the WTO, the changing make up of WTO Members and the rise in trade importance of Members with a state-directed economy have created increased challenges from state subsidies where existing disciplines are not viewed as adequate.

In agriculture, export subsidies were originally capped and being reduced but have now been eliminated by developed countries. Agriculture faces many more vagaries of nature that directly affect growing conditions (climate change, increased severe storms, increased flooding, increased draughts, etc.) than do industrial goods. Despite this reality, domestic supports in agriculture are capped and are facing increased calls for reductions by some Members.

While the GATS was originally driven by developed country service providers who were unconcerned with the need for trade remedies, the changing make-up of the WTO Membership, the changing technologies used by many service providers, and the growth of state-owned or state-invested service providers competing internationally have all raised the specter of significant government supports being provided to service providers that distort economic outcomes between competing service providers but which are not presently addressable under WTO rules.

In addition, the ongoing COVID-19 pandemic has created enormous economic dislocations for many WTO Members and has led many countries to provide unprecedented stimulus packages to minimize the economic fallout within their countries or territories. The WTO hasn’t explored how, if at all, such stimulus efforts can or should be evaluated under WTO rules.

Similarly, subsidy disciplines basically apply simply to subsidies provided by a government or a private party at government direction within the economy of the government in question. There are issues of whether subsidized loans from intergovernmental entities should be addressable if causing distortion with other entities. There are similarly questions about whether subsidies into inputs in one country which are then exported and used in a second country for export to other countries can or should be addressable when a country is investigating the second country’s product. Similarly, while the WTO ASCM deals with subsidies from governments or private parties at the direction of governments, the distortions to international competition are not necessarily more distortive than private sector subsidies between or within companies may be. Just as the Agreement on Antidumping deals with private market distortions, it isn’t clear why subsidy disciplines should root out distortions whether coming from governments or private parties. And, of course, when the GATT came into existence in the late 1940s, there were concerns about dual exchange rates causing distortions and permission to handle those distortions under either the antidumping or countervailing duty provisions of Article VI of the GATT. When currencies become significantly undervalued there can be significant distortions in economic outcomes. While at least the United States is addressing such distortions under its countervailing duty law at the moment, there is no agreed updated rules in the WTO.

Last week, the WTO on November 19 celebrated its first 25 years with both various panels and with a video of the last three Directors-General being interviewed about the first 25 years. Former Director-General Roberto Azevedo who stepped down at the end of August this year was asked a question of where the WTO had fallen short in his view in the first 25 years. His answer was as follows (according to my notes): “The WTO has to be constantly updating itself. For example, tariff negotiations or disciplines or rules we negotiated thirty years ago are completely out of date.” WTO at 25: Conversations with former Directors-General of the WTO, 19 November 2020 (video). He added that when the WTO came into existence in 1995, it was clear that the WTO would need to update itself continuously without requiring big rounds, but that has not occurred.

There is no area where a review of the existing rules and disciplines is needed more urgently than the area of subsidies. But unlike in the past, there should be greater evaluation of all subsidy areas to be sure that distortions in any area of economic activity internationally can be addressed while actions which simply address emergency situations flowing from pandemics or weather events are not addressable if not adding to capacity. Such a review obviously needn’t slow down the important efforts to reach agreement on Fisheries Subsidies which has dragged on for roughly 19 years and is tied now to the UN Sustainable Development Goal 14.6.

Past Directors-General, the candidates for the position in 2020 and most Members readily agree that for negotiations to advance there has to be items of interest to all Members. A broad subsidy review should provide exactly that broad potential interest while at the same time permitting the rules and disciplines on subsidies to be updated to address the commercial realities of today.

WTO subsidy disciplines — an update and coordination across areas is long overdue

When the WTO came into being at the beginning of 1995, subsidy disciplines were fragmented. Agricultural subsidies were largely addressed under the Agreement on Agriculture although also subject to the ASCM. Industrial subsidies were covered by the Agreement on Subsidies and Countervailing Measures (ASCM). The General Agreement on Trade in Services has no disciplines on subsidies although negotiations on a possible article dealing with subsidies was one of the open issues where negotiations were supposed to continue after the WTO started up. And there was the separate plurilateral agreement on civil aircraft which had rules on subsidies as well.

While export subsidies were prohibited on industrial goods from the beginning, there are only loose controls on domestic subsidies. As the U.S., EU and Japan have articulated at the WTO, the changing make up of WTO Members and the rise in trade importance of Members with a state-directed economy have created increased challenges from state subsidies where existing disciplines are not viewed as adequate.

In agriculture, export subsidies were originally capped and being reduced but have now been eliminated by developed countries. Agriculture faces many more vagaries of nature that directly affect growing conditions (climate change, increased severe storms, increased flooding, increased draughts, etc.) than do industrial goods. Despite this reality, domestic supports in agriculture are capped and are facing increased calls for reductions by some Members.

While the GATS was originally driven by developed country service providers who were unconcerned with the need for trade remedies, the changing make-up of the WTO Membership, the changing technologies used by many service providers, and the growth of state-owned or state-invested service providers competing internationally have all raised the specter of significant government supports being provided to service providers that distort economic outcomes between competing service providers but which are not presently addressable under WTO rules.

In addition, the ongoing COVID-19 pandemic has created enormous economic dislocations for many WTO Members and has led many countries to provide unprecedented stimulus packages to minimize the economic fallout within their countries or territories. The WTO hasn’t explored how, if at all, such stimulus efforts can or should be evaluated under WTO rules.

Similarly, subsidy disciplines basically apply simply to subsidies provided by a government or a private party at government direction within the economy of the government in question. There are issues of whether subsidized loans from intergovernmental entities should be addressable if causing distortion with other entities. There are similarly questions about whether subsidies into inputs in one country which are then exported and used in a second country for export to other countries can or should be addressable when a country is investigating the second country’s product. Similarly, while the WTO ASCM deals with subsidies from governments or private parties at the direction of governments, the distortions to international competition are not necessarily more distortive than private sector subsidies between or within companies may be. Just as the Agreement on Antidumping deals with private market distortions, it isn’t clear why subsidy disciplines should root out distortions whether coming from governments or private parties. And, of course, when the GATT came into existence in the late 1940s, there were concerns about dual exchange rates causing distortions and permission to handle those distortions under either the antidumping or countervailing duty provisions of Article VI of the GATT. When currencies become significantly undervalued there can be significant distortions in economic outcomes. While at least the United States is addressing such distortions under its countervailing duty law at the moment, there is no agreed updated rules in the WTO.

Last week, the WTO on November 19 celebrated its first 25 years with both various panels and with a video of the last three Directors-General being interviewed about the first 25 years. Former Director-General Roberto Azevedo who stepped down at the end of August this year was asked a question of where the WTO had fallen short in his view in the first 25 years. His answer was as follows (according to my notes): “The WTO has to be constantly updating itself. For example, tariff negotiations or disciplines or rules we negotiated thirty years ago are completely out of date.” WTO at 25: Conversations with former Directors-General of the WTO, 19 November 2020 (video). He added that when the WTO came into existence in 1995, it was clear that the WTO would need to update itself continuously without requiring big rounds, but that has not occurred.

There is no area where a review of the existing rules and disciplines is needed more urgently than the area of subsidies. But unlike in the past, there should be greater evaluation of all subsidy areas to be sure that distortions in any area of economic activity internationally can be addressed while actions which simply address emergency situations flowing from pandemics or weather events are not addressable if not adding to capacity. Such a review obviously needn’t slow down the important efforts to reach agreement on Fisheries Subsidies which has dragged on for roughly 19 years and is tied now to the UN Sustainable Development Goal 14.6.

Past Directors-General, the candidates for the position in 2020 and most Members readily agree that for negotiations to advance there has to be items of interest to all Members. A broad subsidy review should provide exactly that broad potential interest while at the same time permitting the rules and disciplines on subsidies to be updated to address the commercial realities of today.

G20 Leaders’ Declaration, 22 November 2020

The two day Leaders’ Summit of the G20, chaired in 2020 by Saudi Arabia, ended yesterday with the issuance of a Leaders’ Declaration. https://g20.org/en/media/Documents/G20%20Riyadh%20Summit%20Leaders%20Declaration_EN.pdf. The twelve page document is embedded below.

G20-Riyadh-Summit-Leaders-Declaration_EN

Yesterday, I had put up a post that looked at the WTO’s Deputy Director-General Alan Wolff’s statement to the G20 on important measures needed in the trade arena to help with responding to the global health pandemic, economic recovery and WTO reform. See November 22, 2020, DDG Wolff’s comments to G20 on immediate challenges for trade to address economic rebound from the pandemic and for WTO reform, https://currentthoughtsontrade.com/2020/11/22/ddg-wolffs-comments-to-g20-on-immediate-challenges-for-trade-to-address-economic-rebound-from-the-pandemic-and-for-wto-reform/. The activities of the G20 are far broader than simply the trade issues reviewed in yesterday’s post and much of the Declaration looks at various aspects of addressing recovery from the pandemic, including access to vaccines and therapeutics. However, on the trade agenda in particular identified by DDG Wolff, the G20 does not appear to have addressed the issue of trade finance for developing and least developed countries, did not call for creating duty free treatment for all pharmaceuticals and medical goods relevant to the COVID-19 pandemic, and while supportive of WTO reform did not provide specifics or a sense of time urgency. The Declaration contains 38 paragraphs broken in four sections. Many deal with topics that are being examined in part at the WTO (e.g., digital trade) or that may be going forward (e.g., environment, climate change). There was only one paragraph on trade and investment (para. 12) (under section “B. Building a Resilient and Long-Lasting Recovery”). The paragraph reads as follows:

“12. Trade and Investment: Supporting the multilateral trading system is now as important as ever. We strive to realize the goal of a free, fair, inclusive, non-discriminatory, transparent, predictable, and stable trade and investment environment, and to keep our markets open. We will continue to work to ensure a level playing field to foster an enabling business environment. We endorse the G20 Actions to Support World Trade and Investment in Response to COVID-19. We recognize the contribution that the Riyadh Initiative on the Future of the World Trade Organization (WTO) has made by providing an additional opportunity to discuss and reaffirm the objectives and foundational principles of the multilateral trading system as well as to demonstrate our ongoing political support for the necessary reform of the WTO, including in the lead up to the 12th WTO Ministerial Conference. We recognize the need to increase the sustainability and resilience of national, regional, and global supply chains that foster the sustainable integration of developing and least developed countries into the trading system, and share the objective of promoting inclusive economic growth including through increased participation of micro-, small-, medium-sized enterprises (MSMEs) in international trade and investment. We note that structural problems in some sectors, such as excess capacities, can cause a negative impact.”

The G20 Declaration in paragraph 3 provides a statement indicating G20 members “will spare no effort to ensure * * * affordable and equitable access for all people, consistent with members’ commitments to incentivize innovation,” to COVID-19 diagnostics, therapeutics and vaccines. The paragraph refers to the efforts of the “Access to COVID-19 Tools Accelerator (ACT-A) initiative and its COVAX facility,” and commits G20 members “to addressing the remaining global financing needs.” While obviously encouraging, the financing needs that remain are large both for vaccines and for testing and treatment. Total additional funding needs approach $40 billion. See Statement by President von der Leyen at the joint press conference with President Michel ahead of the G20 Summit, Brussels, 20 November 2020, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_2170. Such contributions are voluntary and substantially exceed what has been pledged or received to date. So time will tell whether G20 countries actually fulfil the general commitment included in yesterday’s declaration.

The New York Times in an article on November 22 headlined “G20 Summit Closes With Little Progress and Big Gaps Between Trump and Allies,” describes the large number of topics where the current U.S. Administration has been at odds with many of the other G20 leaders and the resulting challenges to meaningful joint action as opposed to “general appeals for more global cooperation” and for “affordable and equitable access” to vaccines and therapeutics. New York Times, Nov. 22, 2020, G20 Summit Closes With Little Progress and Big Gaps Between Trump and Allies, ahttps://www.nytimes.com/2020/11/22/us/politics/g20-summit-trump.html. While the Trump Administration undoubtedly has contributed to the lack of greater specifics in the Declaration, there are undoubtedly strong differences among different G20 members on what commitments should be undertaken that involve G20 members specifically.

Conclusion

The G20 process has been important over the last decade or so in mobilizing the world’s leading nations to provide leadership to address global challenges. The success of the group’s efforts depends on leadership of the majors and a common understanding of the challenges at hand. There are structural challenges in the current G20 configuration with different economic models and different levels of economic development providing points of conflict as well as points of expanded understanding of global needs. The challenges have been exacerbated by the concerns of the current U.S. Administration with multilateral organizations and with whether climate change is an actual problem.

With the current internal friction points, the G20 has nonetheless put forward a largely united front in seeking to meet the challenges from the COVID-19 pandemic and economic shocks through collaboration and to seek to rebuild more sustainably and more inclusively. The lack of specifics in some areas may be better addressed under a new U.S. Administration’s participation with the expected closer ties the Biden Administration will have with at least many of the G20 members.

In the trade arena, the conflicts within the WTO are not likely to go away with a new U.S. Administration. That doesn’t mean that U.S. leadership couldn’t permit rapid movement on a number of issues that would be helpful in addressing the pandemic and the global economic recovery. But WTO reform and even singular issues like updated coverage by the Pharmaceutical Agreement or the elimination of tariffs on medical goods unfortunately are likely to take way too long to be helpful in the current pandemic. That leaves voluntary actions by countries in their own interest as the likely option most likely to provide some improved market access during the pandemic.

DDG Wolff’s comments to G20 on immediate challenges for trade to address economic rebound from the pandemic and for WTO reform

Below are Deputy Director-General Wolff’s comments to the G20 Leaders’ Summit on November 21.

“Thank you very much, Your Royal Highness, and I thank Saudi Arabia for its leadership.

“With respect to trade, there are three immediate challenges: to utilize trade to help underwrite the economic recovery, to facilitate trade in essential medical products to treat the pandemic, and to reform the institutional framework for world trade.

“First, trade finance for the developing world needs to be restored. The sum needed is very large, in the trillions of dollars. This step has been called for by business and by all the major international development banks along with the WTO. This is not just a development issue. When crops do not move and factories are idled throughout the developing world, the global recovery will be delayed for all. Close co-operation among the international financial institutions, the WTO and the large commercial banks will be needed. A trade finance initiative should be seen as an essential part of improving the outlook for economic recovery.

“Second, it is time for WTO Members to come together to agree on and implement measures to speed the supply of essential medical products worldwide to where they are needed.

“Global trade in pharmaceuticals should be duty-free under an updated Pharmaceutical Agreement.

“Medical equipment should be duty-free in an immediate update of the Information Technology Agreement.

“As new vaccines, therapeutics and diagnostics start to be rolled out, barriers at borders must be reduced, with an international understanding limiting the use of export restrictions, providing for much greater transparency and accelerating improvements in trade facilitation efforts, particularly for the poorest countries.

“Third, and last, the identification of areas of common interest achieved by the Riyadh Initiative on the Future of the WTO should result in immediate serious engagement by WTO Members in a major institutional reform effort. This would involve restoring the WTO’s deliberative and negotiating functions, providing binding dispute settlement seen as legitimate by all and providing for a strong proactive Secretariat. The WTO’s 12th Ministerial Conference next year will be an important landmark for this work. In actively engaging in the reform effort, G20 Members can contribute immeasurably to fulfilling the vision held by the founders of the multilateral trading system seven decades ago and the WTO a quarter century ago.

“Thank you.”

WTO, DDG Wolff urges G20 leaders to back WTO action to support economic rebound, pandemic response and WTO reform, 21 November 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_21nov20_e.htm.

The G20 Leaders Summit is taking place virtually on November 21-22. The results of the Summit will be released later today. While a positive picture on agreed actions by the G20 will be presented, it is hard to imagine the G20 actually embracing the objectives/needs outlined by DDG Wolff.

For example, while it is likely that the G20 will lend support to a trade finance initiative to assist developing countries, the size of the initiative that is actually supported may be far less than the ambitious levels (trillions of dollars) identified as needed by Deputy Director-Wolff.

Similarly, while there is support in some quarters (e.g., the EU) for some of the trade liberalization initiatives identified in DDG Wolff’s second item, it is hard to see WTO Members being willing to reach consensus quickly on any of the three initiatives outlined. Certainly, the Pharmaceutical Agreement should be updated; how long that takes to accomplish is another issue and is unlikely to occur in a timeframe relevant to the COVID-19 pandemic. So too it is unlikely that WTO Members will quickly agree to duty free treatment of medical equipment whether under the Information Technology Agreement or otherwise, although countries needing to import such equipment have to a limited extent unilaterally reduced or eliminated duties during the pandemic. Such voluntary and temporary reductions seem the more promising short term solution. Finally, while individual countries have adopted trade facilitating/streamlining actions to speed the movement of medical goods and the WTO’s notification process has provided fair transparency of government actions, it is unlikely that there will be a quick agreement on limiting the use of export restrictions. There could be agreement on improved transparency and the WTO could work with LDCs and others to help them implement trade facilitation steps useful in speeding movement of medical goods.

On the third objective, “a major institutional reform effort,” while the G20 will undoubtedly support such action and support at least two of the three stated core planks — “restoring the WTO’s deliberative and negotiating functions, providing binding dispute settlement seen as legitimate by all” — the huge differences in objectives/concerns of many of the G20 countries makes any rapid movement towards reform in fact unlikely. For example, the United States, at least under the Trump Administration, has pushed for a fundamental rebalancing of rights and obligations in light of changed economic circumstances, pushed for a determination on whether the organization can function with very different economic systems under a set of rules designed for one type of economy, is seeking a restoration of the limited role envisioned for the WTO dispute settlement system and for panels and the Appellate Body. China has different objectives and opposes most of the U.S. priorities. The EU has very different views from the United States on the dispute settlement system. Thus, even before one looks at the broader WTO Membership, these three major Members have very different views on reform that will make efforts at reform at least time consuming (years not months). DDG Wolff includes in his list of reform efforts “providing for a strong proactive Secretariat.” This is an objective that has been stated by one or more past Directors-General, but it is unclear that there is strong Member support for a stronger Secretariat. Considering the U.S. concerns with the Appellate Body, it is hard to see them wanting a stronger Secretariat at the expense of Members. Indeed, WTO Members have frozen the WTO budget for years, and India has been seeking a reduction in budget resources for the WTO (10% cut has been proposed). The U.S. has also raised questions about Secretariat actions that appear outside of the agreed role of the Secretariat.

Conclusion

The G20 can have and has had an important role in limiting some of the more harmful actions of both G20 countries and of others in time of crisis. The G20 efforts to mobilize agreement on ways to keep markets open, limit market restrictions and support global initiatives to help smaller and more vulnerable countries has been and will continue to be important to reduce the depth of economic contraction and speed of economic rebound. And, of course, the G20 efforts go far beyond trade.

It has been important that the G20 has been open to receiving input from various organizations, including the WTO. The G20 has the ability to act fairly quickly where there is agreement among the countries. On trade, there are some major differences among G20 members not only on WTO reform but also on the need for existing WTO options for temporary export restrictions and willingness for providing greater transparency or to reach quick agreement on trade liberalization actions. Some G20 members have proposed broader WTO actions, and such actions may very well occur in the coming years although whether in time to alter the reality in the field during the COVID-19 pandemic is unlikely. Voluntary actions are obviously available in terms of reducing import restrictions including tariffs on medical goods and medicines/vaccines, and a number of countries have adopted streamlining actions to speed movement of medical goods during the pandemic.

Deputy Director-General Wolff’s statement to the G20 Leaders Summit contains important possible actions that the G20 could take or support. Some support from G20 members will almost certainly be forthcoming. Unfortunately, G20 action will not likely result in complete adoption of DDG Wolff’s proposals, nor will G20 action likely permit rapid implementation within the WTO or other organizations of DDG Wolff’s proposals. But it is useful to have a picture of a highly desirable future even if the audience for the message is unlikely to rise to the occasion for the global good.

The WTO selection process for the next Director-General — possible steps that can be taken in the coming weeks

According to the Procedures adopted by the General Council at the end of 2002 for appointing Directors-General, the current selection process of a new Director-General should have concluded with a General Council meeting that was called for November 9, 2020 but then postponed. See PROCEDURES FOR THE APPOINTMENT OF DIRECTORS-GENERAL, Adopted by the General Council on 10 December 2002, WT/L/509 (20 January 2003), paragraphs 8, 15-19; November 6, 2020, Postponement of WTO General Council meeting to consider recommendation of Dr. Ngozi Okonjo-Iweala as next Director-General, https://currentthoughtsontrade.com/2020/11/06/postponement-of-wto-general-council-meeting-to-consider-recommendation-of-dr-ngozi-okonjo-iweala-as-next-director-general/.

In prior posts, I have reported on the developments in the third and final round of consultations that the troika (Chairs of the General Council, Dispute Settlement Body and Trade Policy Review Body) had with Members between October 19-27 and the informal meetings with Heads of Delegation on October 28. See October 29, 2020, WTO press release from informal Heads of Delegation meeting on October 28 and Amb. Walker’s statement to the WTO membership on the outcome of the third round of consultations in the Director-General selection process, https://currentthoughtsontrade.com/2020/10/29/wto-press-release-from-informal-heads-of-delegation-meeting-on-october-28-and-amb-walkers-statement-to-the-wto-membership-on-the-outcome-of-the-third-round-of-consultations-in-the-director-general/; October 29, 2020, October 29th video discussion on WTO Director-General selection process following the announcement of results of third round of consultations and U.S. announcement of not backing the candidate with the greatest support, https://currentthoughtsontrade.com/2020/10/29/october-29th-video-discussion-on-wto-director-general-selection-process-following-the-announcement-of-third-round-of-consultations-and-u-s-aanouncement-of-not-backing-the-candidate-with-the-greatest/; October 29, 2020, U.S. support for Minister Yoo for WTO Director-General premised on need for person with trade expertise, https://currentthoughtsontrade.com/2020/10/29/u-s-support-for-minister-yoo-for-wto-director-general-premised-on-need-for-person-with-trade-expertise/; October 28, 2020, WTO Director-General selection process doesn’t generate immediate consensus, https://currentthoughtsontrade.com/2020/10/28/wto-director-general-selection-process-doesnt-generate-immediate-consensus/.

There were two strong candidates being considered by Members in the third round of consultations — H.E. Yoo Myung-hee of Korea (Trade Minister) and Dr. Ngozi Okonjo-Iweala of Nigeria (Chair of GAVI, former Finance Minister of Nigeria, and senior official at the World Bank). As reported by the Chairman of the General Council, Amb. David Walker of New Zealand, Dr. Ngozi Okonjo-Iweala was the candidate found based on the preferences of Members to be most likely to attract consensus of the Members and whose name would be put forward to the General Council in a special meeting as recommended by the troika consistent with the procedures (para. 19).

Because the Republic of Korea did not withdraw the Korean candidate and because the U.S. indicated it could not support a consensus for Dr. Okonjo-Iweala, the Chair of the General Council was faced with additional consultations ahead of the planned special General Council meeting that was scheduled for November 9. On November 6, the meeting was postponed for an indefinite period reflecting reimposed restrictions by the Swiss government in light of a second wave of COVID-19 cases in Switzerland, thus permitting the Chair more time to consult and seek a resolution.

We are now 13 days after the postponement was announced. Absent a resolution through consultations, the option exists to move to a vote on who should be the next Director-General. WT/L/509, para. 20. While a possibility, to date at least, there has been no move to shift from a consensus approach to a vote, although that may happen in the coming weeks or months.

Steps that could be taken to help resolve the current situation

  1. Withdrawal of H.E. Yoo Myung-hee as a candidate

Since the procedures were adopted at the end of 2002, all candidates who have been put forward have done so understanding that the procedures envision any candidate who is not moved to the next round or who is not found to be the candidate most likely to attract consensus in the final round will withdraw. WT/L/509, para 18 (“It is understood that the candidate or candidates least likely to attract consensus shall withdraw.”). The withdrawal of candidates not receiving the requisite support was followed by all candidates who didn’t advance in 2005 and in 2013 and in the first two rounds of the 2020 consultation process. So the failure of Korea to withdraw its candidate was surprising and inconsistent with the agreed procedures.

Korea is a strong supporter of the WTO as was recognized by Amb. Walker is his prepared comments at the meeting on October 28 (JOB/GC/247).

” 4 TRIBUTE TO CANDIDATES AND TO MEMBERS

“4.1. Before I conclude, I would like to acknowledge H.E. Yoo Myung-hee for her participation in this selection process.

“4.2. As I said at the start, Members consider her a highly qualified individual. H.E. Yoo Myung-hee has vast experience, which she has acquired in a number of leading positions, and her outstanding
qualifications are highly valued and respected by all Members. In her distinguished career, H.E. Yoo Myung-hee has always been a tireless promoter of the multilateral trading system, and I am certain that the WTO can continue to count on that commitment.

“4.3. We would also like to acknowledge the Government of the Republic of Korea and its Geneva Representative Ambassador PAIK Ji-ah for their commitment to this institution and to the multilateral trading system.”

The government of Korea has indicated that it has not decided a course of action and press accounts suggest that Minister Yoo is still in the fight for the Director-General position. Hopefully, Korea will take the correct action even if belatedly and withdraw its candidate. There is no doubt that Minister Yoo is a qualified individual. But that has been true of many candidates who did not ultimately succeed. The procedures adopted by the General Council obviously don’t work if candidates who do not receive the broadest and largest support don’t withdraw. Korea’s and Minister Yoo’s actions in having Minister Yoo stay in the competition are hurting the organization that both have actively supported. In an organization where Members already have a low level of trust, having important Members disregard procedures all have agreed to simply compounds the challenge of restoring trust and permitting the WTO to get on with the critical work before it.

2. Carry on in the existing configuration until the Biden Administration is in place in late January

While it is unlikely that the incoming Biden Administration will have its full team in place for a number of months after President-elect Biden is sworn in on January 20, my belief is that there will be a reasonably strong likelihood that the new Administration will not prevent a consensus for Dr. Ngozi Okonjo-Iweala to be appointed the next Director-General of the WTO. Thus, holding the special General Council meeting sometime in February would likely permit the recommendation identified by Amb. Walker and his two facilitators at the October 28 informal meeting of Heads of Delegation to proceed unopposed. While a February date drastically reduces the time for an incoming Director-General to help Members prepare for the Ministerial to be held in Kazakhstan midyear 2021, many of the priority short term objectives identified by Dr. Okonjo-Iweala (such as completing the fisheries subsidies negotiations and getting the plurilateral on e-commerce to an advanced state) are being worked by existing groups within the WTO and so hopefully will be positioned for early harvest.

Conclusion

The WTO has many needs for reform going forward. There are issues where drawing a line in the sand may be warranted by Members. I believe that the U.S. has correctly drawn a line in the sand on dispute settlement, an issue of concern to Administrations and Congress for more than 20 years. Hopefully reform of the dispute settlement system can happen in 2021 to restore the balance of rights and obligations that sovereign states negotiated during the Uruguay Round and that will limit the role of panels and the Appellate Body to that which was originally envisioned.

While all decisions by Members are obviously for them to make regardless of outside views, as an outside observer I don’t see the justification for drawing a line in the sand in the selection process for a new Director-General. Both candidates in the final round of consultations were highly qualified and respected. The organization needs a new Director-General. The organization will be well served by either candidate. But only one was found through the 2002 procedures to be the candidate most likely to attract a consensus. With a change in U.S. Administrations a few months away, hopefully the 2002 procedures can be respected again without the need to resort to voting and with Dr. Ngozi Okonjo-Iweala becoming the next Director-General of the WTO.

United States becomes only country to have more than 2,000,000 new COVID-19 cases in fourteen days

The European Centre for Disease Prevention and Control (ECDC) daily report, “COVID-19 situation update worldwide, as of 19 November 2020,” shows the number of new cases in the United States surpassing two million for the fourteen days November 6 -19. The 2,043,321 new cases more than doubled the 1,019,609 new cases reported by the United States for October 19-November 1 (the first time the United States surpassed one million in a fourteen day period according to the daily reports from the ECDC). For the last fourteen days, the U.S. accounted for 24.99% of new cases recorded around the world. The 11,529,807 cases recorded by the U.S. since the end of December 2019 have been 20.45% of the world’s total cases of 56.37 million. The U.S. has just 4.3% of the world’s population.

The United States is the largest source of increases in new cases and has been that over the last month. Europe which has suffered a huge increase this fall is seeing a reduction from peak numbers for many countries.

The United States is seeing new records in terms of hospitalizations of patients with COVID-19. The COVID Tracking Project shows the U.S. having 79,410 hospitalizations on November 18, up from 28,606 on September 20 and nearly 20,000 hospitalizations more than prior peaks in July (59,677 on July 24) and April (59,773 on April 21). Some sources are projecting hospitalizations could exceed 100,000 in the coming weeks.

Deaths in the U.S. are also increasing with the COVID Project recording 1,869 on November 18. The ECDC 19 November 2020 COVID-19 situation update worldwide shows U.S. deaths due to COVID-19 as 250,537 or 18.55% of the world total up til November 19. With the spiraling number of new cases and huge increases in hospitalizations, the daily death totals are projected to continue to increase.

Many U.S. states are overwhelmed with COVID-19 hospitalizations, and there continue to be challenges for medical workers obtaining needed personal protective equipment despite increased global production and some domestic onshoring. See, e.g., NPR, November 10, 2020, COVID-19 Hospitalizations Hit Record Highs. Where Are Hospitals Reaching Capacity?, https://www.npr.org/sections/health-shots/2020/11/10/933253317/covid-19-hospitalizations-are-surging-where-are-hospitals-reaching-capacity; American Medical Association, Amid PPE shortage, AMA collaboration offers supplier for doctors, November 16, 2020,https://www.ama-assn.org/delivering-care/public-health/amid-ppe-shortage-ama-collaboration-offers-supplier-doctors.

While the news from several pharmaceutical companies about results from phase 3 vaccine tests are highly encouraging, production and distribution of the vaccines, once approved, means the U.S. will be dealing with the continuing surge of new cases for a number of months to come at least. Some forecasts predict deaths in the U.S. reaching 430,000 by the end of the first quarter of 2021. Moreover, with a change in government occurring in late January, the U.S. is suffering from a lack of coordination from the outgoing Administration with the Biden Administration as the Trump Administration has to date refused to provide access to information that is normally received by incoming Administrations. Such handicapping of an incoming Administration will have significant adverse effects on the nation’s ability to distribute vaccines once approved and otherwise permit the Biden Administration to get on top of the pandemic.

Complicating the economic and trade picture in the United States is the lack of an additional stimulus package during the growing crisis from the pandemic. Millions of Americans face serious challenges with the expiration of various relief programs, some at the end of December. Millions are at risk of eviction beginning in January. See CNN, November 18, 2020, Key pandemic relief programs are set to expire at the end of the year. No one knows what’s next, https://www.cnn.com/2020/11/18/politics/covid-relief-programs-expiring-in-december/index.html.

While before the election, the Speaker of the House Nancy Pelosi and Treasury Secretary Steven Mnuchin were discussing a possible package of around $2 trillion, the Senate was not on board with a large package, and there was no agreement on the package even between the Administration and the House. It is looking increasingly unlikely that an agreement will be reached before Joe Biden is sworn in as the next President on January 20, 2021, meaning months of delay before new legislation can be enacted. Such delay will cause significant harm to millions and millions of Americans and to the overall U.S. economy.

A large reason for the significant rebound in the third quarter from the steep drop in GDP in the second quarter in the U.S. was the broad and deep stimulus package adopted much earlier in the year. Without a new stimulus package and with surging new cases, there is the very real risk of slipping into a double dip recession. See, e.g., The Hill, November 15, 2020, Fears of double-di recession rise alongside COVID-19 cases,https://thehill.com/policy/finance/economy/525951-fears-of-double-dip-recession-rise-alongside-covid-19-cases. Indeed, with more and more states imposing at least some restrictions in an effort to slow the spread of the coronavirus, the economic rebound is certainly already slowing. The New York Fed Staff Nowcast projection of 4th quarter 2020 GDP growth has shrunk from an estimate of 7.12% on August 28 to just 2.86% projected on November 13.

The United States is not alone in facing challenges getting new stimulus measures put in place or facing a double dip recession or seeing large surges in cases during the fall. See, e.g., NPR, November 17, 2020, Hungary and Poland Block EU Budget with Pandemic Relief Funds for Hard-Hit Nations, https://www.npr.org/sections/coronavirus-live-updates/2020/11/17/935775895/hungary-and-poland-block-eu-budget-with-pandemic-relief-funds-for-hard-hit-natio; CNN Business, November 5, 2020, The UK economy heads back into recession, https://www.cnn.com/2020/11/05/economy/uk-economy-recession/index.html. Europe has already reduced its forecasted GDP growth for 2021 because of the fall resurgence in COVID-19 cases.

Conclusion

The United States continues to struggle with a pandemic that has affected all parts of the world. The U.S.’s response has been the least successful and the most costly of any nation in the world. As we head towards the end of the year, the virus continues to spiral out of control across the country with many states and local communities basically at the breaking point in terms of health care services. The President and many of his supporters have politicized basic public health steps needed to control the virus. While the Trump Administration has helped support expediting research, development and production of vaccines, the U.S. is now and will almost certainly remain the country with the worst record in terms of infections and deaths from the COVID-19 pandemic. Today’s record of more than two million new infections recorded in the last fourteen days is just one more “first” that the United States should never have achieved.

WTO initiatives on trade and the environment — likely to receive a warm welcome under a Biden Administration

The challenges facing the world from climate change are staggering and getting worse. While the Trump Administration withdrew the United States from the Paris climate agreement, a Biden Administration will have the U.S. rejoin and work with other nations to find solutions to the pressing problems.

Today in Geneva, two initiatives were announced by groups of WTO Members. One addresses trade and environmental sustainability and was presented in a communication from 49 Members. Communication on Trade and Environmental Sustainability, WT/CTE/W/249 (17 November 2020). Neither the U.S., China, India, Brazil nor South Africa are on the communication though most developed countries and other Members are initial sponsors. The communication is embedded below.

W249

The second initiative was the launch of an informal dialogue on plastics pollution and environmentally sustainable plastics trade. Seven Members are launching the informal dialogue. All Members are welcome to participate. The seven Members involved in the launch are Australia, Barbados, Canada, China, Fiji, Jamaica and Morocco. Only Australia, Canada and Fiji are part of both initiatives. The press release from the Secretariat on today’s initiatives included the following discussion of the plastics initiative.

“The dialogue is borne out of the recognition of the need for coordinated action to address the rising environmental, health and economic cost of plastics pollution and the importance of the trade dimension as a solution.

“Proponents aim to circulate their communication soon. * * *

“Ambassador Xiangchen Zhang of China said at the online event that possible subjects for discussion include improving transparency, monitoring trade trends, promoting best practices, strengthening policy coherence, identifying the scope for collective approaches, assessing capacity and technical assistance needs, and cooperating with other international processes and efforts. Ambassador Nazhat Shameem Khan of Fiji said they hope this informal dialogue will encourage discussion and exploratory work on how the WTO can contribute to efforts to reduce plastics pollution and transition to a circular, more environmentally sustainable plastics trade.”

Deputy Director-General Alan Wm Wolff spoke at today’s event and identified a range of initiatives that have been looked at by the Committee on Trade and Environment, or that could be, that could help move forward both initiatives including resuming talks at eliminating tariffs and non-tariff barriers on environmental goods and services, reforming subsidies on fossil fuels, promoting a global circular economy, addressing the carbon content of traded products and other actions.

The press release and DDG Wolff’s remarks are embedded below.

WTO-_-2020-News-items-New-initiatives-launched-to-intensify-WTO-work-on-trade-and-the-environment

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff-remarks-on-the-Structured-Discussions-on-Trade-and-Environmental-Sustainability

Likely U.S. engagement in a Biden Administration

Because addressing the challenges from climate change are a core priority for the incoming Biden Administration, I would expect that once the new trade team is in place, the U.S. will become involved in both of the initiatives and other activities at the WTO on the importance of finding rules and solutions to pressing trade and environment issues.

The Biden team almost certainly supports most if not all of the items identified in paragraph 1 of the Communication (WT/CTE/W/249), including the importance of multilateral environmental agreements, that there is an urgent need for action on climate change, that trade and environmental objectives and policies should be mutually supportive, that trade and trade policy need to support efforts to reach the Sustainable Development Goals, among others. Similarly, the Biden Administration will presumably strongly support the four areas of activity identified in paragraph 2 of the Communication:

“2. Therefore, express our intention to collaborate, prioritize and advance discussions on trade and environmental sustainability, including by:

“intensifying our work to share experiences and best practices; promote transparency, dialogue and information sharing along the full value chain of products and materials;

“strengthening coherence at the national and international level with a view to identifying areas of common interest and for future work within the WTO, in order for WTO to address more effectively sustainable development issues;

“working in cooperation with relevant international organizations and relevant actors, including the private sector, to identify and support technical assistance and capacity building needs of Members, and in particular least-developed countries (LDCs).

“working on possible actions and deliverables of environmental sustainability in the various areas of the WTO.”

Similarly, I would expect the Biden Administration to have an active interest in working with industry and other governments to address the challenges of plastics pollution, although U.S. interests are likely to be more action oriented than the items teed up by China at today’s announcement.

Conclusion

For years, many Members have fought focusing energies at the WTO on issues involving trade and the environment. With the climate change crisis and consequences being felt around the world, it appears that many or most WTO Members are appreciating the need for the WTO to play its role in addressing sustainable development and the climate change challenge.

With a new U.S. Administration, the U.S. should be a very active participant in moving the WTO and its Members forward.

New COVID-19 cases over a fourteen day period continue to soar past eight million, up from five million on October 22

The COVID-19 pandemic continues to see an upward spiral in terms of the number of new infections although there has been a recent slowdown in new cases in Europe. Europe and the United States continue to constitute the bulk of the increase over the last 26 days as the following graph taken from the European Centre for Disease Prevention and Control’s COVID-19 situation update world wide, as of 17 November 2020 shows.

Distribution of COVID-19 cases worldwide, as of 17 November 2020

Distribution of COVID-19 cases worldwide, as of 17 November 2020


More specifically, in the last twenty-six days, the number of new COVID-19 cases globally over the last fourteen days has shot from five million to over eight million — a near sixty percent increase in a little over three and a half weeks. The total new cases identified since late December 2019 globally are now 55.15 million as of November 17.

On October 22, the European Centre for Disease Prevention and Control (ECDC) recorded the first day where the number of new COVID-19 cases over a fourteen day period globally surpassed five million (5,042,415). In just eight days, on October 30, the ECDC reports the fourteen day total shooting past six million new cases (6,093,987), an increase of 1,051,572 or 20.85% in eight days. The report for November 7 shows the total new cases in the last fourteen days crossing the seven million mark — 7,044,267 — or 15.59% over October 30 and 39.70% over October 22. And today, November 17, the ECDC report shows new cases in the last fourteen days as passing eight million (8,031,073) — 14.01% above November 7, 31.79% above October 30 and 59.27% above October 22. As reviewed in three prior posts (October 22 and October 30), the U.S. and Europe were major factors in hitting five million, six million and seven million daily cases and today’s data show them to continue to be the major causes of the continued rapid escalation in global cases. See October 22, 2020, COVID-19 new cases over last 14 days pass 5,000,000 for first time on October 22, https://currentthoughtsontrade.com/2020/10/22/covid-19-new-cases-over-last-14-days-pass-5000000-for-first-time-on-october-22/; October 30, 2020,  In last eight days, the number of global new COVID-19 cases over past fourteen days has grown from five to six million, https://currentthoughtsontrade.com/2020/10/30/in-last-eight-days-the-number-of-global-new-covid-19-cases-over-past-fourteen-days-has-grown-from-five-to-six-million/; November 7, 2020:  New COVID-19 cases over a fourteen day period continue to soar from five million on October 22 to six million on October 30 to seven million on November 7, https://currentthoughtsontrade.com/2020/11/07/new-covid-19-cases-over-a-fourteen-day-period-continue-to-soar-from-five-million-on-october-22-to-six-million-on-october-30-to-seven-million-on-november-7/

The table below shows the fourteen day totals for selected countries as of October 22, October 30, November 7 and November 17, and the change in new cases from October 22 – November 17. These twenty countries show an increase in the twenty-six days from October 22 – November 17 of 2,772,211 additional new cases while the increase from all countries was 2,988,658. So the 20 countries account for 92.76% of the total growth. In the prior periods (October 30 and November 7), the 20 countries had accounted for more than 100% of the increase in new cases. The 20 countries accounted for 2,558,802 new cases for the fourteen days ending October 22 or 50.75% of the global total at that time. For the fourteen days ending October 30, the 20 countries accounted for 3,584,674 new cases or 58.82% of the global total. For the fourteen days ending November 7, the 20 countries accounted for 4,568,491 new cases or 64.85% of the global total. And for the fourteen days ending November 17, the 20 countries accounted for 5,331,013 new cases or 66.38% of new cases. The table below shows that eight European countries — France, Spain, Belgium, Czechia, the Netherlands, Switzerland, Slovakia and Slovenia — showed significant new case reductions in the November 17 period compared to the November 7 period.

Country10-22-202010-30-202011-7-202011-17-2020Change
United States786,488966,2691,245,8761,914,2411,127,753
France303,912473,085620,778524,800220,888
United Kingdom244,954291,718315,486336,817 91,863
Spain169,394238,709282,700256,167 86,773
Italy115,708234,993377,812474,293358,585
Russia198,716227,530252,794315,975117,259
Belgium100,119171,522152,663 72,643 -27,476
Poland95,260169,302265,447338,308243,048
Czechia113,555161,058165,174114,627 1,072
Germany81,905151,137224,483255,367173,462
Netherlands103,024126,543125,163 84,442 -18,582
Ukraine76,48989,178109,792143,495 67,006
Switzerland35,26173,418107,837 93,395 58,134
Romania48,53260,55086,030114,508 65,976
Hungary18,16628,38848,845 65,890 47,724
Austria19,38735,43661,823 93,528 74,141
Bulgaria10,59220,64335,665 45,274 34,682
Slovakia18,91327,50333,177 25,447 6,534
Slovenia8,85920,02123,345 19,338 10,479
Sweden9,56817,67133,601 42,458 32,890
Total2,558,8023,584,6744,568,4915,331,0132,772,211

While the United States has the largest absolute increase in the last twenty-five days for a single country and accounted for 40.68% of the increase recorded by the twenty countries for the October 22-November 17 period, the U.S. accounted for 87.65% of the increase of the twenty countries for the November 7-November 17 period. While Europe has been the largest part of the increase in October and November, the rate of increase has slowed or declined for many European countries in the last fourteen days.

Europe led the U.S. in the dramatic increase in new cases in October and in the reintroduction of restrictions in many countries to attempt to bring the coronavirus back under control. Actions in Europe appear to be working at least in a large number of countries as the number of new cases is declining in some countries as can be seen in the table above. The United States is continuing with huge increases in new cases, in hospitalizations and is seeing a growing number of deaths. Many U.S. states are putting in place at least some restrictions to try to slow the growth of new cases and reduce the strain on the health care system. The next week or two will help understand whether the actions being taken in the U.S. are sufficient to reduce the growth in new cases.

Other parts of the world are not experiencing a second wave to the same extent as Europe or the United States, although much of the Americas remain at very high levels of new cases. Some major countries who have been seriously hit in recent months are seeing substantial reductions in new cases. India is one example — on October 22, the last 14 days showed 871,291 new cases; on October 30, for the last 14 days new cases were down to 718,383; on November 7 were down to 647,398 for the 14 days ; and for the fourteen days ending on November 1, India’s new cases were down to 606,667.

The EU and the US face problems on additional aid packages

The EU has at least a temporary crisis as Hungary and Poland have blocked adoption of the aid package that had been agreed to. See, e.g., Euronews, 16 November 2020, Hungary and Poland block EU’s COVID-19 recovery package over new rule of law drive, https://www.euronews.com/2020/11/16/hungary-and-poland-threaten-coronavirus-recovery-package.

The U.S. Congress and Administration have been unable to agree to additional stimulus funds to help the U.S. economy and citizens deal with the continued COVID-19 pandemic. The U.S. has more than 22 million Americans still out of work and with government assistance having terminated or to terminate shortly. Aid for small businesses and for sectors particularly hard hit by the pandemic is desperately needed as is funding for state and local governments and much more. While President Trump has urged Congress to pass an additional stimulus package, it is unlikely that action will be taken before the next Congress convenes and the new Administration is sworn in on January 20.

Progress on vaccine development

Two vaccines have completed phase 3 testing — one from Pfizer/BioNTech and one from Moderna — and information from the companies suggests efficacy rates of 90-94.5%. Thus, it is possible that these two vaccines will be approved for use in the coming weeks and will see large scale availability in the first half of 2021. Many other vaccines are in various phases of testing. So 2021 will hopefully see the roll out of various vaccines with significant availability around the world due to efforts of the companies and the efforts of the WHO/GAVI/CEPI to ensure availability to developing and least developed countries as well.

Conclusion

The top priority for many countries around the world remains getting the COVID-19 pandemic under control. The costs in terms of human life and serious health problems are enormous. So too the costs to the global economy from taking the steps necessary to address the pandemic are enormous.

How to address the pandemic and how to work internationally to secure a return to normalcy and a return to sustainable economic growth are the challenges for all governments and international organizations.

The fact that the number of new cases is continuing to surge globally ten and a half months after the start of global surveillance is obviously troubling and delays the return to normalcy. While some individual countries have gained control of the pandemic and others are making significant strides to reduce the number of new cases, “no one is safe until all are safe”. We have a long road to travel, and the western developed world is currently the major hot spot, struggling with the current extraordinary surge, although there are positive signs in Europe that at least many countries are slowing the spread after a very challenging September and October. We still are not in sight of a global peak although the rate of growth is slowing for the world as a whole though not for countries like the United States.

There is obviously some light at the end of the tunnel as vaccines and therapeutics get closer to public release. With more than 55 million infections recorded to date around the world and with more than 1.3 million deaths globally, the pressing question is how much worse will the situation become before the world gets back to normal with the pandemic controlled. The world is in for a challenging time til at least next summer and more realistically to the end of 2021 and the start of 2022.

Regional Comprehensive Economic Partnership signed on November 15, 2020

On Sunday, November 15, 2020, fifteen countries signed the Regional Comprehensive Economic Partnership which will “enter into force for those signatory States that have deposited their instrument of ratification, acceptance, or approval, 60 days after the date on which at least six signatory States which are Member States of ASEAN and three signaotry States other than Members States of ASEAN have deposited their instrument of ratification, acceptance, or approval with the Depositary.” RCEP Article 20.6.2.

The fifteen countries signing the RCEP are the ten ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — and five others (Australia, China, Japan, New Zealand and the Republic of Korea). India had participated in negotiations but withdrew in late 2019. According to a CNN article, “The Regional Comprehensive Economic Partnership spans 15 countries and 2.2 billion people, or nearly 30% of the world’s population, according to a joint statement released by the nations on Sunday, when the deal was signed. Their combined GDP totals roughly $26 trillion and they account for nearly 28% of global trade based on 2019 data.” CNN Business, November 16, 2020, China signs huge Asia Pacific trade deal with 14 countries, https://www.cnn.com/2020/11/16/economy/rcep-trade-agreement-intl-hnk/index.html.

The Joint Statement released on the 15th is copied below.

“Joint Leaders’ Statement on The Regional Comprehensive Economic Partnership (RCEP)

“We, the Heads of State/Government of the Member States of the Association of Southeast Asian Nations (ASEAN) – Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam – Australia, China, Japan, Korea and New Zealand, met virtually on 15 November 2020, on the occasion of the 4th RCEP Summit.

We were pleased to witness the signing of the RCEP Agreement, which comes at a time when the world is confronted with the unprecedented challenge brought about by the Coronavirus Disease 2019 (COVID-19) global pandemic. In light of the adverse impact of the pandemic on our economies, and our people’s livelihood and well-being, the signing of the RCEP Agreement demonstrates our strong commitment to supporting economic recovery, inclusive development, job creation and strengthening regional supply chains as well as our support for an open, inclusive, rules-based trade and investment arrangement. We acknowledge that the RCEP Agreement is critical for our region’s response to the COVID-19 pandemic and will play an important role in building the region’s resilience through inclusive and sustainable post-pandemic economic recovery process.”

https://asean.org/joint-leaders-statement-regional-comprehensive-economic-partnership-rcep-2/

The agreement has twenty chapters some of which have annexes:

  1. Initial Provisions and General Definitions
  2. Trade in Goods
  3. Rules of Origin
  4. Customs Procedures and Trade Facilitation
  5. Sanitary and Phytosanitary Measures
  6. Standards, Technical Regulations, and Conformity Assessment Procedures
  7. Trade Remedies
  8. Trade in Services
  9. Temporary Movement of Natural Persons
  10. Investment
  11. Intellectual Property
  12. Electronic Commerce
  13. Competition
  14. Small and Medium Enterprises
  15. Economic and Technical Cooperation
  16. Government Procurement
  17. General Provisions and Exceptions
  18. Institutional Provisions
  19. Dispute Settlement
  20. Final Provisions

The full RCEP agreement and country schedules of tariff commitments can be found in English at the webpage for RCEP, https://rcepsec.org/legal-text/ as well as on various individual signatory web pages. See, e.g., the Australian Government, Department of Foreign Affairs and Trade, https://www.dfat.gov.au/trade/agreements/not-yet-in-force/rcep/rcep-text-and-associated-documents.

A summary of the agreement from the ASEAN webpage is embedded below. https://asean.org/storage/2020/11/Summary-of-the-RCEP-Agreement.pdf.

Summary-of-the-RCEP-Agreement

From the chapter titles, it is clear that the Agreement does not deal with issues such as labor or environment. While there is a chapter on trade remedies, a review shows no expanded rules on industrial subsidies – a matter of concern for many countries dealing with China. Similarly, under the competition chapter, the only reference (and it is indirect) to state-owned or state-invested enterprises is contained in Article 13.3.5 (“Article 13.3: Appropriate Measures against Anti-Competitive
Activities”). “Each Party shall apply its competition laws and regulations to all entities engaged in commercial activities, regardless of their ownership. Any exclusion or exemption from the application of each Party’s competition laws and regulations, shall be transparent and based on grounds of public policy or public interest.” (Emphasis added).

RCEP Chapter 7, Trade Remedies

While subsequent posts will look at other aspects of the RCEP Agreement, this post looks at Chapter 7, Trade Remedies. For convenience, the chapter is embedded below.

rcep-chapter-7

Safeguard actions

Section A of Chapter 7 deals with RCEP safeguard measures. The RCEP safeguard measure is intended to be available for a transitional period that extends to a period that is eight years after the tariff elimination or reduction on a specific good is scheduled to occur. Relief can be in the form either of stopping tariff reductions or snapping the tariff back to the MFN rate at the lower of the rates applicable at the date of entry into force of the Agreement for the country in question or the MFN rate on the date when the transitional RCEP safeguard measure is put in place. There is a three year limit on relief, with a one year extension in certain circumstances. If relief is for more than a year, the relief provided is to be reduced “at regular intervals”. Relief is not available against imports from a RCEP party whose imports are less than 3% of total imports from the RCEP parties or if the RCEP party is a Least Developed Country. RCEP has three members who are Least Developed Countries (LDCs) according to the UN’s 2020 list – Cambodia, Laos and Myanmar. Compensation is required and if not agreed to, then the party subject to the RCEP safeguard “may suspend the application of substantially equivalent concessions” on goods from the party applying the safeguard. No compensation is required during the first three years of relief if there has been an absolute increase in imports. No compensation will be requested from an LDC.

RCEP countries preserve their rights under the WTO to pursue global safeguard measures. RCEP parties are not to apply both a RCEP safeguard and a global safeguard to the same good at the same time.

Antidumping and Countervailing Duties

Section B of Chapter 7 deals with antidumping and countervailing duties. While the Section starts by noting that parties “retain their rights and obligations under Article VI of GATT 1994, the AD Agreement, and the SCM Agreement,” the section adds clarity to notice and consultation requirements, timing of notice and information required for verification, maintaining a non-confidential file available to all parties and other matters. The biggest addition to parties rights and obligations is the acceptance of a “Prohibition on Zeroing” in dumping investigations and reviews. Article 7.13.

“When margins of dumping are established, assessed, or reviewed under
Article 2, paragraphs 3 and 5 of Article 9, and Article 11 of the AD Agreement, all individual margins, whether positive or negative, shall be
counted for weighted average-to-weighted average and transaction-to- transaction comparison. Nothing in this Article shall prejudice or affect
a Party’s rights and obligations under the second sentence of subparagraph 4.2 of Article 2 of the AD Agreement in relation to weighted average-to-transaction comparison.”

Considering the centrality of the WTO dispute settlement decisions on “zeroing” to the U.S. position on overreach by the Appellate Body, the actions of the RCEP parties to add the obligation contained in RCEP Art. 7.13 to their approach to antidumping investigations will almost certainly complicate the ability of the WTO to move past the impasse on the Appellate Body.

Conclusion

The RCEP Agreement is an important FTA in the huge number of such agreements entered by countries around the world. There will certainly be advantages for the RCEP countries from the regional trade liberalization and the common rules of origin adopted.

Pretty clearly, the RCEP has not dealt with some of the fundamental challenges to the global trading system from the rise of economic systems that are not premised on market-economy principles. While such issues can be addressed in the WTO going forward, the ability of China to get a large number of trading partners to open their markets without the addressing of the underlying core distortions from the state directed economic system that China employs suggests that the road to meaningful reform has gotten longer with the RCEP Agreement.

Nor have the RCEP countries chosen to include within the RCEP action on issues like the environment which are of growing importance to the ability to have sustainable development. Again while such issues can be addressed in the WTO, they are also being addressed in bilateral and plurilateral agreements by other countries and including some of the RCEP countries. Thus, RCEP is a lost opportunity for leadership by China on issues of great importance to its citizens and those of all RCEP parties.

COVID-19 Pandemic continues to spin out of control globally; U.S. becomes first country to record more than one million new cases in a week

Ten and a half months into the global pandemic, the world remains on a sharply upward trajectory in terms of new cases. As of November 15, the global total of new cases in the last fourteen days is just under 8 million (7,925,568) with total recorded cases since the end of December 2019 topping 54 million (54,110,061). See European Centre for Disease Prevention and Control (ECDC), COVID-19 situation update worldwide, as of 15 November 2020.

The United States accounts for 1,778,530 of the cases in the last fourteen days and became the first country to record more than one million new cases in a week — 1,043,933 for the seven days ending November 15. The 184,813 new cases recorded on November 14 is more in one day than the vast majority of countries in the world have recorded since the end of December 2019. For example 53 of 55 countries in Africa have recorded fewer cases than the U.S. did on November 14 and the other two (Morocco and South Africa) have recorded fewer cases than the U.S. recorded in the last week. Similarly 32 of 43 countries in Asia (including China) have had fewer cases over the last 10 1/2 months than the U.S. had on November 14 and of the other 11, 10 have had fewer cases in the last 10 1/2 months than the U.S. has had in the last week. In the Americas, 40 of 46 countries or territories (other than the U.S.) have had fewer cases in the last 10 1/2 months than the U.S. recorded on November 14 and three of the other six countries have had fewer cases in the last 10 1/2 months than the U.S. has recorded in the last seven days. In Europe, the other area very hard hit in the last several months, 39 of 53 countries have had fewer cases in the last 10 1/2 months than the U.S. had on November 14 and of the remaining fourteen countries, 10 have had fewer cases in the last 10 1/2 months than the U.S. has had in the last week. All countries and territories in Oceania (12 of 12) have had fewer cases in the last 10 1/2 months than the U.S. recorded on November 14. Indeed, the total cases of all of Oceania (combined) for the last 10 1/2 months are lower than the U.S. figures for just November 14.

Nearly every one of the fifty U.S. states is experiencing significant increases and a number of states are already struggling with health care facilities, personnel and supplies. U.S. hospitalizations are at a record high for patients with COVID-19 ( 69,455 on November 14; https://covidtracking.com/data/charts/us-currently-hospitalized) and are expected to go above 100,000 by the end of the year. The U.S. recorded 8,487 deaths from COVID-19 in the last week and is projected to have more than 2,000 deaths/day from COVID-19 by January. A large number of U.S. states are imposing new restrictions in an effort to halt the dramatic increase in the U.S. number of new cases. See, e.g., New York Times, November 15, 2020, Doctors Call for More Restrictions and Caution as Virus Surges, https://www.nytimes.com/live/2020/11/14/world/covid19-coronavirus-updates; CNBC, November 14, 2020, U.S. reports record Covid hospitalizations as states roll out restrictions ahead of Thanksgiving, https://www.cnbc.com/2020/11/14/us-reports-record-covid-hospitalizations-as-states-roll-out-restrictions-again.html; Bloomberg, November 13-14, 2020, World Clamps Down as Covid-19 Refuses to Cede: Virus Update, https://www.bloomberg.com/news/articles/2020-11-13/u-s-sets-record-as-states-move-to-tighten-rules-virus-update.

As the last of the articles referenced above shows, many European countries have also been imposing significant restrictions in an effort to bring the pandemic back under control. Some European countries are seeing some significant retrenchment from the extraordinary numbers recorded within recent weeks in the last week. Others are seeing a slowing of the rate of growth or a plateauing of new cases. For example, the ECDC data for France shows new cases in the week ending November 15 at 205,894 down significantly from the 384,080 new cases of the prior week. Italy’s rate of increase slowed with new cases in the last week at 242,962 compared to 223,060 the prior week. Spain saw a small decline from 143,154 new cases the week ending November 8 to 129,759 new cases during the week ending November 15.

While there has been very encouraging news on the vaccine front from Pfizer/BioNTech and with likely similar good news expected from Moderna, broad distribution in the U.S. and Europe and other developed countries is still likely months away even if started in the next month or two. The requirement for extreme cold storage and transfer of the product will make global distribution even more challenging because of extra infrastructure/equipment needs. Thus, every country has an ongoing need to take the steps necessary to bring the pandemic under control without a vaccine.

In the United States where the current Administration has focused its efforts on expediting development of new vaccines and therapeutics, the failure to provide national leadership on controlling the pandemic and the continual issuance of misinformation has unfortunately politicized much of the health care preventive efforts needed by individuals and communities. The Administration’s current refusal to recognize the results of the recent elections and failure to accord the President-elect’s team access to agencies will complicate the process of the incoming Administration being able to implement a more comprehensive and consistent response to the pandemic to assist the states. Thus, the current crisis will certainly just get worse in the coming months. Projections now are that the U.S. will suffer an additional 200,000 deaths in the next four-five months. Many of those deaths are preventable but will happen because of our inability to focus on and accept the scientific facts and known action steps to control the spread. Remarkably a recent poll suggested that a large percent of the U.S. population believes the U.S. response to COVID-19 has been well handled. Thus, a wealthy developed country with 4.3% of the global population is apparently doing well by having roughly 20% of cases and 20% of deaths.

The rebound economically of European and U.S. economies during the third quarter after the steep decline in the second quarter following largescale closures will be negatively affected by the fourth quarter surge in cases and needed renewed restrictions in both areas. Such restrictions will negatively affect not only domestic economies but global trade as well in both goods and services. Even for areas of the world where the COVID-19 pandemic has not had tremendous direct effects, there have been negative effects because of the contraction of trade in goods and services as reviewed in a recent WTO Secretariat paper. See WTO, Trade and Development, November 11, 2020, Least developed countries hit hard by trade downturn triggered by COVID-19 pandemic, https://www.wto.org/english/news_e/news20_e/devel_11nov20_e.htm; Sub-Committee on Least Developed Countries, MARKET ACCESS FOR PRODUCTS AND SERVICES OF EXPORT INTEREST TO LEAST DEVELOPED COUNTRIES
NOTE BY THE SECRETARIAT1, WT/COMTD/LDC/W/68, 23 October 2020.

The likely approach of more tailored restrictions being imposed by countries or states/provinces hopefully will mean a smaller negative economic effect from the current surge in cases. However, in the U.S., Congress and the Administration have been unable to agree to renewed stimulus measures and past stimulus packages have come to an end. There are more than 20 million Americans who have been receiving some form of unemployment assistance where assistance has or is ending. Millions of renters and home owners face potential evictions or foreclosures on homes because of non payment of rent or mortgages. The continued failure of the federal government to address these ongoing needs will depress the U.S. economy going forward and will cause major problems for millions of families — making the future months different than the U.S. economic response to the earlier surges.

The bottom line — the global challenges from the pandemic are growing and not receding.

U.S.-China Phase 1 Trade Agreement — Data through September 2020; USDA and USTR report on agriculture portion

U.S. September export data were released earlier this month. While there are some improvements in some categories of merchandise exports in Septmeber, China remains far behind its overall commitments in the U.S.-China Phase I Trade Agreement. 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 been whether the agreement to increase imports from the United States is likely to be met by China. Prior posts on the U.S.-China Phase 1 Agreement can be found here: October 10, 2020,  U.S.-China Phase I Trade Agreement – first six months data on U.S. exports (March-August 2020) covered by the purchase commitments show China needing to triple purchases in next five months to meet first year commitments, https://currentthoughtsontrade.com/2020/10/10/u-s-china-phase-1-trade-agreement-first-six-months-data-on-u-s-exports-march-august-2020-covered-by-the-purchase-commitments-show-china-needing-to-triple-purchases-in-next-six-months-to-meet-fi/; September 12, 2020, U.S.-China Phase I Trade Agreement – How is China Doing to Meet Purchase Commitments for the First Year; a Review of U.S. Domestic Exports through July 2020, https://currentthoughtsontrade.com/2020/09/12/u-s-china-phase-1-trade-agreement-how-is-china-doing-to-meet-purchase-commitments-for-the-first-year-a-review-of-u-s-domestic-exports-through-july-2020/; August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

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

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

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

USTR-and-USDA-Release-Report-on-Agricultural-Trade-between-the-United-States-and-China-_-United-States-Trade-Representative

Ag-Report-Cover-v7red

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

The interim report from USTR and USDA indicated that for March-August, China had purchased 71% of the first year commitments (though obviously all had not been shipped). Looking at U.S. domestic exports for the March – September period and projecting for full year 2020, shows China meeting 82.73% of first year agriculture commitments if the first year is measured from March 2020-February 2021. Total Phase 1 products are projected at only 56.94% of first year commitments for the March-February year with manufactured goods at 50.46% and energy at 46.63%. If calendar year 2020 is examined, then total Phase 1 goods are projected to meet 51.40% with manufactured goods at 50.85%, agricultural products at 65.49% and energy goods at 35.33%. To meet first year commitments, China would have to import .3.47 times the product from the United States as was done in the first seven months in the next five months (October – February ) or 4.69 times the imports from the United States in the three month period of October – December if a calendar year basis is examined. Under neither time period, will first year U.S. domestic exports of goods to China meet the actual 2017 U.S. exports (although the U.S. gets close under current trends for the March-September period). Thus, none of the growth in exports above 2017 levels will be achieved in the first year.

U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. Total U.S. services exports to all countries are down 21.05% for the first nine months of 2020. Services trade data with China for 2020 is available for the first six months of 2020 and shows U.S. exports of services down41.51% from 2019 levels. 2019 US exports of services to China were $36.398 billion, slightly lower than 2017 US exports of services to China of $36.986 billion. See U.S. Department of Commerce, U.S. Bureau of the Census, Bureau of Economic Analysis, U.S. International Trade in Goods and Services, September 2020 (November 4, 2020). The Phase 1 Agreement with China has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels – to $49.786 billion). Thus, the limited data available indicate that U.S. services exports to China will likely miss 2017 levels by more than 40% and will obviously not show any gain above 2017.

Looking at total U.S. domestic exports of goods to China for the period March-September 2020, U.S. exports were $58.885 billion ($8.412 billion/month) compared to $65.073 billion in 2017 ($9.296 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For the January-September 2020 period total U.S. exports were $71.402 billion ($7.934 billion/month) compared to $83.434 billion in 2017 ($9.270 billion/month).

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

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017 (full year). For the period March – September, 2020 figures for the 18 categories have decreased 5.73% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 18.59%, and total exports to China are down 9.51%. Looking at January – September figures for the 18 categories declined 12.02% while other U.S. domestic exports were down 20.26% from comparable levels in 2017. NOTE: compared to earlier posts, I have corrected the HS category for aircraft in the Phase 1 HS numbers which has resulted in usable figures for aircraft and reduced non-covered U.S. exports of goods.

Thus, the first seven months since the U.S.-China Phase 1 Agreement went into effect suggest that U.S. domestic exports of the Annex 6 goods will be $85.807 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 $22.880 billion, for total U.S. domestic exports to China of $108.688 billion. This figure would be far below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $176.019 billion with noncovered products at estimated 2020 levels) . The same is true if one looks at January-September 2020 which suggest full year 2020 exports of Annex 6 goods of $77.464 billion, other exports of $25.324 billion, for total domestic exports in 2020 of $102.789 billion even further behind 2017.

To achieve the target level of U.S. exports in the October 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $107.389 billion ($21.478 billion/month) an amount that is 3.47 times the monthly rate of exports of the 18 categories to China in the March – September 2020 period ($6.187 billion/month).

If one uses January-September for comparison and for other US exports, with only three months data remaining in 2020, U.S. exports of goods covered by Annex 6.1 would have to be $98.661 billion or $32.887 billion/month which is 5.69 times the average of $5.782 billion of the January-September period.

Chinese data on total imports from all countries (in U.S. dollars) for January-September show a decline of 3.1% from the first nine 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, September 2020 (in USD). China’s imports from the U.S. were up 0.2% during the same time period, but show imports from the U.S. substantially larger than U.S. domestic exports ($91.448 billion vs. $71.402 billion, though Chinese imports would be CIF value vs. FAS value for U.S. exports and may include U.S. exports to third countries or territories that end up in China). China’s imports from the U.S. continue to grow in October, with China showing imports from the U.S. up 3.1% in the first ten months.

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

Product categoryMarch-September 2017March-September 2020% change 2017-2020 March-September$ Value needed in next five months to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery $6,324.9
$7,371.2

+16.54%
2. electrical equipment and machinery
$2,496.0


$2,769.2

+10.94%
3. pharma- ceutical products $1,333.9 $1,697.7
+27.27%
4. aircraft (orders and deliveries) $9,503.7 $2,117.4 -77.72%
5. vehicles $6,180.3
$3,012.4
-51.26%
6. optical and medical instruments $1,862.4
$2,000.6
+7.42%
7. iron and steel
$717.8
$303.1
-57.77%
8. other manufactured goods $6,142.3 $7,999.7 +30.24%
Total for mfg goods
$34,561.3

$27,271.3

-21.09%
$63,998.2
Agriculture
9. oilseeds $2,774.3 $3,374.9 +21.65%
10. meat $329.5 $1,786.1+442.01%
11. cereals $870.4 $1,469.3 +68.81%
12. cotton $465.1 $990.1+112.86%
13. other agricultural commodities $2,628.2
$2,369.2
-9.85%
14. seafood $821.2 $448.8 -45.35%
Total for agriculture
$7,888.8

$10,438.3

+32.32%

$22,913.3
Energy
15. liquefied natural gas
$133.2

$445.2

+234.21%
16. crude oil $1,904.5 $4,183.1+119.65%
17. refined products $1,150.0
$931.0
-19.05%
18. coal $298.6 $37.6 -87.42%
Total for energy
$3,486.3

$5,596.9

+32.32%

$20,477.0
Total for 1-18 $45,936.4 $43,306.5 -5.73% $107,388.5

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries are down in the first nine months of 2020 while up only 0.2% from the United States. Thus, while China has been increasing imports from the United States of some goods categories, it is extremely unlikely it will achieve the year one commitments of U.S. goods regardless of whether the first year is the calendar year 2020 or the twelve months March 2020 – February 2021.

Conclusion

As reviewed in prior posts, the U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun and will not begin before 2021 at the earliest. With a change of U.S. Administrations on January 20, 2021 and an announced focus on domestic challenges in the U.S., it is unclear what bilateral challenges between the U.S. and China will be addressed in 2021.

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

With the process of selecting a new Director-General for the World Trade Organization in limbo following the third round of consultations and the announcement by the Trump Administration of an inability to join a consensus on the Nigerian candidate, Dr. Ngozi Okonjo-Iweala, it is unclear when and if the WTO will be able to engage in meaningful reform efforts in the near term 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.

U.S. becomes first country to exceed 100,000 new COVID-19 cases/day for a fourteen day period

As the COVID-19 pandemic continues to rage out of control in the United States and other parts of the world, the U.S. added another “first” to its sad handling of the pandemic. According to data from the European Centre for
Disease Prevention and Control, for the fourteen day period ending November 10, 2020, the United States had recorded 1,406,028 new cases in the last fourteen days — more than 100,000/day. No other country has ever recorded this level of new cases in a fourteen day period. So a brief summary of “firsts” for the United States follows — the U.S. has recorded the most deaths since the beginning of the pandemic of any country; the U.S. has recorded the most new cases since the beginning of the pandemic; the U.S. has recorded the most new cases in any given day; and now, the U.S. has recorded the most cases in a fourteen day period.

In addition, hospitalizations in the U.S. are back where they were at the initial peak in the spring (around 60,000 but still increasing) and deaths are mounting again, topping 1,000 for a number of days in a row.

In an environment in which the Trump Administration appears to be simply waiting for vaccines and therapeutics to become available but not pushing other measures, President-elect Biden announced a coronavirus task force yesterday and outlined his plan for addressing the pandemic in the U.S. after he takes office on January 20. He also asked U.S. citizens to follow the science by wearing masks, social distancing, limiting gatherings and more. The governor of Utah, faced with challenges in Utah’s hospitals issued a statewide mask mandate. With the problems facing most states continuing to escalate, it is likely that more state-level actions will occur in the coming days.

Pfizer’s announcement that preliminary results from its third round testing of its vaccine showed greater than 90% effectiveness is obviously encouraging. It is understood that Moderna’s vaccine in trial is based on a similar approach to Pfizer’s. And there are many other vaccines in stage three trials. So we are likely very close to approval of one or more vaccines with significant availability increasing as 2021 proceeds. However, the U.S., Europe and certain other parts of the world are in for a deadly fall and winter.

“The values of the WTO” — do Members and the final Director-General candidates endorse all of them?

On November 6, Deputy Director-General Alan Wolff presented comments to the UN Chief Executives Board. In a press release, entitled “DDG Wolff shares views with international agency heads on future of multilateral cooperation,” the Secretariat provides a short introduction and then includes DDG Wolff’s comments including an Annex. See WTO, WTO and Other Organizations, DDG Wolff shares views with international agency heads on future of multilateral cooperation, 6 November 2020, https://www.wto.org/english/news_e/news20_e/igo_06nov20_e.htm. The statement by DDG Wolff is worth reading in its entirety and presents information on the effects of the pandemic and the future of multilateralism including reforms needed for the WTO. However, for purposes of this post, I will focus on Annex 1 to his statement, entitled “The Values of the World Trade Organization. The Annex is copied below and generally reflects views DDG Wolff has presented in the past.

Annex I

The Values of the World Trade Organization

“In the current upsurge in criticism of the inadequacies of the collective responses to the pandemic, the WTO is receiving heightened scrutiny, and more urgent calls for WTO reform. It is necessary to understand the values that the multilateral trading system is designed to promote before it can be reformed.

“A serious inquiry into this subject would serve three purposes:

“to know the value of what we have in the current system,

“to determine if the values of the current system enjoy the support of all WTO members, and

“to address the degree to which the WTO is of sufficient continuing relevance as it is at present or whether it needs fundamental change.

“WTO members can make progress toward improving the organization to help it to create a better world through building on the values that are inherent in the system. These include –

Stability and peace — The original mission of the multilateral trading system was to enhance economic growth to achieve stability and support peace; today the WTO fosters integration of conflicted countries into the world economy.

Well-being — At its core, the organization is about the economic advancement of the people whom its members represent. Well-being is defined to include creating jobs and, as we are finding out, it also includes health;

Rule of law — The enforceability of obligations is a key distinguishing feature of the WTO as compared with most other international endeavours;

Openness – The multilateral trading system rests upon the principle that to the extent provided within the bounds of the WTO agreements, markets will be open to international trade and trade is to be as free from distortions as possible;

Equality — Equality among members provides the opportunity for each member to participate in the organization, and its rights and obligations, to the extent of its capabilities;

Sovereignty — Sovereignty is preserved — no decision taken within the WTO is to have an automatic effect on the laws or actions of any member;

Development — Fostering development to allow all members to benefit equally from the rights and undertake equally the obligations of the WTO.

International cooperation — Cooperation is a shared responsibility of membership to enable the organization to function.

Sustainability — There is increasingly an attitude of care among members for stewardship of the planet and its inhabitants.

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

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

Reciprocity — Broadly defined reciprocity is required for negotiations to succeed.

Balance — is provided:

“Through each member’s judgment of the costs and benefits of the rights it enjoys and the obligations it has undertaken;

“Through its view of how its costs and benefits compare with those of other members;

“Through a member’s view of its freedom of action in relation to the freedom of action for others, and

“Specifically, through its judgment of whether it has sufficient freedom to act to temper its commitments for trade liberalization (openness) with measures designed to deal with any harms thereby caused.

Trust — International trade would largely cease if trade-restrictive measures that were inconsistent with the rules were as a regular matter put into place and only removed prospectively through lengthy litigation.

Morality — in its absence, it would be hard to fully explain the provision addressing pharmaceutical availability in health emergencies. The 1994 Marrakech Declaration states that the WTO was being created to reflect the widespread desire to operate in a fairer and more open multilateral trading system.

Universality — Membership is open to all who are willing to negotiate entry.”

Many of these “values of the WTO” are not controversial. Two are critical to the direction of the WTO moving forward — the primacy of market forces and convergence. These values are viewed as critical by the United States and as central by the EU, Japan, Brazil and others. China’s economic system is viewed as inconsistent with these values. See, e.g., February 22, 2020, WTO Reform – Addressing The Disconnect Between Market and Non-Market Economies, https://currentthoughtsontrade.com/2020/02/22/wto-reform-addressing-the-disconnect-between-market-and-non-market-economies/; Statement from Brazil, Japan and the United States, Importance of Market-Oriented Conditions to the World Trading System, WT/GC/W/803/Rev. 1 (2 October 2020); CHINA’S TRADE-DISRUPTIVE ECONOMIC MODEL,
COMMUNICATION FROM THE UNITED STATES, 16 July 2018, WT/GC/W/745.

China rejects the claim that its economic system is properly the subject of WTO scrutiny or that it hasn’t engaged in “reform”. Coexistence, not convergence is China’s view of the appropriate value within the WTO. See, e.g., Statement of H.E. Ambassador Zhang Xiangchen of China at the General Council Meeting (Item 7), October 13, 2020, http://wto2.mofcom.gov.cn/article/chinaviewpoins/202010/20201003007644.shtml; CHINA AND THE WORLD TRADE ORGANIZATION, COMMUNICATION FROM CHINA, 19 July 2018, WT/GC/749; General Council, MINUTES OF THE MEETING, 26 July 2018, WT/GC/M/173 (5 October 2018)(pages 29-41). And, of course, while China is the largest economy with an economic system at odds with market-economy conditions, it is not the only one.

Importantly, the candidate found through consultations with the WTO membership to be most likely to attract consensus and hence be recommended by the Chair of the General Council and his facilitators to become the next Director-General of the WTO, Dr. Ngozi Oknojo-Iweala of Nigeria, has taken the view that the WTO’s role is not to exclude any economic system but is rather to determine if different economic systems create distortions in trade that need to be addressed through modifications to the rules. See, e.g., August 19, 2020 [updated August 27], The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 2, comments by the candidates, https://currentthoughtsontrade.com/2020/08/19/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-addre/; August 17, 2020, The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, background on issues, https://currentthoughtsontrade.com/2020/08/17/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-address-dist/.

Here is what I had written up based on Dr. Okonjo-Iweala’s participation in a WITA webinar on Jly 21 and her answer to specific questions. The webinar can be found at https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/.

“Q: On resetting of tariff commitments (comment from USTR Lighthizer as a problem within the WTO based on changing economic development of many countries), would this be in the best interest of the system? 

“A:  This is a critical question and issue.  Renegotiating any agreement would require consensus building that would be very difficult to achieve.  That would certainly be true on bound tariffs. The balance of rights and obligations raised by the United States flows from the concerns about state-led economies and state-owned enterprises and whether such economies belong in the system.  Dr. Okonjo-Iweala stated that the WTO is not there to comment on the economy of any Member.  In her view, the key question is what disciplines does the WTO have around any issue that arises.  Are the disciplines sufficient to address the imbalances in rights and obligations that may arise?  We need to start there.  What are the fundamental issues —  state-owned enterprises (SOEs), public body.  Can we come to agreement on the meaning of the term public body?  Can we tighten subsidy disciplines that already exist or can we negotiate new subsidy or other disciplines to address the concerns that arise from these types of economies? That is the approach all Members should be pursuing. 

“Q: On industrial subsidies, China has signaled that they will oppose tightening disciplines.  The U.S., EU and Japan have been working on a proposal and discussing with some Members.  How can the Director-General help the membership navigate these issues? 

“A:  If Dr. Okonjo-Iweala becomes the next Director-General, she would encourage that proposals from the U.S., EU and Japan be tabled so all Members can see what they are and how acceptable they are to other Members (including China).  Let’s start to work with an actual proposal.  Sometimes countries are not as far away as one might think.  Members need to work on a specific proposal and see what happens.”

Conclusion

The WTO is a different organization in 2020 than it was when it started in 1995 or when its basic structure and agreements were being negotiated during 1986-1994. Major economies have joined and some have economic systems that are significantly different than the traditional economies who led the GATT. The question of how to deal with different economic systems within the global trading system has not been addressed directly although some would argue that the U.S., EU and others have worked hard during accession negotiations to get commitments from acceding countries to engage in reform if the economy is based on state-control or other deviations from a market economy. For an economy like China’s, there were early reforms, some of which have been reversed over time and others which were never in fact implemented.

While evaluation of distortions caused by different economic systems is certainly an approach that can be pursued, it starts from a premise of coexistence of economic systems within the WTO and assumes rules can be formed that will adequately address all distortions created by non-market factors in a given economy. But the “convergence” value and the “primacy of market forces” value are fundametal to a system where the results of competition will be viewed as acceptable by all Members. In a consensus system, the refusal of a major player like China to agree to these values limits the likely options to other Members but clearly endangers the ability of the WTO to fulfil its core functions in ways that are acceptable to all.

That the likely next Director-General has taken a position that is at odds with the two WTO values identified in Annex 1 of DDG Wolff’s presentation from November 6 is understandable in a consensus system where there is obvious disagreement among WTO Members on the particular values. However, if moving forward with reform, the WTO membership and its Director-General fail to get Members to agree on the core values, such failure will ensure the WTO will not be the sole arbitrator of trade matters going forward.

New COVID-19 cases over a fourteen day period continue to soar from five million on October 22 to six million on October 30 to seven million on November 7

The COVID-19 pandemic continues to spiral out of control with the vast majority of the new cases in Europe and the United States as the following graph taken from the European Centre for Disease Prevention and Control’s COVID-19 situation update world wide, as of 7 November 2020 shows.

Distribution of COVID-19 cases worldwide, as of 7 November 2020

Distribution of COVID-19 cases worldwide, as of 7 November 2020

More specifically, in the last sixteen days, the number of new COVID-19 cases globally over the last fourteen days has shot from five million to over seven million — a near forty percent increase in a little over two weeks. The total new cases identified since late December 2019 globally are just under 50 million (49.37 million) as of November 7.

On October 22, the European Centre for Disease Prevention and Control (ECDC) recorded the first day where the number of new COVID-19 cases over a fourteen day period globally surpassed five million (5,042,415). In just eight days, on October 30, the ECDC reports the fourteen day total shooting past six million new cases (6,093,987), an increase of 1,051,572 or 20.85% in eight days. Today’s report (November 7) shows the total new cases in the last fourteen days crossing the seven million mark — 7,044,267 — or 15.59% over October 30 and 39.70% over October 22. As reviewed in two prior posts (October 22 and October 30), the U.S. and Europe were major factors in hitting five million and six daily cases and today’s data show them to continue to be the major causes of the continued rapid escalation in global cases. See October 22, 2020, COVID-19 new cases over last 14 days pass 5,000,000 for first time on October 22, https://currentthoughtsontrade.com/2020/10/22/covid-19-new-cases-over-last-14-days-pass-5000000-for-first-time-on-october-22/; October 30, 2020,  In last eight days, the number of global new COVID-19 cases over past fourteen days has grown from five to six million, https://currentthoughtsontrade.com/2020/10/30/in-last-eight-days-the-number-of-global-new-covid-19-cases-over-past-fourteen-days-has-grown-from-five-to-six-million/.

The table below shows the fourteen day totals for selected countries as of October 22, October 30 and November 7 and the change in new cases from October 22 – November 7. These twenty countries show an increase in sixteen days of 2,009,689 new cases over the fourteen day periods examined or more than the global total increase of 2,001,852 new cases over the same sixteen days The 20 countries accounted for 2,558,802 new cases for the fourteen days ending October 22 or 50.75% of the global total at that time. For the fourteen days ending October 30, the 20 countries accounted for 3,584,674 new cases or 58.82% of the global total. Finally, for the fourteen days ending November 7, the 20 countries accounted for 4,568,491 new cases or 64.85% of the global total.

Country10-22-202010-30-202011-7-2020Change
United States786,488966,2691,245,876459,388
France303,912473,085620,778316,866
United Kingdom244,954291,718315,48670,532
Spain169,394238,709282,700113,306
Italy115,708234,993377,812262,104
Russia198,716227,530252,79454,078
Belgium100,119171,522152,66352,544
Poland95,260169,302265,447170,187
Czechia113,555161,058165,17451,619
Germany81,905151,137224,483142,578
Netherlands103,024126,543125,16322,139
Ukraine76,48989,178109,79233,303
Switzerland35,26173,418107,83772,576
Romania48,53260,55086,03037,498
Hungary18,16628,38848,84530,679
Austria19,38735,43661,82342,436
Bulgaria10,59220,64335,66525,073
Slovakia18,91327,50333,17714,264
Slovenia8,85920,02123,34514,486
Sweden9,56817,67133,60124,033
Total2,558,8023,584,6744,568,4912,009,689

While the United States has the largest absolute increase in the last eight days for a single country, the vast majority of the increase flows from countries within the European Union. With the exception of the United States, the rest of the countries in the chart are from Europe, most from the EU.

It is little wonder, then, that the EU, the UK and Switzerland, with dramatic growth in the number of new cases, are imposing renewed restrictions at least in many countries and facing backlash from citizens suffering COVID-19 exhaustion. See, e.g., Politico, November 1, 2020, Europe is living a coronavirus flashback plus a backlash, https://www.politico.eu/article/europe-is-living-a-coronavirus-flashback-plus-a-backlash/. While health care is handled by the individual countries within the the EU, the EU has been advocating better coordination and maintaining trade flows within the Community as countries come to grips with the current wave. See, e.g., Politico, October 30, 2020, EU leaders link arms for long fight against virus, https://www.politico.eu/article/eu-leaders-link-arms-for-long-fight-against-virus/.

In the United States, the number of new cases is spiking again, with new cases now more than 100,000/day in recent days and the fourteen day total new cases of 1,245,876 is more than 20% higher than was recorded on November 1 — the first day where a fourteen day total of new cases in teh U.S. topped one million. See November 1, 2020, United States becomes second country to have more than 1,000,000 new COVID-19 cases in fourteen days, https://currentthoughtsontrade.com/2020/11/01/united-states-becomes-second-country-to-have-more-than-1000000-new-covid-19-cases-in-fourteen-days/. With most attention in the U.S. focused on the election results, the COVID-19 situation is receiving relatively limited press attention and no change in federal government response.

Other parts of the world are not experiencing a second wave to the same extent, although much of the Americas remain at very high levels of new cases. Some major countries who have been seriously hit in recent months are seeing substantial reductions in new cases. India is the leading example — on October 22, the last 14 days showed 871,291 new cases; on October 30, for the last 14 days new cases were down to 718,383, and were down to 647,398 for the 14 days ending on November 7.

Conclusion

The top priority for many countries around the world is getting the COVID-19 pandemic under control. The costs in terms of human life and serious health problems are enormous. So too the costs to the global economy from taking the steps necessary to address the pandemic are enormous. For example, the European Union recently reduced its projected economic growth in 2021 because of the second wave of COVID-19 cases. See Politico, November 5, 2020, EU cuts economic forecast due to coronavirus wave, https://www.politico.eu/article/eu-cuts-economic-forecast-due-to-coronavirus-wave/ (2021 forecast cut from 6.1% growth to 4.2% growth).

How to address the pandemic and how to work internationally to secure a return to normalcy and a return to sustainable economic growth are the challenges for all governments and international organizations, including the WTO, WHO, IMF, World Bank and many others. Recent IMF regional economic outlooks show varied projections for economic growth for different parts of the world and major challenges for areas like Sub-Saharan Africa. See, e.g., IMF Press Release, October 22, 2020, Regional Economic Outlook, Sub-Saharan Africa, a difficult road to recovery, https://www.imf.org/en/News/Articles/2020/10/21/pr20319-sub-saharan-africa-a-difficult-road-to-recovery.

The fact that the number of new cases is continuing to surge globally ten months after the start of global surveillance is obviously troubling and delays the return to normalcy. While some individual countries have gained control of the pandemic and others are making significant strides to reduce the number of new cases, “no one is safe until all are safe”. We have a long road to travel, and the western developed world is currently the major hot spot, struggling with the current extraordinary surge. We still are not in sight of a global peak and the rest of 2020 is likely to continue to stress global capabilities.

Postponement of WTO General-Council meeting to consider recommendation of Dr. Ngozi Okonjo-Iweala as next Director-General

On November 6, the Chair of the General Council, Amb. David Walker of New Zealand announced that the special General Council meeting scheduled for Monday November 9 was being postponed with a future date to be determined. The communication to the WTO membership is embedded below.

248

Switzerland has reimposed various restrictions in an effort to deal with a second wave of new cases which topped 10,000 in a single day in early November. See CoVID-19 – the situation in Switzerland, https://www.swissinfo.ch/eng/covid-19_coronavirus–the-situation-in-switzerland/45592192. Such restrictions can affect the ability to have in person meetings at the WTO and the willingness of Members to make formal decisions absent in person meetings.

It is also the case that there are external events which are not resolved which could be relevant to the selection process of the next Director-General. One such event is the Presidential election in the United States, where a final resolution is not likely for some time (and certainly not before next Monday).

Similarly, press articles indicate that the Republic of Korea has not resolved internally where it will be on Minister Yoo’s candidacy (withdraw or not withdraw) by the time of the special General Council meeting. See Yonhap News Agency, November 5, 2020, No decision made on S. Korean minister’s WTO chief bid: foreign ministry, https://en.yna.co.kr/view/AEN20201105010900325.

Thus, a postponement provides Amb. Walker and his two facilitators more time to see whether a consensus can be reached on the candidate who received the largest number of preferences in the third round of consultations (Dr. Ngozi Okonjo-Iweala) and who was identified by the troika as the candidate most likely to attract consensus.

No specific date has been selected for when the postponed special General Council meeting will occur. It is possible that there will be slippage until 2021.

Revision to draft fisheries subsidies text presented by Chair of the Negotiating Group on Rules at November 2 informal open-ended meeting

In late June, the Chair of the Negotiating Group on Rules presented to the negotiating group a draft consolidated text in a room document, that was not made publicly available. RD/TN/RL/126. In two posts in June, I reviewed developments and the elements of the draft consolidated text based on its publication by Washington Trade Daily on June 26. See June 29, 2020, Update on fisheries subsidies draft consolidated text from June 25, https://currentthoughtsontrade.com/2020/06/29/update-on-fisheries-subsidies-draft-consolidated-text-from-june-25/; June 27, 2020, Chair of Rules Negotiating Group releases draft consolidated fisheries subsidies text at informal meeting on June 25, https://currentthoughtsontrade.com/2020/06/27/chair-of-rules-negotiating-group-releases-draft-consolidated-fisheries-subsidies-text-at-informal-meeting-on-june-25/

The latest round of informal open-ended meetings of the Negotiating Group on Rules (Fisheries Subsidies) occurred this week on November 2-4. On the first day, November 2, the Chair of the Negotiating Group speaking to heads of delegation, presented a revised draft consolidated text. RD/TN/RL/126/Rev. 1. This document has similarly not been released to the public, but was posted in the November 3, 2020 issue of Washington Trade Daily. Reference in this post to the contents of either version of the draft text or the presentation of text itself is based on my review of the documents as printed in the Washington Trade Daily issues noted.

The WTO Secretariat released a press release on November 2 entitled “Fisheries subsidies negotiations chair introduces revised draft consolidated text”. Within the body of the press release was a link to “Excerpts from the peaking notes of the Chair of the Negotiating Group on Rules, Ambassador Santiago Wills”. Both documents are embedded below.

WTO-_-2020-News-items-Fisheries-subsidies-negotiations-chair-introduces-revised-draft-consolidated-text

WTO-_-Excerpts-from-the-speaking-notes-of-the-Chair-of-the-Negotiating-Group-on-Rules-Ambassador-Santiago-Wills

The June draft consolidated text contained ten articles. The first revision released on November 2nd contained eleven (adding Article 11, Final Provisions” and modifying the title of Article 8 to delete “and/or surveillance” leaving “Notification and transparency”).

The articles in the revised draft consolidated text are:

  1. Scope;
  2. Definitions;
  3. Prohibition on subsidies to illegal, unreported and unregulated fishing (“IUU fishing”);
  4. Prohibition on subsidies concerning overfished stocks;
  5. Prohibition on subsidies concerning overcapacity and overfishing;
  6. Specific provisions for LDC members;
  7. Technical assistance and capacity building;
  8. Notification and transparency;
  9. Institutional arrangements;
  10. Dispute settlement;
  11. Final provisions.

The negotiations have always been limited to marine wild capture fishing and don’t cover aquaculture or inland waters. Article 1 is consistent with the intended reach of any agreement. There has been no change to the text of Article 1. Footnote 1 has been modified from “For greater certainty, this excludes aquaculture and inland fisheries” to read “For greater certainty, aquaculture and inland fisheries are excluded from the scope of this [Instrument].”

Article 2, definitions, has been expanded from just three — “fishing”, “fishing related activities” and “vessel” to five in the revised draft by adding a definition for “fish” [“means all species of living marine resources, whether processed or not”] and for “operator” [“means the owner of the vessel, or any person on board, who is in charge of or directs or controls the vessel”]. “Operator” had previously been defined as part of footnote 2 to Art. 3.1

Prohibiting subsidies on IUU fishing is a critical part of the UN sustainable development goal 14.6. Article 3 lays out the prohibition and how the actions of a fishing vessel are determined to be “illegal, unreported or unregulated”. Various Members (coastal, flag State, port State, subsidizing) or regional fisheries management organizations or arrangements (Art. 3.2) can make such findings where the result is “based on positive evidence and follows due process” (Art. 3.3(b)). Most provisions in Article 3 remain unchanged. However, Art. 3.3 is broken into parts in the revised draft. Revised Art. 3.4 deletes the second sentence from the June draft (“The subsidizing Member may refrain from implementing the prohibition under paragraph 3.1 in case of a minor infraction.”), Articles 3.5 and 3.6 from the June draft are Articles 3.6 ad 3.5 in the revised draft. Article 3.3 from the June draft is reproduced below followed by the revised draft:

Art. 3.3 from RD/TN/RL/126 (June 25, 2020)

“3.3 A determination[6] under paragraph 3.2 refers to the final finding by a Member that a vessel [or operator] engaged in IUU fishing, or the final listing of a vessel [or operator] by an RFMO/A as a vessel [or operator] engaged in IUU fishing. [Determinations under subparagraphs 3.2[(a), 3.2(c), and 3.2(e)] shall be based on positive evidence; follow fair, transparent, and non-discriminatory procedures,] including prompt notification to the flag State [or subsidizing Member], if known, through appropriate channels, of the initiation of investigation, [and an opportunity to the flag State or subsidizing Member to provide information to be taken into account in the determination]; [and be in accordance with relevant international law.]”

Art. 3.3 from RD/TN/RL/126/Rev. 1 (November 2, 2020)

“3.3 (a) A determination[6] under paragraph 3.2 refers to the final finding by a Member and/or the final listing by an RFMO/A that a vessel [or operator] has engaged in IUU fishing.
“(b) [The prohibition under paragraph 3.1 shall apply where the determination under subparagraphs 3.2[(a), 3.2(c), and 3.2(e)] is based on positive evidence and follows due process, [in accordance with relevant international law]].
“(c) [If the flag State [or subsidizing Member] is known, a Member shall promptly notify the flag State [or subsidizing Member] of the initiation of an IUU investigation [, and provide an opportunity to the flag State [or subsidizing Member] to provide information to be taken into account in the
determination.]]”

Footnotes to Article 3 are basically unchanged in the revised draft text.

Articles 4 and 5 address the other core objective of UN Sustainable Development Goal 14.6, prohibiting subsidies on overfished stocks, overcapacity and overfishing. Both articles contain exceptions or special and differential treatment for developing and least developed countries (LDCs). Depending on whether advanced developing countries waive such provisions, there will be problems for some Members (including the U.S.) in having such exceptions or S&D provisions included in the text. Specifically, LDCs are exempted from the prohibitions of Art. 5.1 “for fishing or fishing related activities” (revised Art. 5.7(a)) and developing countries “for fishing or fishing related activities at sea within their territorial sea” (revised Art. 5.7(b)). The draft consolidated text attempts to cover some developing and LDC countries despite the above two exceptions where certain criteria are met (revised Art. 5.7(c)). It is assumed that Korea, Singapore and Brazil consistent with their prior statements that they would forego special and differential treatment in future agreements would not be eligible for the exceptions or S&D contained in the draft agreement if the final agreement contains such provisions.

There are no changes for Article 4 between the June draft and the revised draft released on November 2. For Article 5, Article 5.1.1, 5.1.2 and 5.1.3 of the June draft text are now in 5.1.1 and 5.2. Other than renumbering (e.g., old Art. 5.2 is revised Art. 5.3, etc.), the rest of Article 5 is substantively unchanged. The June Art. 5.1.1.-5.1.3 and the November revised 5.1.1 and 5.2 are copied below.

Art. 5.1.1, 5.1.2, and 5.1.3 from RD/TN/RL/126 (June 25, 2020)

“5.1.1 A subsidy contributes to overcapacity or overfishing if it reduces capital costs or operating costs of fishing or fishing related activities at sea regarding a stock that is being fished at a rate of fishing or with a measure of fishing capacity that is greater than would allow the stock to be maintained at a sustainable level.[11]

“5.1.2 For the purposes of this Article:
“(a) capital costs include costs of construction, acquisition, modernization, renovation or upgrading of vessels, purchase of machines and equipment for fishing vessels (including fishing gear and engine, fish-processing machinery, fish-finding technology, refrigerators, or machine for sorting or
cleaning fish); and
“(b) operating costs include costs of fuel, ice, bait, personnel, social charges, insurance, and gear; subsidies that reduce operating costs include, inter alia, income support of vessels or operators or the workers they employ, payments based on the price of fish caught, subsidies for at-sea support, and subsidies to cover operating losses of vessels or fishing or fishing related activities.

“5.1.3 Notwithstanding paragraph 5.1, a Member may grant or maintain the subsidies set out in paragraph 5.1 if the subsidizing Member can demonstrate that it has other policies in place that [effectively ensure] the stock or stocks in the relevant fishery or fisheries are maintained at a sustainable level.”

Art. 5.1.1 and 5.2 from RD/TN/RL/126/Rev. 1 (November 2, 2020)

“5.1.1 For the purpose of paragraph 5.1, subsidies that contribute to overcapacity or overfishing [include]:
“(a) subsidies to construction, acquisition, modernisation, renovation or upgrading of vessels;
“(b) subsidies to the purchase of machines and equipment for vessels (including fishing gear and engine, fish-processing machinery, fish-finding technology, refrigerators, or machinery for sorting or cleaning fish);
“(c) subsidies to the purchase/costs of fuel, ice, or bait;
“(d) subsidies to costs of personnel, social charges, or insurance;
“(e) income support of vessels or operators or the workers they employ;
“(f) price support of fish caught;
“(g) subsidies to at-sea support; and
“(h) subsidies covering operating losses of vessels or fishing or fishing related activities.

“5.2 Notwithstanding paragraph 5.1, a Member may grant or maintain subsidies referred to in paragraph 5.1 if it demonstrates that measures are implemented to maintain the stock or stocks in the relevant fishery or fisheries at a biologically sustainable level.[11]”

Article 6 has two subparts, one giving LDCs a transition period once a country is no longer an LDC and the other having Members “exercise due restraint in raising matters involving an LDC Member”. There are no changes in the revised draft from the June draft.

Article 7 calls on developed country Members and such developing country Members who indicate being in a position to do so to “provide targeted technical assistance and capacity building assistance” to developing countries and LDCs. There are no changes to the revised draft from the June original draft text.

As noted in my June posts, Articles 8-10 had not been fleshed out in the June draft consolidated text. The November 2 revised draft consolidated text has elements of each of these Articles as well as some material on the new Article 11, Final Provisions. The text is copied below.

“ARTICLE 8: NOTIFICATION AND TRANSPARENCY

“8.1 In order to strengthen and enhance notifications of fisheries subsidies, and to enable more effective surveillance of the implementation of fisheries subsidies commitments, each Member shall [, to the extent possible,] provide the following information as part of its regular notification of fisheries subsidies under Article 25 of the SCM Agreement[15]:
“(a) [PLACEHOLDER – LIST OF SPECIFIC INFORMATION TO BE NOTIFIED]

“8.2 Each Member shall notify [the relevant SCM body/the Committee established under paragraph 9.1] in writing on an annual basis of:
“(a) any list of vessels and operators that it has determined as having been engaged in IUU fishing; and
“(b) where applicable, a list of its fisheries access agreements in force with another government or governmental authority, and such notification shall consist of the titles of the agreements and a list of their parties.

“8.3 A Member may request additional information from the notifying Member regarding the notifications and information provided under paragraphs 1 and 2. The notifying Member shall respond to that request as quickly as possible in writing and in a comprehensive manner. If a Member considers that a notification or information under paragraphs 1 and 2 has not been provided, the Member may bring the matter to the attention of such other Member or to the [Committee].

“ARTICLE 9: [INSTITUTIONAL ARRANGEMENTS]

“[9.1 There is hereby established a [COMMITTEE NAME] composed of representatives from each of the Members. The Committee shall elect its own Chair and shall meet not less than twice a year and otherwise as envisaged by relevant provisions of this [Instrument] at the request of any Member. The Committee shall carry out responsibilities as assigned to it under this [Instrument] or by the Members and it shall afford Members the opportunity of consulting on any matter relating to the operation of this [Instrument] or the furtherance of its objectives. The WTO Secretariat shall act as the secretariat to the Committee.]*

“9.2 Each Member shall, within one year of the date of entry into force of this [Instrument], inform the [Committee] of measures in existence or taken to ensure the implementation and administration of this [Instrument], including the steps taken to implement prohibitions set out in Articles [3, 4 and 5]. Each Member shall also inform the [Committee] of any changes to such measures thereafter. The [Committee] shall review annually the implementation and operation of this [Instrument], taking into account the objectives thereof.

“9.3 Each Member shall, within one year of the date of entry into force of this [Instrument], provide to the [Committee] a description of its fisheries regime with references to its laws, regulations and administrative procedures relevant to this [Instrument], and promptly inform the [Committee] of any modifications thereafter. A Member may meet this obligation by providing to the [Committee] an up-to-date [URL][electronic link] to the Member’s or other appropriate official web page that sets out this information.

“[9.4 The Committee shall examine [frequency] all information provided pursuant to Articles 3 and 8 and this Article.]

“9.5 The [Committee] shall maintain close contact with the relevant international organizations in the field of fisheries management, especially with the Food and Agriculture Organization of the United Nations (FAO) and relevant RFMO/As.

“9.6 Not later than [X] after the date of entry into force of this [Instrument] and periodically thereafter, the [Committee] shall review the operation of this [Instrument] with a view to making all necessary modifications to improve the operation of this [Instrument], taking into account the objectives thereof.

“ARTICLE 10: DISPUTE SETTLEMENT

“[The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding, and Article 4 of the Agreement on Subsidies and Countervailing Measures shall apply to consultations, the settlement of disputes, and remedies under this [Instrument], except as otherwise specifically provided herein.]

“ARTICLE 11: FINAL PROVISIONS

“11.1 Except as provided in Articles [3 and 4], nothing in this [Instrument] shall prevent a Member from granting a subsidy for [natural] disaster relief, provided that the subsidy is:
“(a) limited to the relief of a particular [natural] disaster;
“(b) limited to the affected geographic area;
“(c) time-limited; and
“(d) in the case of reconstruction subsidies, limited to restoring the affected area, the affected fishery, and/or the affected fleet up to [a sustainable level of fishing and/or fishing capacity as established through a scientific-based assessment of the status of the fishery and in no case beyond] its pre-disaster level.

“11.2 (a) This [Instrument], including any findings, recommendations, and awards with respect to this [Instrument], shall have no legal implications regarding territoriality or delimitation of maritime jurisdiction.
“(b) A panel established pursuant to [Article 10 of this Instrument] shall not entertain any claim that would require it to address any issues of territoriality or delimitation of maritime jurisdiction that is contested by a party or a third party.”

Conclusion

It is obviously useful to have progress being made on a draft text, even if it is simply a draft from the Chair of the Negotiating Group. The Chair’s comments at the start of the meeting which are presented above show that the WTO Members remain far from an agreed deal. There remain some important “placeholders” in the draft text as well. In the end, it will be up to Members to decide if they can get past their differences and achieve an agreement that is meaningful in fact and will help the world move towards sustainable development in the handling of the global fish supplies.