Action of G7 on Food Security and Fact Sheet from White House

In yesterday’s post, I reviewed the threats to populations around the world from food insecurity and the actions being taken by individual countries and groups of countries, including the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, the United States and the European Union). See June 27, 2022:  The global food insecurity crisis — efforts to reduce the crisis and avoid widespread social unrest, https://currentthoughtsontrade.com/2022/06/27/the-global-food-insecurity-crisis-efforts-to-reduce-the-crisis-and-avoid-widespread-social-unrest/.

Ahead of the release of the G7 Communique at the end of their meeting in Germany on June 28, the White House released a fact sheet entitled “President Biden and G7 Leaders Announce Further Efforts to Counter Putin’s Attack on Food Security”. https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/28/fact-sheet-president-biden-and-g7-leaders-announce-further-efforts-to-counter-putins-attack-on-food-security/. The main takeaway is a commitment by the G7 of an additional $4.5 billion to address food security ($2.76 billion from the United States). The Fact Sheet provides a useful summary of the actions by the United States on the question of food security and is copied below in its entirety. Assistance by countries is both to help short term needs and for longer-term improvements in food security.

“FACT SHEET: President Biden and G7 Leaders Announce Further Efforts to Counter Putin’s Attack on Food Security

“JUNE 28, 2022•STATEMENTS AND RELEASES

Biden-Harris Administration is Driving a Multi-Pronged Response to Global Food Security Crisis

“President Biden and G7 leaders will announce that they will contribute over $4.5 billion to address global food security, over half of which will come from the United States. President Biden will announce $2.76 billion in additional U.S. Government funding commitments to help protect the world’s most vulnerable populations and mitigate the impacts of Russia’s unprovoked and unjustified war in Ukraine on growing food insecurity and malnutrition. These new investments will support efforts in over 47 countries and regional organizations, to support regional plans to address increasing needs.

“Vladimir Putin’s actions have strangled food and agriculture production and have used food as a weapon of war, including through the destruction of agricultural storage, processing, and testing facilities; theft of grain and farm equipment; and the effective blockade of Black Sea ports Russia’s choice to attack food supplies and production have an impact on markets, storage, production, and ultimately negatively impact consumers around the globe. Putin’s aggression in Ukraine, combined with the impacts from COVID-19, increasing conflict, high prices for fuel and fertilizer, have combined to devastate already fragile global food security and nutrition. Millions of people living far from the conflict face an increased risk of poverty, hunger, and malnutrition as a result of Putin’s war. Estimates suggest that up to 40 million more people could be pushed into poverty in 2022 as a result of Putin’s war in Ukraine and its secondary effects.

“While the entire globe will continue to be affected by Russia’s actions, the most immediate needs will present in the Horn of Africa, the most immediate humanitarian assistance related to food security crisis is in the Horn of Africa, as it experiences a record-setting fourth straight season of drought, that may lead to famine. As many as 20 million people may face the threat of starvation by the end of the year. The prolonged drought is also having dire nutrition impacts, putting children at severe risk of malnutrition and in need of treatment.

“To address and mitigate further impacts on global food security, the U.S. Government will continuing life-saving food assistance to address these growing needs and leverage additional financial commitments. Of the newly announced commitment of an additional $2.76 billion in humanitarian and economic assistance appropriated in May, $2 billion will be to help save lives through emergency interventions and $760 million will be for sustainable near-term food assistance to help mitigate further increases in poverty, hunger, and malnutrition in vulnerable countries impacted by high prices of food, fertilizer, and fuel.  

The U.S. government’s multi-pronged response to combat global food insecurity includes:

Global Humanitarian Assistance

“Since the start of Russia’s full-scale invasion of Ukraine in February, the United States has provided $2.8 billion to scale up emergency food operations in countries impacted by the food security crisis. In addition to this funding, the U.S. Agency for International Development (USAID) is committing another $2 billion in international disaster assistance (IDA) funds for emergency humanitarian needs over the next three months. These funds include direct food assistance, as well as related health, nutrition, protection, and water, sanitation and hygiene services, in countries with high levels of acute food insecurity, reliance on Russian or Ukrainian imports, and vulnerability to price shocks, and will support countries hosting refugee populations.

Global Development Assistance

“As we continue to address acute humanitarian needs, the U.S. government will continue to strengthen food systems and mitigate medium-term impacts on food security. The U.S. Government is investing $760 million to combat the effects of high food, fuel, and fertilizer prices – now being driven up by Putin’s war – in those countries that need it most.

“o The United States, through USAID, will program $640 million to support bilateral targeted agriculture and food security programs to strengthen agricultural capacity and resilience in more than 40 of the most vulnerable countries ­– Ukraine, as well as across 24 countries and regions in Africa, 10 countries in Asia, 6 countries and regional presence in Latin American and the Caribbean, and 6 countries in the Middle East. These investments will tackle urgent global fertilizer shortages, purchase resilient seeds, mitigate price shortages for fertilizer, scale-up social safety nets for families suffering from hunger and malnutrition, and avert food and humanitarian crises in the most vulnerable countries.  These solutions will be tailored to mitigate specific needs within specific contexts, driven by local solutions that can be scaled for maximum impact.

“o The United States will also undertake multilateral efforts to protect livelihoods and nutrition and help vulnerable countries build their resilience to shocks, including food price volatility, supply chain issues, climate impacts, and other stresses beyond the immediate term. Specifically, in working with Congress, the United States will provide $120 million to the following efforts:   

“o Support for the African Development Bank’s (AfDB) African Emergency Food Production Facility (AEFPF) to increase the production of climate-adapted wheat, corn, rice, and soybeans over the next four growing seasons in Africa.

“o Support for the International Fund for Agricultural Development’s (IFAD) Crisis Response Initiative (CRI) to help protect livelihoods and build resilience in rural communities.

“o Support for the Africa Adaptation Initiative (AAI) to develop a pipeline of bankable projects in Africa, to leverage private equity.

“o Support for the Africa Risk Capacity (ARC) Africa Disaster Risk Financing Programme (ADRiFi) to help African governments to respond to food system shocks by increasing access to risk insurance products.

“o A fertilizer efficiency and innovation program to enhance the efficiency of fertilizer use in countries where fertilizer tends to be overapplied.

“o Support for the UN Food and Agriculture Organization (FAO) will fund soil mapping spanning multiple countries to provide information allowing for wiser water usage, greater fertilizer conservation, and improved climate resilience impacts.

Expansion of Feed the Future

‘Feed the Future (FTF), the U.S. government’s flagship global food security initiative led by USAID, is expanding its global footprint in eight new target countries from 12 to 20 target countries, in Africa that were also most vulnerable to the impacts of Russia’s war in Ukraine. The new target countries are the Democratic Republic of the Congo, Liberia, Madagascar, Malawi, Mozambique, Rwanda, Tanzania, and Zambia. This expansion of Feed the Future countries delivers on President Biden’s $5 billion commitment in September 2021 to end global hunger, malnutrition and build sustainable, resilient food systems abroad.

“The U.S. government currently invests $2 billion per year through Feed the Future, which builds on existing technical expertise, programs and partners in more than 35 countries. In these countries, the U.S. government investments pave the way for further investments from the private sector, donors and local governments.

Global Agriculture and Food Security Program (GAFSP)

“The United States through the U.S. Treasury, continues to exercise leadership in the Global Agriculture and Food Security Program (GAFSP) – a $2 billion multilateral financing mechanism that has helped the world’s poorest countries increase investments in agriculture and food security. The United States is contributing $155 million to support projects that raise agricultural productivity, link farmers to markets, improve livelihoods, reduce vulnerability, and enhance resilience to shocks. The United States is also newly serving as Co-Chair of the GAFSP Steering Committee. In this leadership position, the United States will help deepen and accelerate GAFSP’s response to the food security crisis.

USG Leadership in Driving Global Action

“From the beginning, the United States has been at the forefront of global efforts to confront this crisis.

“o The Department of the Treasury is also providing $500 million to the European Bank for Reconstruction and Development (EBRD), which will help support the EBRD’s Resilience and Livelihood Framework.  This package of investments, expected to reach €2 billion over the next two years, will support businesses and public services across all sectors affected by the war in Ukraine and neighboring countries.  The funding will support Ukraine’s energy and food security needs; investing in improvements in municipal infrastructure to provide energy, water and wastewater services, and other needs, and supporting internally displaced persons.  The United States contribution is helping to mobilize an additional $500 million in support from other donors.   

“o In April, the Biden-Harris Administration announced that the U.S. Department of Agriculture (USDA) and USAID took the extraordinary step to draw down the full balance of the Bill Emerson Humanitarian Trust (BEHT) as part of an effort to provide $670 million in food assistance to countries in need as a result of Putin’s unprovoked further invasion of Ukraine. USDA will provide $388 million in additional funding through the Commodity Credit Corporation (CCC) to cover ocean freight transportation, inland transport, internal transport, shipping and handling, and other associated costs. USAID will use the BEHT’s $282 million to procure U.S. food commodities to bolster existing emergency food operations in six countries facing severe food insecurity: Ethiopia, Kenya, Somalia, Sudan, South Sudan, and Yemen.

“o In May, the United States chaired a Global Food Security Call to Action Ministerial and launched the Roadmap for Global Food Security – endorsed by 94 countries – which affirms a commitment to act with urgency, at scale, and in concert to respond to the urgent food security and nutrition needs of millions of people in vulnerable situations around the world. Ninety-four countries have endorsed the Roadmap and committed to provide immediate humanitarian assistance, build resilience of those in vulnerable situations, support social protection and safety nets, and strengthen sustainable, resilient, and inclusive food systems in line with the objectives of the United Nations 2030 Agenda for Sustainable Development and its Sustainable Development Goals, and the objectives of the 2021 UN Food Systems Summit. The United States also convened the UN Security Council during its May presidency to underscore the intersection of food insecurity and conflict, particularly in the context of Russia’s war in Ukraine, and to urge the international community to action.

“o In June, the United States, in coordination with partners, raised awareness of growing food insecurity at the World Trade Organization (WTO) 12th Ministerial Conference. Key outcomes included: a Ministerial Declaration on the Emergency Response to Food Insecurity, in which WTO Members committed to take concrete steps to facilitate trade and improve the functioning and long-term resilience of global markets for food and agriculture; and a Ministerial Decision in which Members agreed to exempt World Food Programme food purchases from export restrictions and prohibitions.”

The global food insecurity crisis — efforts to reduce the crisis and avoid widespread social unrest

In prior posts, I have reviewed the challenges globally on food security flowing from Russia’s invasion of Ukraine. These challenges compound the difficulties flowing from climate change problems of extended draughts in various parts of the world and the challenges for countries trying to rebound from the COVID-19 pandemic. See, e.g., May 24, 2022:  How severe is the food security challenge?, https://currentthoughtsontrade.com/2022/05/24/how-severe-is-the-food-security-challenge/; May 16, 2022:  Wheat prices spike following Indian export ban, https://currentthoughtsontrade.com/2022/05/16/wheat-prices-spike-following-indian-export-ban/; May 15, 2022:  India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine, https://currentthoughtsontrade.com/2022/05/15/india-bans-exports-of-wheat-complicating-efforts-to-address-global-food-security-problems-posed-by-russias-war-in-ukraine/; April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/; March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/.

In prior periods of agricultural shortages and inflationary prices for agricultural goods, there has been significant social unrest particularly in countries where food accounts for a large part of disposable income for people. See Financial Times, ‘People are hungry’: food crisis starts to bite across Africa, June 23, 2022, https://www.ft.com/content/c3336e46-b852-4f10-9716-e0f9645767c4 (“During the 2007-2008 food crisis, which was caused by a spike in energy prices and droughts in crop-producing regions, about 40 countries faced social unrest: More than a third of those countries were on the African continent.”); see also Terence P. Stewart, The Food Crisis: A Survey of Sources and Proposals for Preventing a Global Catastrophe, 2008 (copied in March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/)(excerpt from the summary copied below).

A recent paper from the UN Food and Agriculture Organization and the World Food Programme identifies countries in danger of starvation or acute hunger in the June – September 2022 time period. FAO, WFP, Hunger Hotspots, FAO-WFP early warnings on acute food insecurity, June to September 2022 Outlook, https://docs.wfp.org/api/documents/WFP-0000139904/download/?_ga=2.27484728.588580763.1656342884-1119086152.1656342884. The Executive Summary (page 5 of the report) is copied below.

“The Food and Agriculture Organization of the United Nations (FAO) and the World Food Programme (WFP) warn that acute food insecurity is likely to deteriorate further in 20 countries or situations
(including two regional clusters) – called hunger hotspots – during the outlook period from June to September 2022.

“Acute food insecurity globally continues to escalate. The recently published 2022 Global Report on Food Crises alerts that 193 million people were facing Crisis or worse (Integrated Food Security Phase Classification [IPC]/Cadre Harmonisé [CH] Phase 3 or above) across 53 countries or territories in 2021. This increase must be interpreted with care, given that it can be attributed to both a worsening acute food insecurity situation and a substantial (22 percent) expansion in the population analysed between 2020 and 2021. In addition, an all-time high of up to 49 million people in 46 countries could now be at risk of falling into famine or famine-like conditions, unless they receive immediate life and livelihoods-saving
assistance. This includes 750 000 people already in Catastrophe (IPC/CH Phase 5).

“Ethiopia, Nigeria, South Sudan and Yemen remain at the highest alert level as in the previous edition of this report. In the current report, Afghanistan and Somalia have been added to the list. These countries all have some populations identified or projected to experience starvation or death (Catastrophe, IPC Phase 5) or at risk of deterioration towards catastrophic conditions, and require the most urgent attention.

“In Afghanistan, for the first time since the introduction of IPC in the country in 2011. Catastrophic conditions (IPC Phase 5) are present for 20 000 people in Ghor due to limited humanitarian access during
the March to May period. In the outlook period, acute food insecurity is projected to increase by 60 percent year-on-year.

“After projecting 401 000 people facing Catastrophic conditions (IPC Phase 5) in Tigray, Ethiopia, in 2021, only 10 percent of required assistance arrived in the region until March 2022, and local agricultural production – which was 40 percent of the average – was critical for food security and livelihoods. A recent ‘humanitarian truce’ remains fragile but has allowed for some convoys to reach the region. The Famine Review Committee’s 2021 scenarios of a Risk of Famine for Tigray might remain relevant, unless humanitarian access stabilizes.

“Although no populations were projected to be in Catastrophe (CH Phase 5) in Nigeria in the outlook period, the record-high levels of acute food insecurity are of serious concern. Importantly, the population in Emergency (CH Phase 4) is expected to reach close to 1.2 million people during the peak of the lean season from June to August 2022, including in Adamawa, Borno and Yobe where some local government areas continue to be inaccessible or hard to reach.

‘In Somalia, a Risk of Famine has been identified through June 2022, under a scenario where rains are significantly below average, food prices increase further, conflict and displacement increase and humanitarian assistance remains insufficient – 81 000 people will face Catastrophe (IPC Phase 5) between April and June.

“In South Sudan, a Famine Likely situation, which was present in some areas in 2021, was averted by improved coordination of humanitarian assistance, and hence the projected number of people in Catastrophe (IPC Phase 5) was reduced slightly, to 87 000 between April and July. That said, the situation remains of highest concern.

“In Yemen, the food security situation deteriorated significantly compared to last year, including a strong increase in the number of people in Catastrophe (IPC Phase 5), which are projected to reach 161 000 over the outlook period. There is also a Risk of Famine projected for some areas.

“The Democratic Republic of the Congo, Haiti, the Sahel region, the Sudan and the Syrian Arab Republic remain countries of very high concern, as in the previous edition of this report. In this edition, Kenya is added to the list. This is due to the high number of people in critical food insecurity coupled with worsening drivers expected to further intensify life-threatening conditions. Sri Lanka, West African coastal countries (Benin, Cabo Verde and Guinea), Ukraine and Zimbabwe have been added in the list of hotspot countries compared to the January 2022 edition of this report. Angola, Lebanon, Madagascar and Mozambique remain hunger hotspots.

“Organized violence and conflict remain the primary drivers for acute hunger, with key trends indicating that conflict levels and violence against civilians continued to increase in 2022. Moreover, weather
extremes such as tropical storms, flooding and drought remain critical drivers in some regions.

Ripple effects of the war in Ukraine have been reverberating globally against the backdrop of a gradual and uneven economic recovery from the COVID-19 pandemic, steadily increasing food and energy prices, and deteriorating macroeconomic conditions. Disruptions to the Ukrainian agricultural sector and constrained exports reduce global food supply, further increase global food prices, and finally push up already high levels of domestic food price inflation. Additionally, high fertilizer costs are likely to affect yields and therefore the future availability of food. Adding to the economic instability, civil unrest could emerge in some of the most affected countries in the upcoming months. Finally, humanitarian organizations are seeing sharp cost increases for their operations and reduced global attention risking to translate into increasing funding shortages. (emphasis added)

“Targeted humanitarian action is urgently needed to save lives and livelihoods in the 20 hunger hotspots. Moreover, in six of these hotspots – Afghanistan, Ethiopia, Nigeria, Somalia, South Sudan and Yemen – humanitarian actions are critical to preventing starvation and death. This report provides country-specific recommendations on priorities for emergency response as well as anticipatory action to address existing humanitarian needs and ensure short-term protective interventions before new needs materialize.”

The report at page 12 provides a chart showing the number of people in acute food insecurity in hotspot countries. The page is copied below.

The Financial Times article referenced earlier notes that there have already been signs of social unrest in a number of countries — Chad, Uganda, and Kenya. See Financial Times, ‘People are hungry’: food crisis starts to bite across Africa, June 23, 2022, https://www.ft.com/content/c3336e46-b852-4f10-9716-e0f9645767c4. Similarly, the Economist has flagged social unrest from rising food and energy prices in two recent articles. See The Economist, Costly food and energy are fostering global unrest, June 23, 2022, https://www.economist.com/international/2022/06/23/costly-food-and-energy-are-fostering-global-unrest (“All around the world, inflation is crushing living standards, stoking fury and fostering turmoil. Vladimir Putin’s invasion of Ukraine has sent prices of food and fuel soaring. Many governments would like to cushion the blow. But, having borrowed heavily during the pandemic and with interest rates rising, many are unable to do so. All this is aggravating pre-existing tensions in many countries and making unrest more likely, says Steve Killelea of the Institute for Economics and Peace (iep), an Australian think-tank.”); The Economist, A wave of unrest is coming. Here’s how to avert some of it, June 23, 2022, https://www.economist.com/leaders/2022/06/23/a-wave-of-unrest-is-coming-heres-how-to-avert-some-of-it (“Jesus said that man does not live by bread alone. Nonetheless, its scarcity makes people furious. The last time the world suffered a food-price shock like today’s, it helped set off the Arab spring, a wave of uprisings that ousted four presidents and led to horrific civil wars in Syria and Libya. Unfortunately, Vladimir Putin’s invasion of Ukraine has upended the markets for grain and energy once again. And so unrest is inevitable this year, too.”). The Economist, in the first referenced article, forecasts the likelihood of increase in serious outbreaks of unrest over the next twelve months. Much of Africa, various countries in Asia and the Middle East and parts of Central and South America show increases from 25% to 100% over the prior 12 months. The article also reviews challenges in Turkey, Pakistan, Sri Lanka, Kazakhstan, Kyrgyzstan, Tunisia, Peru, Uganda, Turkmenistan and South Africa.

Major countries and multilateral organizations have been taking actions to try to address some of the challenges presented from the price inflation on food, fertilizer and energy. Some countries that are able are providing assistance to their people with tax reductions or monetary grants. See, e.g., Reuters, Malaysia plans record $18 billion subsidy spend in inflation fight, June 25, 2022, https://www.reuters.com/markets/asia/malaysia-plans-record-18-bln-subsidy-spend-inflation-fight-2022-06-25/ (“Malaysia is projected to spend 51 billion ringgit on consumer subsidies including for fuel, electricity, and food, assuming that commodity market prices remain at current levels, Finance Minister Tengku Zafrul Aziz said in a statement. The government will also distribute 11.7 billion ringgit in cash aid, and 14.6 billion ringgit in other subsidies, he said.”). Other countries provide economic assistance to those in need in other countries. See, e.g., European Commission, Food security: EU to step up its support to African, Caribbean and Pacific countries in response to Russia’s invasion of Ukraine, June 23, 2022, https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3889

Prices for wheat and sunflower oil have spiked since the war as Ukraine’s large volumes that are normally exported have been trapped in Ukraine by Russia’s blockade of Black Sea ports, destruction of grain and sunflower seed silos by Russian missiles, by the theft of Ukrainian product by the Russians and limitations on Ukrainian farmers being able to work their land during the war. See, e.g., NPR, Russia has blocked 20 million tons of grain from being exported from Ukraine, June 3, 2022, https://www.npr.org/2022/06/03/1102990029/russia-has-blocked-20-million-tons-of-grain-from-being-exported-from-ukraine; Center for Strategic & International Studies, Spotlight on Damage to Ukraine’s Agricultural Infrastructure since Russia’s Invasion, June 15, 2022, https://www.csis.org/analysis/spotlight-damage-ukraines-agricultural-infrastructure-russias-invasion (“Russia is taking advantage of the transportation bottlenecks caused by port blockades to target Ukraine’s food storage facilities. According to Ukraine’s ministry of defense, Russian forces have attacked grain silos across the country and stolen an estimated 400,000-500,000 metric tons of grain from occupied regions to increase Russian competitive advantage in the export market.”).

Efforts have been being made by the UN, by Turkey and others to get Russia to stop its blockade of Ukrainian ports to permit the export of grain and other agriculture products. See, e.g., Reuters, Russia, Turkey to pursue talks on Ukraine grain exports, June 23, 2022, https://www.reuters.com/world/russia-turkey-agree-more-consultations-grain-exports-ukraine-2022-06-22/ (“Ukraine is one of the top global wheat suppliers, but shipments have been halted by Russia’s invasion, causing global food shortages. The United Nations has appealed to both sides, as well as maritime neighbour Turkey, to agree to a corridor.”).

At the same time, the European Union and United States have been working to help Ukraine export wheat and other agricultural products by alternative routes, though the volume that can be so moved is only a small percentage of what Ukraine normally exports. See, e.g., European Commission, Commission to establish Solidarity Lanes to help Ukraine export agricultural goods, 12 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3002; Politico, Biden races against time to unlock Ukraine’s trapped grain, June 17, 2022, https://www.politico.com/news/2022/06/17/biden-ukraine-trapped-grain-00040640.

Multilateral organizations like the World Bank, IMF and World Trade Organization have been offering assistance within their zones of competence. For example, the World Bank has a variety of programs that have been started or utilized to help with the growing food insecurity. See World Bank, Food Security Update | Rising Food Insecurity in 2022, June 23, 2022, https://www.worldbank.org/en/topic/agriculture/brief/food-security-update# (lists 14 projects including “The $2.3 billion Food Systems Resilience Program for Eastern and Southern Africa, approved on June 21, 2022, helps countries in Eastern and Southern Africa increase the resilience of the region’s food systems and ability to tackle growing food insecurity.”). The World Bank’s update on food insecurity is embedded below.

Food-security-update

The WTO during the 12th Ministerial Conference which concluded on June 17, 2022 did address food security concerns both by agreeing not to block exports to the World Food Programme and by agreeing to transparency on actions taken and efforts to minimize use of export restraints on agricultural products. See June 17, 2022:  WTO’s 12th Ministerial Conference — some successes after a difficult five plus days, https://currentthoughtsontrade.com/2022/06/17/wtos-12th-ministerial-conference-some-successes-after-a-difficult-five-plus-days/.

In addition, the U.S., European Union and other allies coordinating actions to help Ukraine and hold Russia accountable, have been working to address access to food products, energy products and to increase availability of fertilizers. These actions have been announced by major players unilaterally as well as through various groupings, including the current G-7 meeting in Germany, U.S.-chaired Global Food Security Ministerial Meeting,  and the recently concluded Summit of the Americas Agriculture Producers Declaration. See, e.g., The White House, Summit of the Americas Agriculture Producers Declaration, June 13, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/13/summit-of-americas-agriculture-producers-declaration/; U.S. Department of State, Chair’s Statement for Global Food Security — call to Action, June 24, 2022, https://www.state.gov/chairs-statement-roadmap-for-global-food-security-call-to-action-2/; European Commission, Commission acts for global food security and for supporting EU farmers and consumers, 23 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1963; U.S. Department of State, Secretary Antony J. Blinken During the Uniting for Global Food Security Conference, June 24, 2022, https://www.state.gov/secretary-antony-j-blinken-during-the-uniting-for-global-food-security-conference/. These four documents are embedded below.

Summit-of-the-Americas-Agriculture-Producers-Declaration-_-The-White-House

Chairs-Statement_-Roadmap-for-Global-Food-Security-–-Call-to-Action-United-States-Department-of-State

Commission_acts_for_global_food_security_and_for_supporting_EU_farmers_and_consumers

Secretary-Antony-J.-Blinken-During-the-Uniting-for-Global-Food-Security-Conference-United-States-Department-of-State

A few thoughts

The major efforts underway by various countries to reduce the global effect of the Russian war on food security are extensive and will have positive effects, some immediately, others over time (e.g., increasing production of fertilizers or improving efficiencies of fertilizers). However, for the poorest countries and those reliant on food imports from Ukraine and Russia, the internal pressures will continue to mount as limited financial resources and high food and energy prices push more and more people into food insecurity situations of increased severity. Social unrest in a number of countries is likely.

While Russia has exacerbated the food insecurity by its actions on Ukraine’s agricultural products and by other actions restricting its own exports (when sanctions do not cover agricultural goods or fertilizers) and has the ability to end the challenges it has created, it seems highly unlikely that any serious progress will be made in getting Ukrainian agricultural goods out through Black Sea ports while hostilities continue. EU and U.S. efforts are helping some but are not perceived to be a viable short-term solution to moving Ukrainian goods to export markets at affordable prices.

Some short-term steps the private sector can take to help alleviate the damage to at-risk countries is to increase funding to the World Food Programme (its June report cited earlier is this post reflect that with higher prices and challenges in getting funding, the WFP is being forced to reduce assistance in various countries). While most funding for WFP comes from governments, the private sector can contribute and should actively participate. Obviously, there is need for more funding by governments as well, but the multiple crises at least make it questionable how much more governments will do in fact in 2022.

Moreover, with the large number of low and middle-income countries facing potential debt crises, there is a need for at least selective debt relief where the challenges faced flow simply from the rapid increase in inflation.

None of the proposals for action by those looking to lessen the pressures on global markets has involved increasing the percent of the world’s grain that goes to human consumption during the current crisis. See The Economist, Most of the world’s grain is not eaten by humans, June 23, 2022, https://www.economist.com/graphic-detail/2022/06/23/most-of-the-worlds-grain-is-not-eaten-by-humans. Presumably the challenges flow from the large percentage of grains that are fed to animals and the reduction in the world’s pasturelands which make alternative feeding of livestock less likely to increase in the short term. A small percentage (10%) of grains goes to biofuels and would be unlikely to be shifted in the short term as the use of grains in biofuels reduces the volume of petroleum products otherwise needed.

In challenging times, it is important for key countries to step forward and show leadership. There has been extensive leadership shown by the U.S., the EU and many of the other countries involved in supporting Ukraine and holding Russia to account for its unprovoked war with Ukraine. Continued coordination and adoption of bold actions by those currently engaged and an expanded group of willing participants will be needed to reduced the damage to low- and middle-income countries and limit the amount of social unrest that will yet unfold in 2022 and 2023.

WTO’s 12th Ministerial Conference — some successes after a difficult five plus days

With limited successes in its first 26 plus years, the WTO faced a challenging set of circumstances as the 12th Ministerial Conference commenced on June 12 and concluded in the early hours of June 17 — a global pandemic which had created multiple challenges for most countries including increased food insecurity, contractions in GDP for many countries, problematic access to vaccines, growing debt problems; an unprovoked war by the Russian Federation in Ukraine which has exacerbated food insecurity, increased food price volatility as well as volatility on fertilizers and energy. The WTO has been characterized as suffering from a lack of trust amongst Members for many years. The former WTO Director-General Roberto Azevedo had characterized achieving new agreements as challenging because of a lack of common purpose with Members in his view falling into three groups — those who didn’t want the WTO to succeed (or wanted to roll back trade liberalization); those Members happy with the agreements in place but not wanting to expand areas of activity; and those Members looking to expand and update the functioning of the organization. See May 17, 2022:  “The Future of the World Trade Organization” a virtual event by the Bipartisan Policy Center, discussion of dispute settlement, https://currentthoughtsontrade.com/2022/05/17/the-future-of-the-world-trade-organization-a-virtual-event-by-the-bipartisan-policy-center-discussion-of-dispute-settlement/. Moreover, with Russia’s invasion of Ukraine, a significant number of countries would not negotiate with Russia at the WTO – creating potential challenges in a consensus-based decision making system.

Despite the challenging circumstances and the actions of some countries in staking out seemingly extreme positions, the WTO announced a number of agreements in the early morning hours of June 17. The WTO press release on the 17th described the results as follows, “WTO members secure unprecedented package of trade outcomes at MC12”. https://www.wto.org/english/news_e/news22_e/mc12_17jun22_e.htm. Members and the WTO not surprisingly use glowing terms to describe affirmative outcomes. That is reflected in the WTO press release. Nonetheless, the list of agreed texts is interesting and reflects some important forward movement, even if the fisheries subsidies agreement is a partial agreement only with an important section removed and subject to further negotiations. Part of the WTO press release is copied below.

“WTO members secure unprecedented package of trade outcomes at MC12

“WTO members successfully concluded the 12th Ministerial Conference (MC12) in Geneva on 17 June, securing multilaterally negotiated outcomes on a series of key trade initiatives. The ‘Geneva Package’ confirms the historical importance of the multilateral trading system and underlines the important role of the WTO in addressing the world’s most pressing issues, especially at a time when global solutions are critical.

“Round-the-clock negotiations among delegations produced the ‘Geneva Package’, which contains a series of unprecedented decisions on fisheries subsidies, WTO response to emergencies, including a waiver of certain requirements concerning compulsory licensing for COVID-19 vaccines, food safety and agriculture, and WTO reform.

“’The package of agreements you have reached will make a difference to the lives of people around the world. The outcomes demonstrate that the WTO is, in fact, capable of responding to the emergencies of our time,’ said WTO Director-General Ngozi Okonjo-Iweala. ‘They show the world that WTO members can come together, across geopolitical fault lines, to address problems of the global commons, and to reinforce and reinvigorate this institution. They give us cause to hope that strategic competition will be able to exist alongside growing strategic cooperation.’

“DG Okonjo-Iweala expressed her conviction that ‘trade is part of the solution to the crises of our time’ and noted that the WTO ‘can and must do more to help the world respond to the pandemic, tackle environmental challenges and foster greater socio-economic inclusion.’

“The package adopted by members include:

“o an outcome document (WT/MIN(22)/W/16/Rev.1);

“o a package on WTO response to emergencies, comprising:

“o a Ministerial Declaration on the Emergency Response to Food Insecurity (WT/MIN(22)/W/17/Rev.1);

“o a Ministerial Decision on World Food Programme (WFP) Food Purchases Exemptions from Export Prohibitions or Restrictions (WT/MIN(22)/W/18);

“o a Ministerial Declaration on the WTO Response to the COVID-19 Pandemic and Preparedness for Future Pandemics (WT/MIN(22)/W/13); and  

“o Ministerial Decision on the Agreement on Trade-related Aspects of Intellectual Property Rights (WT/MIN(22)/W/15/Rev.2)

“o a Decision on the E-commerce Moratorium and Work Programme (WT/MIN(22)/W/23)

“o an Agreement on Fisheries Subsidies (WT/MIN(22)/W/22).

“In addition, ministers adopted two decisions – on the Work Programme on Small Economies (WT/MIN(21)/W/3) and on the TRIPS non-violation and situation complaints (WT/MIN(21)/W/4) — and a Sanitary and Phytosanitary Declaration for the Twelfth WTO Ministerial Conference: Responding to Modern SPS Challenges (WT/MIN(22)/W/3/Rev.3).

“All documents can be found here.

“Acknowledging the ‘vital importance of agriculture,’ DG Okonjo-Iweala noted that differences on some issues, including public stockholding for food security purposes, domestic support, cotton and market access ‘meant that we could not achieve consensus on a new roadmap for future work.’ However, she added, ‘members found a renewed sense of purpose: they are determined to keep at it on the basis of existing mandates, with a view to reaching positive outcomes at MC13.'”

Food Security

The efforts to address food security concerns resulted in adopting two of the documents that had been forwarded (with some revisions) to ministers ahead of the Conference but did not include the Draft Ministerial Decision on Agriculture (WT/MIN(22)/W/22) based on sharp differences on the elements needing to be addressed.

Response to the COVID-19 Pandemic and Possible TRIPS Waiver

Similarly, Members agreed to the Ministerial Decision on the Agreement on Trade-related Aspects of Intellectual Property Right — clarifying flexibilities to address compulsory licensing of patented vaccines during the COVID-19 pandemic (for a period of five years from adoption) with a decision in six months to extend the flexibilities to therapeutics and diagnostics for the pandemic. The last modification was to the language as to who was eligible, with the U.S. and China agreeing to language that made all developing countries eligible, encouraged developing countries who export vaccines to opt out and language from a General Council meeting where China had indicated it would opt out. The TRIPS decision and the Ministerial Declaration on the WTO Response to the COVID-19 Pandemic and Preparedness for Future Pandemics are the two documents agreed to which address the WTO’s response to the Pandemic.

As I have reviewed in prior posts, the more important of the two documents is the non TRIPS one. In 2022, the world has massive unused capacity for COVID vaccines, making greater access to vaccines not about availability of product nor even geographical diversity of production. As reported in a prior post, a number of facilities which produce COVID vaccines have closed or are in danger of closing from a lack of orders. See May 1, 2022:  Financial Times article from May 1, 2022 reaffirms current excess capacity for COVID-19 vaccines, https://currentthoughtsontrade.com/2022/05/01/financial-times-article-from-may-1-2022-reaffirms-current-excess-capacity-for-covid-19-vaccines/; April 30, 2022:  World Trade Organization 12th Ministerial Conference — the possible response to the COVID-19 pandemic amid the declining demand for vaccines, https://currentthoughtsontrade.com/2022/04/30/world-trade-organization-12th-ministerial-conference-the-possible-response-to-the-covid-19-pandemic-amid-the-declining-demand-for-vaccines/.

The latest data from the UNICEF COVID Dashboard on COVID-19 vaccine deliveries over time (by month) show the dramatic decline in vaccine deliveries globally since December 2021. See COVID-19 Vaccine Market Dashboard, https://www.unicef.org/supply/covid-19-vaccine-market-dashboard, accessed June 17, 2022. Had vaccines been delivered just at the rate of December 2021 in January – May 2022 (ignoring expansions announced for 2022), 4.74 billion additional doses would have shipped by the end of May.

Fisheries Subsidies

The most disappointing document is the only new “agreement” — the Agreement on Fisheries Subsidies. The agreement reached deletes the bulk of Article 5 from the document forwarded to ministers (” SUBSIDIES CONTRIBUTING TO OVERCAPACITY AND OVERFISHING”), replacing it with an Article 5 (Other Subsidies) which is limited to barring Members from granting or maintaining subsidies “provided to fishing or fishing related activities outside of the jurisdiction of a costal Member or a coastal non-Member and outside the competence of a relevant RFMO/A.” While India was reported to be protecting the interests of developing and LDC countries by insisting on a 25 year period and a 200 mile zone for subsidizing low income, resource-poor and livelihood fishing or fishing related activities under the prior draft of Article 5.5(c), the vast majority of developing and LDC countries would have had a total exclusion from the subsidy provisions of Article 5 under prior draft Article 5.5(b)(i) because of the size of their marine capture production [“A developing country Member may grant or maintain the subsidies referred to in Article 5.1 to fishing and fishing related activities if its share of the annual global volume of marine capture production does not exceed [0.8] per cent as per the most recent published FAO data as circulated by the WTO Secretariat.”). India was not eligible for the prior Art. 5.5(b)(i) provision based on its percent of global volume of marine capture production. See June 11, 2022:  WTO 12th Ministerial Conference — Draft documents forwarded to Ministers for Consideration; a review of the Fisheries Subsidies latest text, https://currentthoughtsontrade.com/2022/06/11/wto-12th-ministerial-conference-draft-documents-forwarded-to-ministers-for-consideration-a-review-of-the-fisheries-subsidies-latest-text/ (India in 2018 had 3.62 million tonnes of marine capture production out of a global total of 84.41 million tonnes (4.29%)).

Members agreed to continue negotiating on the subsidies contributing to overcapacity and overfishing and included a new Article 12 (Termination of Agreement if Comprehensive Disciplines are Not Adopted) that would terminate the agreement if comprehensive disciplines are not adopted within four years of the agreement’s entry into force.

As European Commission Executive Vice-President Dombrovskis stated at the conclusion of the 12th WTO Ministerial Conference, 17 June 2022, https://ec.europa.eu/commission/commissioners/2019-2024/dombrovskis/announcements/statement-executive-vice-president-dombrovskis-conclusion-12th-wto-ministerial-conference_en

“Fisheries

“Today we have taken a truly significant step. This is the first time that we have established a multilateral agreement at the WTO to support sustainability and clamping down on subsidies that lead to over-fishing.

“Under international law, it will now be illegal to subsidise vessels involved in illegal and unregulated fishing, subsidise fishing in unregulated areas of the high seas.

“Given that we did not yet fully deliver on our mandate under the UN Sustainability Development Goals, the EU will continue to work with our partners towards multilateral sustainability disciplines on those subsidies not covered by this first agreement.”

E-commerce moratorium on customs duties until MC13

An important result for companies engaged in e-commerce was the extension of the moratorium on the imposition of customs duties until the 13th Ministerial Conference as part of a decision to continue and “reinvigorate the Work Programme on Electronic Commerce”. The extension is good only to 31 March 2024 unless the General Council takes a further decision to extend.

TRIPS non-violation disputes

At past Ministerial Conference the e-commerce customs duty moratorium had been extended at the same time as Members agreed to extend the period when non-violation complaints would not be brought under the TRIPS Agreement. The General Council had agreed in November to forward to the 12th Ministerial Conference the extension of the ban on bringing non-violation TRIPS cases until the 13th Ministerial Conference. It was adopted as noted above.

Work Programme on Small Economies

The decision adopted continues the work programme on small economies and the evaluation of challenges such economies face and any actions that may be appropriate to be considered by various WTO bodies.

Ministerial Declaration on Sanitary and Phytosanitary Work

The declaration reviews the important work of the SPS Committee and the need to have the SPS Agreement fully implemented and how the SPS Agreement can support a number of themes flowing from changes to the world agriculture scene:

“How to facilitate global food security and more sustainable food systems, including through sustainable growth and innovation in agricultural production and international trade, and through the use of international standards, guidelines, and recommendations developed by the Codex Alimentarius Commission, the World Organisation for Animal Health and the International Plant Protection Convention as the basis of harmonized SPS measures to protect human, animal or plant life or health.

“How to support basing SPS measures on scientific evidence and principles, including where international standards, guidelines, or recommendations do not exist or are not appropriate; and how to promote the use by Members of principles employed by the international standard setting bodies for considering scientific uncertainty in risk analysis.

“How to enhance the safe international trade in food, animals and plants and products thereof through the adaptation of SPS measures to regional conditions, including pest- or disease-free areas and areas of low pest or disease prevalence which can strengthen Members’ ability to protect plant and animal life or health through efforts to limit the spread of pests such as the Mediterranean fruit fly, diseases such as African swine fever, disease-carrying organisms, or disease-causing organisms.

“How to encourage cooperation with observer organizations that support the work of the SPS Committee and the international standard setting bodies through technical exchanges and assistance in the context of this work programme.

“How to increase participation of and support for the special needs of developing and least developed country Members in the development and application of SPS measures; and in particular, to increase awareness of and sensitivity to the impacts of SPS measures on the export possibilities of such Members.

“Other topics as identified over the course of the work programme or as a result of emerging sanitary or phytosanitary challenges or risks worldwide.”

The SPS Committee has been recognized by many as performing very useful work in helping Members understand developments, improve implementation of obligations and reduce disputes. The adopted declaration should help ensure positive momentum within the Committee.

MC12 Outcome Document

The outcome document offers an abbreviated discussion of WTO reform (paras. 3 & 4), indicating a fully functioning dispute settlement system will be achieved by 2024. The document reaffirms the role of special and differential treatment for developing countries and LDCs (without addressing U.S. and other developed country concerns about lack of differentiation or graduation from developing, etc.). The outcome document includes a range of paragraphs addressing needs of LDCs including for countries who graduate from LDC status. The bulk of the document focuses on prior commitments for assistance to LDCs and developing countries. Considering the critical need for reform of the WTO, the outcome document is disappointing in the lack of focus on the needs of the organization going forward.

Consider the comments of EC Executive Vice-President Dombrovskis earlier today on the importance of the reform effort.

WTO Reform

“The difficult discussions over the last five days confirm the EU’s strong belief that the WTO is in an urgent need of root-and-branch reform.

“A full reboot is the only way it can remain relevant and reactive to 21st century challenges. I remind that you that the EU published a clear WTO reform roadmap one year ago to show the way forward.

“The WTO must be able to resolve disputes effectively. It must provide a trust-based and constructive forum for negotiations, and be the guardian of the international rules-based system.

“Ultimately, it is also about restoring the trust and political buy-in of its members.

“We will now get to work immediately on this essential reform, with a view to getting it agreed by the next Ministerial, MC13.”

Statement by Executive Vice-President Dombrovskis at Conclusion of 12th WTO Ministerial Conference, 17 June 2022, https://ec.europa.eu/commission/commissioners/2019-2024/dombrovskis/announcements/statement-executive-vice-president-dombrovskis-conclusion-12th-wto-ministerial-conference_en.

While the outcome document notes that reform will be discussed, it is hard to imagine agreement on an agenda and actual reforms being accomplished by the 13th Ministerial Conference. This is equally true for resolving dispute settlement, at least if U.S. longstanding concerns are actually going to be addressed.

Interestingly, a major push for many WTO Members since the 11th Ministerial Conference in Buenos Aires has been plurilateral work on so-called Joint Statement Initiatives (JSIs) . India and South Africa have opposed addressing results from JSIs within the WTO. There was no mention by DG Okonjo-Iweala or in the released documents of the work undertaken on the JSIs or the concluded work on services. Without a change to consensus decision making, JSIs offer the main alternative within the WTO for responding to emerging challenges to global trade. One can expect resolution of the role of open plurilaterals to be a major issue in establishing a reform agenda.

Conclusion

Today is a day for celebrating that that a dysfunctional organization and membership were able to come together for a group of decisions that at least suggest multilateralism can play a role going forward to address important issues confronting the global trading system, nations, and workers/citizens. As Director-General Ngozi Okonjo-Iweala stated last Sunday, an agreement on two issues is better than one on one issue, an agreement on one issue is better than no agreement. Today’s outcome is significant by the low standards created by the WTO over its 26+ years of existence. There are some positive results that have emerged. Hopefully the announced results will improve the lives of people around the world.

But the agreement and decisions/declarations are collectively relatively small in what is actually achieved and have taken way too long to achieve. Food security may be the most important, and the decision not to block shipments to the World Food Programme is potentially important. But the response to the pandemic while having some useful elements in terms of transparency and urging greater cooperation is dependent on the willingness of Members to act. The TRIPS decision will have virtually no real world benefit during the COVID-19 pandemic as the current challenge is lack of demand for vaccines not a lack of availability.

The extension of the e-commerce moratorium on customs duties will have ongoing importance to e-commerce companies and consumers globally but should have been easy to extend versus being the increasingly divisive issue it has become.

After 21 years, the fisheries subsidies agreement is at best a modest agreement with a major part of the subsidies disciplines removed from the package and kicked down the road for further negotiations.

Bottom line – what was achieved is better than no deal. For that, we should be thankful. To all those who made the outcome possible, have a relaxed weekend and enjoy a toast to a successful ministerial. Multilateral challenges will be awaiting you again next week.

WTO 12th Ministerial Conference — Draft documents forwarded to Ministers for Consideration; a review of the Fisheries Subsidies latest text.

On June 10, 2022 the package of draft documents to be considered by Ministers at the 12th Ministerial Conference in Geneva from June 12-15, 2022 were released by the WTO. See WTO, MINISTERIAL CONFERENCES: TWELFTH WTO MINISTERIAL CONFERENCE, Documents, https://www.wto.org/english/thewto_e/minist_e/mc12_e/documents_e.htm (viewed June 11, 2022). While there are many documents in the total package of documents available on the WTO webpage, much of the attention will be on the revised draft fisheries subsidies agreement (WT/MIN(22)/W/20), the two documents on the WTO response to the COVID-19 pandemic (WT/MIN(22)/13) and the TRIPS Agreement (WT/MIN(22)/15), the three documents on agriculture (Draft Ministerial Declaration on Trade and Food Security, WT/MIN(22)/17; Draft Ministerial Decision on World Food Programme Food Purchases Exemption from Export Prohibitions or Restrictions, WT/MIN(22)/W/18; and Draft Ministerial Decision on Agriculture, WT/MIN(22)/W/19), competing provisions on a work program on electronic commerce (one including an extension of the moratorium on custom duties on e-commerce), WT/MIN(22)/W/9 and WT/MIN(22)/W/10, and a draft MC12 Outcome Document which includes, inter alia, some discussion of WTO reform.

The full list of documents shown for the 12th Ministerial Conference as of June 11 on the WTO webpage is copied below.

MC12 documents

WT/MIN(22)/W/20

Agreement on Fisheries subsidies – Draft text

WT/MIN(22)/W/20/Add.1

Agreement on Fisheries subsidies – Draft text – Addendum

WT/MIN(22)/W/19

Draft Ministerial Decision on Agriculture

WT/MIN(22)/W/18

Draft Ministerial Decision on World Food Programme Food Purchases Exemption from Export Prohibitions or Restrictions

WT/MIN(22)/W/17

Draft Ministerial Declaration on Trade and Food Security

WT/MIN(22)/W/16

MC12 outcome document – Draft

WT/MIN(22)/W/15

Draft Ministerial Decision – Communication from the Chair of the Council for TRIPS

WT/MIN(22)/W/13

Draft Ministerial Declaration on the WTO response to the COVID-19 pandemic and preparedness for future pandemics

G/SPS/GEN/1758/Rev.13 ; WT/GC/W/835/Rev.4 ; WT/MIN(22)/W/3/Rev.1

Sanitary and Phytosanitary Declaration for the Twelfth WTO Ministerial Conference : responding to modern SPS challenges – Submission by the African Group; ACP Group; Argentina; Australia; Belize; Brazil; Burkina Faso; Cabo Verde; Canada; Chile; China; Colombia; Costa Rica; Côte d’Ivoire; Dominican Republic; Ecuador; El Salvador; The Gambia; Guatemala; Honduras; Hong Kong, China; Japan; Malaysia; Mexico; Mongolia; Morocco; New Zealand; Nicaragua; Norway; Panama; Paraguay; Peru; Philippines; Senegal; Singapore; Switzerland; The Separate Customs Territory of Taiwan, Penghu, Kinmen And Matsu; Tajikistan; Togo; Ukraine; United States; Uruguay and Viet Nam – Revision

WT/MIN(22)/W/12

Report by Ambassador Zhanar Aitzhanova, Chair of the Special Session of the Council for Trade in Services – Text on services for the MC12 outcome document – 10 June 2022

JOB/DEV/66 ; WT/MIN(22)/8

Ministerial statement on fossil fuel subsidies

JOB/DEV/66 ; WT/MIN(22)/6

Africa and development – Communication from the African Group

WT/MIN(22)/5

Implementation of the trade-related components of cotton – Progress report by the Director-General to the 12th Ministerial Conference

WT/MIN(22)/4

Informal Working Group on MSMES – Coordinator’s report

WT/MIN(22)/W/11

Draft Ministerial Decision – WTO response to food insecurity in NFIDCs and LDCs

WT/MIN(22)/W/10

Work programme on electronic commerce – Communication from Albania; Australia; Bahrain, Kingdom of; Brazil; Brunei Darussalam; Canada; Chile; Colombia; Costa Rica; Dominican Republic; Ecuador; El Salvador; European Union; Georgia; Guatemala; Honduras; Hong Kong, China; Iceland; Israel; Japan; Kazakhstan; Korea, Republic of; Kuwait, the State of; Kyrgyz Republic; Liechtenstein; Malaysia; Mexico; Moldova, Republic of; Montenegro; New Zealand; Nigeria; North Macedonia; Norway; Panama; Paraguay; Peru; Philippines; Qatar; Russian Federation; Saudi Arabia, Kingdom of; Singapore; Switzerland; Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Tajikistan; Thailand; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay and Yemen

WT/MIN(22)/W/9

Work programme on electronic commerce – Communication from India, Indonesia, and South Africa

WT/MIN(22)/3

OACPS Ministerial Declaration on the Twelfth WTO Ministerial Conference

WT/MIN(22)/W/6

Proposal by Brazil

WT/MIN(22)/W/5

Communication from Brazil

WT/MIN(22)/W/4

Public stockholding for food security purposes – Proposal by the African Group, the ACP, and G33

WT/MIN(22)/W/2

Communication from the United Arab Emirates

WT/MIN(22)/W/1

Provisional agenda

WT/MIN(21)/W/5

Draft Agreement on Fisheries Subsidies

WT/MIN(21)/W/5/Add.1

Draft Agreement on Fisheries Subsidies — Addendum

WT/MIN(21)/3

OACPS Ministerial Declaration on the Twelfth WTO Ministerial Conference

WT/MIN(21)/2

LDC Ministerial Declaration for the Twelfth WTO Ministerial Conference 2021

WT/MIN(21)/1

Final draft declaration on micro, small and medium-sized enterprises (MSMEs)

Draft ministerial decisions

On 22-23 November, the General Council agreed to forward the following draft decisions to the Ministerial Conference for adoption:

WT/MIN(21)/W/3

Work Programme on Small Economies

WT/MIN(21)/W/4

TRIPS non-violation and situation complaints

Reports by negotiating group chairs

TN/AG/50

Special Session of the Committee on Agriculture

TN/CTD/35

Special Session of the Committee on Trade and Development

TN/DS/32

Special Session of the Dispute Settlement Body

TN/IP/30

Special Session of the Council for TRIPS

TN/MA/34

Negotiating Group on Market Access

TN/RL/34

Negotiating Group on Rules

TN/S/42

Special Session of the Council for Trade in Services

TN/TE/26

Special Session of the Committee on Trade and Environment

Annual reports by the General Council and subsidiary bodies

WT/GC/242

General Council

WT/DSB/83

Dispute Settlement Body

WT/TPR/471

Trade Policy Review Body

G/L/1418

Council for Trade in Goods

S/C/62

Council for Trade in Services

IP/C/92

Council for Trade-Related Aspects of Intellectual Property Rights

G/L/1413/Rev.1

Committee on Sanitary and Phytosanitary Measures

G/L/1420

Committee on Technical Barriers to Trade

G/L/1421

Committee on Agriculture

WT/COMTD/101

Committee on Trade and Development

WT/CTE/28/Rev.1

Committee on Trade and Environment

WT/BOP/R/119

Committee on Balance-of-Payments Restrictions

WT/REG/32

Committee on Regional Trade Agreements

WT/WGTDF/20

Working Group on Trade, Debt and Finance

WT/WGTTT/23

Working Group on Trade and Transfer of Technology

GPA/AR/4

Committee on Government Procurement

TCA/18; WT/L/1120

Committee on Trade in Civil Aircraft

This post will take a closer look at the latest Fisheries Subsidies text. As will become obvious, while progress appears to have been made to reduce the number of unresolved issues in the text, there are important issues still unresolved. Moreover, many of the changes made suggest a reduction in level of ambition with little or no differentiation on actual need for special and differential treatment versus the simple use of self-selection by Members as developing countries.

Fisheries Subsidies

The WTO issued a press release on the release of the revised fisheries subsidies draft text which covers the Chair’s explanation of what has been done in the document. See WTO News Release, Revised draft agreement on fisheries subsidies sets stage for pivotal negotiations at MC12, 10 June 2022, https://www.wto.org/english/news_e/news22_e/fish_10jun22_e.htm (“The chair of the fisheries subsidies negotiations, Ambassador Santiago Wills of Colombia, on 10 June submitted to WTO members a revised draft agreement for new global rules to curb harmful fishing subsidies. Released ahead of ministers’ arrival at the 12th Ministerial Conference (MC12) in Geneva, the text for consideration reflects delegates’ collective efforts in recent intensive meetings and suggests landing zones to bring over two decades of negotiations to a successful close.”). The Chair’s explanation of the latest draft and the changes made is contained in AGREEMENT ON FISHERIES SUBSIDIES, DRAFT TEXT, Addendum, WT/MIN(22)/W/20/Add.1 (10 June 2022). The document is embedded below.

W20A1-1

In reviewing the text of the current draft and comparing it to the draft from 24 November 2021 (WT/MIN(21)/W/5 the following changes are noted. As reviewed by the Chair, some of the changes reflect not agreement of the Members but rather his effort at finding a possible landing zone that will attract consensus. This includes removing a number of brackets from articles or subsections.

Article 1: Scope – the latest version deletes former Art. 1.2 and adds a new footnote 3. Article 1.2, which was bracketed in the 24 November 2021 draft, indicated that the agreement applied “to fuel subsidies to fishing and fishing related activities at sea that are not specific within the meaning of Article 2 of the SCM Agreement”. The Chair has removed the paragraph based on his perception that most Members opposed extending disciplines to non-specific fuel subsidies. WT/MIN(22)/W/20/Add.1, page 3.

“3. Article 1.2 in the previous version of the text, which was in brackets, would have extended the scope of the Agreement to fuel subsidies that are not specific. The brackets indicated that no agreement had been reached on including this provision. The text of former Article 1.2 has been omitted from this draft because it is my assessment that, for both practical and systemic reasons, there is strong convergence among Members not to extend the scope of the disciplines to cover nonspecific fuel subsidies. On the other hand, it should be acknowledged that some of those Members that had proposed or supported disciplining all fuel subsidies, specific or not, on the basis that these are particularly harmful subsidies, continue to hold the view that non-specific fuel subsidies should be covered by this Agreement.

“4. There is a shared understanding, however, that fuel subsidies are relevant under SDG target 14.6 and the MC11 mandate from Ministers1. In this regard, it has been noted that Article 1 already covers fuel subsidies that are specific, which is consistent with the current framework of the subsidies disciplines in the SCM Agreement. It also is commonly understood that non-specific fuel subsidies can contribute to excessive and illegal fishing, but the paucity of data and information on such subsidies makes it difficult to assess their extent and impact.”

The new footnote 3 states that “For greater certainty, for the purposes of this Agreement, a subsidy shall be attributable to the Member conferring it, regardless of the flag or registry of any vessel involved or the nationality of the recipient.”

Article 2: Definitions — no changes from previous version.

Article 3: Subsidies Contributing to Illegal, Unreported and Unregulated Fisheries

There are two changes in Article 3. The first is the addition of clarifying language at the end of Article 3.3 (language in bold has been added), “The coastal Member shall notify an affirmative determination to the Committee provided for in Article 9.1 (referred to in this Agreement as ‘the Committee’)”.

The second change is the removal of brackets from Article 3.8 and from the two numbers within the article (2 years and 12 nautical miles). The changes to Article 3.8 are described in paragraphs 41 and 42 of the Chair’s explanation of the text. WT/MIN(22)/W/20/Add.1 at 9.

“41. Article 3.8 provides for special and differential treatment (SDT) for the IUU fishing pillar, in the form of a ‘peace clause’. The peace clause is for two years for developing Members, including least developed country (LDC) Members, in respect of subsidies for low income, resource-poor and livelihood fishing or fishing related activities, up to 12 nautical miles from the baseline. The effect of the peace clause is that the disciplines do apply but are not subject to the dispute settlement procedures during the specified duration. This is in line with the view shared by many Members, including many developing country Members, that subsidies to IUU fishing should be eliminated. At the same time, the unique and vulnerable circumstances of the artisanal fisheries sector have been raised as particularly challenging for developing country Members in implementing the disciplines. The peace clause in Article 3.8 is meant to address both of these concerns, while keeping with the mandate to eliminate subsidies to IUU fishing.

“42. The brackets in the previous draft around the period of two years and the limit of 12 nautical miles have been removed to reflect an emerging convergence around this text. That said, some Members remain firmly of the opinion that there should be no special and differential treatment for subsidies contributing to IUU fishing. Other Members would prefer a peace clause of a longer duration.”

Article 4: Subsidies Regarding Overfished Stocks

Article 4 has one change, to Article 4.4, which similar to Art. 3.8, takes brackets off of the entire article and for the two numbers within the article. The text in the current draft follows.

“4.4 For a period of 2 years from the date of entry into force f this Agreement, subsidies granted or maintained by developing country Members, including LDC Members, for low income, resource-poor and livelihood fishing or fishing related activities, up to 12 nautical miles measured from the baselines shall be exempt from actions based on Articles 4.1 and 10 of this Agreement.” The changes are for the same reason as Art. 3.8. See WT/MIN(22)/W/20/Add.1, page 10, para. 51.

Article 5: Subsidies Contributing to Overcapacity and Overfishing

The current draft of Article 5 contains the largest number of changes from the prior text. Article 5.1 adds a footnote (12) and deletes one group of subsidies (former category “(i)”). A new Article 5.2 has been added with two subarticles (5.2(a) and (5.2(b)). Article 5.3 is the old 5.2. Footnote 11 in the old draft (under Art. 5.1(i)) is now footnote 13 (under Article 5.2(a) with an added clause in a parenthetical). Article 5.4 is a modified version of the prior Art. 5.3 although there are not alternatives as previously and Members are not prohibited from granting subsidies to vessels not flying that Member’s flag. Article 5.5 in 5.5(a) modifies prior Art. 5.4(a) by providing alternative time periods for developing countries to provide subsidies (previously a bracketed “X” years; now either 7 years or until 2030) and adds a sentence with additional exceptions.). Old footnote 12 (now 14) changes the figure of 10 percent to an bracketed “x” percent. Article 5(b)(i) (former Article 5.4(b)(i) increases the percent of global marine capture a Member may have and still provide subsidies (old figure [0.7]; new figure [0.8], moves old footnote 13 into a new Article 5(b)(ii) and 5(b)(iii) (formerly 5(b)(ii)) changes the braketed figure for nautical miles from [12] to alternative figures of [12] and [24}.

Because of the large number and potential importance of the changes to Article 5, I copy below the Chair’s explanation of the Chapter and changes made. See WT/MIN(22)/W/20/Add.1, pages 10-16.

ARTICLE 5: SUBSIDIES CONTRIBUTING TO OVERCAPACITY AND OVERFISHING

“52. Article 5 contains the disciplines on subsidies contributing to overcapacity and overfishing. This Article has been amended compared to the previous draft to incorporate several clarifications and changes of approach in different provisions.

Article 5.1 and Article 5.1.1

“53. The core disciplines in this pillar are based on the compromise, “hybrid”, approach based on a list of presumptively prohibited subsidies qualified by sustainability-based elements. Thus, the prohibition consists of the provisions of Article 5.1 and the qualifications in Article 5.1.1, read together.

“54. Article 5.1 consists of a chapeau containing the main prohibition, followed by an illustrative list of subsidies in subparagraphs (a) through (h) that presumptively contribute to overcapacity or overfishing. Article 5.1 then is qualified by Article 5.1.1, which provides that a subsidy is not inconsistent with Article 5.1 if the subsidizing Member demonstrates that measures are implemented to maintain the fish stocks at a biologically sustainable level. To recall, the biologically sustainable level in Article 5 is defined identically to the same term in Article 4, via a single footnote, footnote 11.

“55. One important amendment has been made to Article 5.1 based on concerns raised by numerous Members since the two previous drafts were circulated. These concerns had to do with the placement of former Article 5.1(i), referring to subsidies contingent upon or tied to actual or anticipated fishing or fishing related activities in areas beyond the subsidizing Member’s jurisdiction. In earlier versions of the draft disciplines, this had been a separate Article creating a straightforward prohibition on this category of subsidies, the explanation being that these were subsidies explicitly for fishing outside the subsidizer’s jurisdiction and more likely to contribute to overcapacity and overfishing than, for example, the other subsidies listed in Article 5.1. However, it subsequently was moved into Article 5.1(i) to respond to the concerns of other Members that such subsidies did not necessarily contribute to overcapacity and overfishing, as a Member might be able to demonstrate that there were measures to maintain the stock or stocks were being fished at biologically sustainable levels.

“56. The concerns over placement remained, and a significant preponderance of Members called strongly for re-establishing the content of former Article 5.1(i) as a standalone prohibition, as in former Article 5.2. This has been done in this draft for the reasons further elaborated in respect of new Article 5.2, to which the previous Article 5.1(i) was moved.

“57. A new footnote, footnote 12, has been added to the start of Article 5.1. The footnote clarifies that Article 5.1 does not apply to subsidies to the extent that they regard stocks that are overfished. This footnote was added to address concerns raised by some Members that a subsidy for fishing a stock that was recognized as being overfished could be permitted under Article 4.3 but, because it is impossible to demonstrate that measures are in place to maintain an overfished stock at a biologically sustainable level, the same subsidy could be prohibited under Article 5.1. Although other Members did not share this concern over the interaction of Articles 4 and 5.1, they were open to this footnote because it ensures that such an interpretation would not arise. It should also be noted that, as set out in the previous Addendum, a fish stock recognized as overfished is in a particularly vulnerable state. Accordingly, the conditions of Article 4.3 are intended to be more stringent than those under Article 5.1.1, given that the object of Article 4.3 is to allow for subsidies or other measures to rebuild the stock to a biologically sustainable level, while that of Article 5.1.1 is to maintain the stock at such a level. At the same time, it was recognized that there could be a subsidy programme under which subsidies were provided both to fishing overfished stocks and to fishing stocks that are at biologically sustainable levels. Under such a programme, the subsidies to fishing overfished stocks would not be prohibited provided the requirements of Article 4.3 were met, and the subsidies to fishing stocks at biologically sustainable levels would not be prohibited provided the requirements of Article 5.1.1 were met. Some Members that had questioned the need for such a footnote indicated that they could accept it on the clear understanding that it did not change the
operation of these provisions.

“58. In our discussions of the provisions of Article 5.1 and 5.1.1, questions had been raised over the presumption that the listed subsidies contribute to overcapacity and overfishing. One particular concern was that this presumption would mean that no subsidies of the types referred to in Article 5.1 could be provided until after the demonstration referred to in Article 5.1.1 had been completed. Having carefully considered the various suggestions to address this concern by restructuring these provisions, my assessment is that the aim and effect of these suggestions is essentially the same as that of the provisions as they were drafted, albeit using different approaches. In particular, the provisions of Article 5.1.1 contain no requirement to make the referenced demonstration before a listed type of subsidy could be granted, nor any implicit requirement to stop all current subsidization until such a demonstration is made. Instead, the aim and operation of the text is to ensure that sustainability measures factor in as one important consideration in the granting and maintaining of subsidies, and that decisions on subsidization likewise should factor into sustainability considerations. It is this linked set of subsidies and sustainability measures – drafted and implemented as the Member sees fit – that would be the subject of the demonstration. As for the demonstration itself, it would naturally begin with the notifications as required in Article 8 and Committee review of those notifications as provided for in Article 9.

“59. In particular, that review process would allow for other Members to pose questions and identify any issues of concern, and this in turn might lead to bilateral discussions. Ultimately, as a last phase, a dispute settlement proceeding could be initiated to address the issue. Thus, while the list in Article 5.1 refers to certain forms of subsidies that have been identified in many proposals and elsewhere as having the greatest potential to contribute to overcapacity and overfishing, the list does not constitute a blanket prohibition of such subsidies. Rather, the provisions of Article 5.1.1 make clear that because the issue is subsidies that contribute to overcapacity and overfishing – relative concepts that can only be understood in the context of a particular fishery – the question of whether a given subsidy is prohibited can only be determined in the context of the fishery in which it is provided. It is exactly that context that is the subject of the demonstration referred to in Article 5.1.1.

“60..To elaborate a bit further, from my reading of the current draft text, I would expect that in the majority of cases, simply complying with the notification requirements would be sufficient to ‘demonstrate’ to the satisfaction of other Members that the sustainability elements under Article 5.1.1 have been met. Most of the remaining cases would be clarified through the Committee work and dialogue among Members. A useful example is the experience under the SPS and TBT Agreements. In the more than 25 years of operation of those Agreements there have been tens of thousands of notifications. In respect of these, only several hundred specific trade concerns have been raised, and only a handful of disputes begun. Most of these were resolved before even getting to a ruling by a panel.

“61. Seen in this light, demonstration of sustainability under Article 5.1.1 is neither an impossible standard nor a meaningless procedural step. It is rather a step that would begin with and take account of the available data and other information about the subsidy, the fishery or fisheries in question, and specific management measures. And it also would include the various types of multilateral review and other scrutiny provided for in the disciplines.

Article 5.2

“62. As noted above, this new draft of the Agreement once again contains a standalone prohibition of subsidies contingent on fishing outside a Member’s jurisdiction, in Article 5.2. As I mentioned above, there was a significant preponderance of Members sharing the view that this provision should be moved back to a standalone prohibition to ensure its effectiveness. Some Members preference was to retain the provision as Article 5.1(i), but indicated that they could accept the move back to Article 5.2 so long as the prohibition was accompanied by former Article 5.2(b). That provision exempted from this prohibition the non-collection from operators or vessels of government-to-government payments, subject to the sustainability elements in Article 5.1.1. That provision has been restored. Thus, new Article 5.2 has the same structure as and is very similar to former Article 5.2 found, for example, in the draft in TN/RL/W/276/Rev.1.

“63. The footnote to Article 5.2(a), now footnote 13, has been amended compared to the previous draft by adding clarifying language regarding fishing in a nearby Member’s exclusive economic zone pursuant to traditional or historical practices or arrangements, including relating to migratory stocks, an issue of relevance to some Members.

Article 5.3

“64. As just noted, Article 5.3 is intended to complement the main prohibition in Article 5.1 on subsidies that contribute to overcapacity and overfishing. It provides for a prohibition of all subsidies to fishing or fishing related activities in the high seas – that is, outside of any coastal Member’s or coastal non-Member’s jurisdiction and outside the competence of any RFMO/A.

“65. Although it has been stated that the sustainability conditionality under 5.1.1 to grant otherwise prohibited subsidies under Article 5.1 de facto prohibits subsidies in areas where such demonstration cannot occur, including the high seas, Article 5.2 reinforces this prohibition by providing clarity that subsidies to fishing or fishing related activities in the unregulated high seas are prohibited not only in fact, but also in law.

Article 5.4

“66. Along with footnote 3, Article 5.4 is part of a new approach to address the differences among Members concerning the two alternatives to this provision that appeared in the previous draft concerning subsidies to vessels not flying the flag of the subsidizing Member. As I stated above, footnote 3 clarifies that a subsidy is attributable to the Member conferring it, regardless of the flag or registry of any vessel involved or the nationality of the recipient. In addition, Article 5.3 requires the subsidizing Member to take special care and exercise due restraint when granting subsidies to vessels not flying its flag. This text is the result of compromise among the Members holding views on the opposite sides of the spectrum.

Article 5.5

“67. Article 5.5 concerns special and differential treatment for subsidies contributing to overcapacity and overfishing, which has been an issue of particular concern for many Members in these negotiations. This is not surprising as this is a key element in the overall discussion on balance and ambition in the Agreement on Fisheries Subsidies.

“68. For a long time, Members held diverging views on both the structure and content of SDT provisions in this pillar of the disciplines. For this reason, I, as the Chair of the negotiations, was asked to try my hand at putting together different elements in the form of a new clean text on SDT for Article 5. This first try was circulated in an earlier version of this text in TN/RL/W/276/Rev.2 on 8 November 2021.

“69. On the basis of the discussions in the NGR, proposals, and textual suggestions from Members, I drafted Article 5.4 of TN/RL/W/276/Rev.2 as my best and honest attempt to reflect where I considered a landing zone could lie among different views at that time. The whole of the Article was in brackets in that draft, to reflect that the provisions remained under discussion. Three weeks later, on 24 November 2021, when I circulated the first Draft Agreement on Fisheries Subsidies in WT/MIN(21)/W/5, the structure of Article 5.4, including the language in it and brackets around it remained virtually unchanged. One addition was a footnote at the start of the Article, which provided that it would not apply to Members whose annual share of the global volume of marine capture production is at or above 10 per cent as per the most recent published FAO data. This was in response to a widespread call during discussions on the previous versions of the text that developing country Members with a relatively large share of global fishing should not be in the position to avail of the SDT provisions.

“70. Over the past few weeks, intensive and useful discussions with and among Members have given me the impression that views on SDT in Article 5 may not be as far apart as they had appeared. First, many delegations indicated that they could work on the basis of the approach that was in Article 5.4 of WT/MIN(21)/W/5, subject to some restructuring and rewording to make it more clear that the three elements of SDT in that provision are separate; and second, many Members showed some flexibility in respect of the length of the transition period, the de minimis threshold, and the geographical exemption for artisanal fishing.

“71. On the basis of this work, I have made certain changes to the previous formulations on SDT in the overcapacity and overfishing pillar, with the aim of making these provisions more broadly acceptable to Members. One important change was to separate and renumber the subparagraphs of the Article to make it more clear that the three elements of SDT are separate although they work in parallel during the transition period. This restructuring has been well-received by delegations, allowing us to focus on the specific elements themselves.

Footnote 14

“72. Footnote 14, which was footnote 12 in the previous draft, has been revised, and the figure of 10 per cent has been replaced with an ‘X’. The entire footnote is in brackets to indicate that some Members are concerned that this is not the appropriate way to indicate that any developing country Member should not avail from SDT. Others consider, however, that those developing country Members with a large share of global marine capture should not be able to avail of SDT for subsidies contributing to overcapacity and overfishing.

“73. The other amendment concerns the reference to the most recent published FAO and adds the
phrase “as circulated by the WTO Secretariat”. The intention of this amendment is to account for
potential differences in nomenclature between the UN system and the WTO.

Article 5.5 (a)

“74. Article 5.5(a) provides for a transition period available to all developing country Members not
falling under the scope of footnote 14 and that choose to use this provision. During this period a
developing country Member would be exempt from the prohibition in Article 5.1. That is, it could
grant or maintain the subsidies in Article 5.1 without having to meet the sustainability requirements
in Article 5.1.1, in its EEZ and in the area of competence of an RFMO.

“75. Members’ views on the duration of this transition period continue to range from no, or at best a very short transition period, to the proposal for a transition period of 25 years. However, these represent views at the opposite ends of the spectrum, while it appears that most Members now see the likely outcome within a narrower range. I have incorporated two alternative formulations of the transition period, based on Members’ discussions on this issue. The first alternative is 7 years, which represent a mid-point among the gradually narrowing range of numbers that Members have been discussing. The second alternative is based on the suggestion from numerous Members to refer to a specific end-date for the transition period, namely year 2030. This is the target date for implementation of the Sustainable Development Goals and Target 14.6 which, along with the MC11 Ministerial Decision on Fisheries Subsidies, is our mandate for negotiating this Agreement.

’76. The numbers associated with the transition period, 7 years or up to the year 2030, have been included in brackets, because this is an area where views have not converged enough for me to present a single suggested outcome.

“77. Another new element to the transition period is some further period of flexibility through a two-year peace clause, which would apply after the transition period ended. During this two-year period, a developing country Member using Article 5.1 would still have the obligation to implement that provision but would be exempt from dispute settlement under Articles 5.1 and 10 of this Agreement. A proposal with a similar objective has also been distributed, which would give developing country Members a set number of years after the transition period when they would not have to notify information about stock status.

“78. Finally, questions have been raised about the appropriateness and practicability of the final clause of Article 5.4(b) in the previous draft, that Members intending to invoke this provision should inform the Committee in writing before the date of entry into force of the Agreement. To address this concern, the drafting has been changed to mirror that in Articles 8.4 and 8.5, by referring to ‘within one year of the date of entry into force’.

Article 5.5 (b)(i)

“79. Article 5.5(b)(i) is intended to provide flexibility for developing country Members with relatively small individual shares of marine global capture production. This provision would apply separately and in parallel to Article 5.5(a), that is during and after the transition period. Under Article 5.5(b)(i), a Member with no more than the specified de minimis share of global marine capture would be exempt from Article 5.1, including Article 5.1.1, for as long as its share of catch was below the de minimis limit for three consecutive years.

“80. The previous draft of the Agreement had proposed a 0.7 per cent share of global marine capture as the threshold. The number was in brackets to indicate that views varied on the threshold percentage, ranging from 0.3 up to 5 per cent. Once again, however, these represented the far ends of the spectrum. Some Members that had indicated a willingness to accept 0.7 per cent stated that this was their compromise position, noting that a Member with 1 per cent share of global catch would be among the top 20 fishing nations in the world with over 800,000 tonnes of fish caught a year. It also was noted that the vast majority of Members currently below a 0.7 per cent share of global catch well below this figure, giving them considerable policy space to increase catch before reaching this threshold. Others pointed out that some developing country Members might reach 0.7 per cent relatively soon, and therefore sought additional policy space.

“81. As a compromise solution, and based on discussion and negotiations among Members, in this new draft, I am suggesting that the de minimis threshold for the exemption from Article 5.1 be set at 0.8 per cent share of global volume of marine capture production as per the most recent published FAO data. This number is in square brackets since this is an area where views have not fully converged. In this provision the phrase ‘as circulated by the WTO Secretariat’ has been added for the same reasons as I outlined for footnote 14.

Article 5.5(b)(ii)

“82. Article 5.5(b) now contains two subparagraphs because footnote 13 of the previous draft has
been moved into Article 5.5(b) as subparagraph (ii). Apart from editorial changes, the text of this
provision remains the same. That is, it provides that a developing country Member would remain
exempt from Article 5.1 until its share of global marine capture production exceeded the de minimis
threshold for three consecutive years. Conversely, Article 5.5(b)(i) would apply again to a Member
whose share of global marine capture production fell back below this threshold for three consecutive
years.

Article 5.5 (c)

“83. Article 5.5(c) is often referred to as the exemption for subsidies to artisanal fishing. This provision also works separately and in parallel to the transition period in Article 5.4(a). Article 5.5(c) would exempt from Article 5.1, including Article 5.1.1, for all developing country Members not falling under the scope of footnote 14, subsidies to low income, resource-poor and livelihood fishing within a geographic limit. Again, this is a stand-alone provision that operates in parallel with the transition period in Article 5.5(a), and would be relevant after the transition period for those Members with a greater than de minimis share of world catch.

“84. The previous draft Agreement set a geographic limit of 12 nautical miles (in brackets). Similar to the discussions on the length of the transition period and the de minimis threshold, Members’ views on what the limit should be are diverse. Some have noted that they see even having such an exemption as a compromise from their earlier opposition to an artisanal fishing exemption, or their view that it should be limited to de minimis Members. These Members generally oppose any expansion of the 12 nautical mile limit because it is a permanent exemption. On the other hand, some developing country Members argue that this exemption should apply to the entire EEZ or 200 nautical miles. From recent discussions among Members, I sense that the preponderance of Members are considering numbers in the 12 to 24 nautical mile range. This is the reason that these two figures appear in the text, as alternatives, and in brackets.

“85. Those in favour of 12 nautical miles have noted that this is the limit of the territorial sea in UNCLOS where the coastal Member has full sovereignty. Some Members in favour of a limit of more than 12 nautical miles argue, however, that artisanal fishers may fish somewhat beyond 12 miles and that such fishers should not be subject to any conditions or artificial boundaries for any subsidies they may receive. Some Members have suggested 24 nautical miles as an alternative, noting that this is the limit of the contiguous zone as set out in UNCLOS.

“86. One technical clarification has been introduced at the end of this provision, to reflect that the baselines from which the geographic scope of the exemptions is measured includes archipelagic baselines, as referred to in Article 47 of UNCLOS, that is from the outermost points of the outermost islands and drying reefs of the archipelago. This means in practice that the exemption for artisanal fishing would apply to all of the waters inside the archipelagic baselines.

Article 5.5 (d)

“87. From our extensive discussions on this issue to date, it has been suggested that Members availing themselves of the SDT provisions nevertheless should aim to provide subsidies in a sustainable manner, with a view to avoiding contributing to overcapacity and overfishing. This has been a shared view of both developed and developing country Members. This is reflected in Article 5.5(d), which was Article 5.4(c) in the previous draft text. Some Members consider that the mandatory ‘shall’ in this best endeavours clause is too strong and have suggested ‘should’ or ‘may’ instead. I have not changed the drafting here, noting the views of many Members that ‘shall endeavour’ merely implies a need to be cognizant of potential impacts of subsidies when granting them rather than requiring any specific action.

“88. As stated earlier, while the drafting of Article 5.5 is my best and honest attempt at presenting a possible landing zone, divergences remain with regard to specific figures, and I believe Ministers’ attention will be particularly warranted in resolving these issues. It must be noted, additionally, that the numbers in brackets are suggested as a compromise between long held positions on this issue.”

Article 6: Specific Provisions for LDC Members

Articles 6.1 – 6.3 remain unchanged except for the removal of the brackets around 6.2 and 6.3.

Article 7: Technical Assistance and Capacity Building

Article 7, like Article 6 is identical to the prior version with the exception of the removal of brackets around the article.

Article 8: Notification and Transparency

Article 8.1 remains unchanged from the November 2021 draft although footnote 16 of the new draft (15 of the old draft) includes modifications on the percentage of global marine capture and FAO data circulated by the WTO Secretariat similar to changes in Article 5. Article 8.1bis (and footnote 18) from the earlier draft has been deleted with a new Article 8.2 added. Article 8.7 (former Article 8.6) has a new footnote added (19). There is a new Article 8.9 added. While there is no change to the prior 8.2(b) (now 8.3(b)), this provision which requires notification of “any vessels and operators for which the member has information that reasonably indicates the use of forced labour, along with relevant information to the extent possible” is of importance to the United States. That 8.3(b) remains bracketed in the Chair’s draft indicates lack of movement to consensus (politely described as “discussions continuing”).

The Chair’s discussion of new Article 8.2, footnote 19 and Article 8.9 are copied below. See WT/MIN(22)/W/20/Add.1 at pages 17 and 19.

Article 8.2

“102. Article 8.2 requires annual notification “to the extent possible” of fuel subsidies to fishing and fishing related activities that are not specific. As noted above, the language was developed by a group of interested Members with different and somewhat opposed views on this issue as a formulation around which all of them could converge.

“103. Article 8.2 has some changes compared to the previous formulation of the same provision, Article 8.1bis in the previous draft (WT/MIN(21)/W/5). First, concerning the placement, the discussion of new proposed Article 8.2 led to the conclusion that this separate provision should not be mixed with what is covered by Article 8.1, which refers to the SCM Agreement, given that nonspecific subsidies are outside the scope of the SCM Agreement. The suggestion was that, logically, this provision should immediately follow Article 8.1. Second, the old footnote 18 to Article 8.1bis in the Draft Agreement (WT/MIN(21)/W/5) clarified that this provision is without prejudice to Article 25 of the SCM Agreement. However, with the inclusion of the new Article 8.9, which is more general and clarifies that notifying a measure does not prejudge its legal status under the SCM Agreement, its effects or its nature, in Members’ view the old footnote 18 became redundant and it was deleted.

“104. In the discussion of this provision, it has been noted that the information that would be collected could be informative in the reviews of the substantive operation of the Agreement under Article 9.4. This element of discussion was an important consideration to many Members in finding the transparency elements in 8.2 to be a compromise approach to the overall treatment of nonspecific fuel subsidies in this Agreement.

“105. This provision is related to Article 1 and deletion of the former Article 1.2 on non-specific fuel
subsidies. As a reminder, Members’ views on how to deal with this sensitive issue covered a spectrum
from the simple deletion of the brackets around Article 1.2 at one end, to the deletion of Article 1.2
itself and any transparency provision on these subsidies at the other end.

“106. As mentioned above, the compromise solution arising from the long process we had on this issue that most Members could live with was to add language on transparency in respect of nonspecific fuel subsidies, currently reflected in Article 8.2, and to delete Article 1.2.”

“118. New footnote 19 has been added to Article 8.7 to clarify that there is no requirement to notify subsidy programmes before they are implemented, or prior to what is required under the regular notification process. This is a broadly shared understanding among Members, which is reflected in this footnote for clarity and does not change the substance of Article 8.7. This footnote also contains a cross-reference to footnote 16, pertaining to the periodicity of notifications by developing country Members below the de minimis threshold in Article 5.5(b)(i).”

Article 8.9

“120. Article 8.9 is a new provision which repeats verbatim the text of Article 25.7 of the SCM
Agreement. In particular, it provides that notifying a measure under the Agreement does not
prejudge its legal status, effects or nature.”

Article 9: Institutional Arrangements

There are no changes to Article 9 in the current draft text.

Article 10: Dispute Settlement

There are no changes to Article 10 in the current draft text.

Article 11: Final Provisions

Article 11.3(b) deletes a clause at the end of provision (“that is contested by a party or a third party”) and adds a footnote 24 (“this limitation shall also apply to an arbitrator established pursuant to Article 25 of the Dispute Settlement Understanding.”).

A few thoughts

Since the fisheries subsidies negotiations have been ongoing for more than 20 years, an important test of whether the WTO can address important issues of today will be whether ministers are able to cobble together a final agreement. As important as completing the deal will be, equally important will be achieving a meaningful level of ambition. As is clear from the Chair’s write-up of the current state of negotiations, the number of brackets have been reduced, but getting to a final agreement will be up to the flexibilities of the Ministers attending.

The level of ambition in the current draft will be better gaged by others, but the impression of the changes in Article 5 are of large numbers of WTO Members essentially escaping many of the obligations of the draft agreement. For example, the exclusion for WTO developing country Members who each account for less than 0.8% of global marine capture from the disciplines of Article 5.1, means that very few developing countries will be subject to the disciplines of Article 5.1. See Art. 5.5(b)(1). Similar questions arise with regard to the nautical mile exception for subsidies from developing countries to “low income, resource-poor and livelihood fishing or fishing related activities” (Art. 5.5(c), Transition periods also seem very long (Art. 5.5(a)).

Data from the FAO on global marine capture shows data for 2018 on marine capture production the top 25 producers (accounted for 80% of capture) and the rest of the world (20%). See Food and Agriculture Organization of the United Nations, The State of World Fisheries and Aquaculture, 2020, at page 13, Table 2 (copied below). Most WTO Members are self-declared developing countries (or are LDCs). The vast majority of WTO developing countries are in the 20% all other grouping, virtually none of whom will be limited by Article 5.

With the significant deterioration in the global situation for fish stocks, the world is in need of real leadership and collective action that is meaningful.

The hope is that the 12th Ministerial Conference will provide a meaningful outcome. But the cards on the table look less than encouraging to Members being able to achieve a truly meaningful agreement.

When one looks at the other areas where Ministers will be trying to reach agreement, prospects are similarly guarded.

The show starts tomorrow in Geneva. We are just days away from knowing how relevant the WTO can be for the issues before it today and what that says for the organization’s future relevance.

The WTO’s 12th Ministerial Conference starts in three days – will modest results yet be possible?

Looking at WTO press releases over the last week, the WTO’s Director-General has been urging Members to find a path forward on a handful of issues — a response to the pandemic (including IP flexibilities), concluding the fisheries subsidies negotiations that have been dragging on for more than twenty years, obtaining some movement on agriculture (food security, no restrictions on sales to the World Food Programme) and an outline of a possible work program going forward including on WTO reform. Various press articles have suggested modest progress at best has been achieved in recent weeks and flag challenges to achieving any meaningful results at next week’s Ministerial Conference. See, e.g., Inside U.S. Trade’s World Trade Online, MC12: A preview, As ministers head to Geneva for MC12, success remains on a knife’s edge, June 9, 2022, https://insidetrade.com/daily-news/ministers-head-geneva-mc12-success-remains-knife’s-edge. The ongoing Russian war in Ukraine has created even further challenges to achieving any meaningful outcomes next week.

Yesterday’s article in The Globe and Mail had Director-General Ngozi Okonjo-Iweala talking about it still being possible to bring in the first two issues listed above without commenting on other items before the Members. See The Globe and Mail, Global agreement on COVID-19 vaccine rights waiver within reach, WTO chief says, June 8, 2022, https://www.theglobeandmail.com/world/article-global-agreement-on-covid-19-vaccine-rights-waiver-within-reach-WTO/ (“An international agreement on waiving intellectual property rights for COVID-19 vaccines is within reach ahead of a global trade meeting next week, the head of the World Trade Organization said on Wednesday. In a telephone interview, Director-General Ngozi Okonjo-Iweala also said an agreement could be reached on fishing subsidies in time for the meeting, when 120 trade ministers from around the world gather at the body’s Geneva headquarters.”).

As reviewed in prior posts, there are a range of matters that have been discussed including a number of joint statement initiatives (at least one of which is concluded among willing Members). See May 11, 2022:  Less than five weeks to the WTO’s 12th Ministerial Conference — what are likely deliverables?, https://currentthoughtsontrade.com/2022/05/11/less-than-five-weeks-to-the-wtos-12th-ministerial-conference-what-are-likely-deliverables/. How many of the issues that have been being worked on will result in actual outcomes or simply be included in a future work program is the question heading into next week. Most bets would say the Ministerial Conference will be lucky to achieve even modest success.

There are a host of documents that are posted on the WTO webcite as documents for the Ministerial. See WTO, MINISTERIAL CONFERENCES: TWELFTH WTO MINISTERIAL CONFERENCE, https://www.wto.org/english/thewto_e/minist_e/mc12_e/documents_e.htm (accessed on June 9, 2022). There is a draft text and revision for fisheries subsidies (but not the current iteration). There is no draft text for the pandemic response as yet although both the IP flexibility draft forwarded to the membership in recent weeks and the broader package of provisions have been in the public domain, but don’t reflect recent negotiations. The agricultural negotiating group chair’s draft of a text from November 2021 is on the webcite but again doesn’t reflect developments from 2022. There are lists of issues various developing country groups and least developed countries would like to see as well as a Brazilian paper proposing having ministerial meetings every year versus the current every two years (which has twice slipped to only once in four years). While all these documents provide some background on issues of interest to at least some of the Members, the core documents will likely be those added by Sunday reflecting hoped for outcomes.

The world needs the WTO to be successful next week. Fisheries subsidies are a major problem and fish stocks globally have paid the price of the inaction by WTO Members. The pandemic has raised important issues for trade playing a more important role in minimizing negative effects and improving equitable access to vaccines. And the food insecurity issues which have been grossly worsened by the ongoing Russian war in Ukraine are critical for tens of millions of the world’s population, with trade being an important element to addressing the current issue. And the WTO is in need of fundamental reform if it is to be able to address changing global needs in a timely manner, something it has been unable to do in its first twenty 27 years.

The divisions among WTO Members on the path forward for the WTO and the opposition of many to working with the Russian Federation argue for a minimalist package in fact at next week’s Ministerial Conference. Even a minimalist package may prove illusive in today’s world. Let’s hope for a meaningful success next week.

Biden Administration makes moves to increase domestic production of various green energy products while providing a two-year exemption from duties for solar cells and panels from selected countries not currently subject to trade remedies

With supply chain challenges flowing from the COVID pandemic continuing and inflation being exacerbated by the ongoing Russian war in Ukraine, the Biden Administration has been focused on finding ways to reduce inflation while at the same time trying to move the U.S. towards greater reductions in greenhouse gases as part of the U.S. commitments under the Paris Agreement.

The U.S. has seen large increases in installaed renewable energy in recent years, although there has been strong pushback from solar installers to efforts by domestic producers to address possible circumvention of existing trade remedy measures. See, e.g., PV Tech, Nearly all US solar companies expecting ‘severe or devastating impact’ of anti-circumvention investigation, April 6, 2022, https://www.pv-tech.org/nearly-all-us-solar-companies-expecting-severe-or-devastating-impact-of-anti-circumvention-investigation/. There has been some Congressional support for not pursuing the anticircumvention investigations, although such investigations are supposed to be fact based versus politically driven or opposed. See, e.g., PV Magazine, House of Representatives joins growing opposition to solar anti-circumvention investigation, May 15, 2022, https://pv-magazine-usa.com/2022/05/19/house-of-representatives-joins-growing-opposition-to-solar-anti-circumvention-investigation/.

On June 6, 2022, President Biden issued five Memoranda on Presidential Determinations Pursuant to Section 303 of the Defense Production Act of 1950, as amended, addressing (1) Electrolyzers, Fuel Cells, and Platinum Group Metals, (2) Insulation, (3) Electric Heat Pumps, (4) Solar Photovoltaic Modules and Module Components, and (5) Transformers and Electric Power Grid Components. The President also issued a Declaration of Emergency and Authorization for Temporary Extensions of Time and Duty-Free Importation of Solar Cells and Modules from Southeast Asia. All documents are due to be published in the Federal Register on June 9, 2022.

The Memoranda are similar in language. The one on solar photovoltaic modules and module components is copied below.

“Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended, on Solar Photovoltaic Modules and Module Components

“JUNE 06, 2022

“MEMORANDUM FOR THE SECRETARY OF ENERGY

“SUBJECT: Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended, on Solar Photovoltaic Modules and Module Components

“Ensuring a robust, resilient, and sustainable domestic industrial base to meet the requirements of the clean energy economy is essential to our national security, a resilient energy sector, and the preservation of domestic critical infrastructure. Therefore, by the authority vested in me as President by the Constitution and the laws of the United States of America, including section 303 of the Defense Production Act of 1950, as amended (the “Act”) (50U.S.C. 4533), I hereby determine, pursuant to section 303(a)(5) of the Act, that:

“(1) solar photovoltaic modules and module components, including ingots, wafers, solar glass, and cells, are industrial resources, materials, or critical technology items essential to the national defense;

“(2) without Presidential action under section 303 of the Act, United States industry cannot reasonably be expected to provide the capability for the needed industrial resource, material, or critical technology item in a timely manner; and

“(3) purchases, purchase commitments, or other action pursuant to section 303 of the Act are the most cost effective, expedient, and practical alternative method for meeting the need.

“Pursuant to section 303(a)(7)(B) of the Act, I find that action to expand the domestic production capability for solar photovoltaic modules and module components is necessary to avert an industrial resource or critical technology item shortfall that would severely impair national defense capability.

“Therefore, I waive the requirements of section 303(a)(1)–(a)(6) of the Act for the purpose of expanding the domestic production capability for solar photovoltaic modules and module components.

“You are authorized and directed to publish this determination in the Federal Register.

“JOSEPH R. BIDEN JR”

Only the solar modules and components memo was accompanied by a waiver on import duties on certain products from selected countries not currently subject to trade remedies. The emergency/waiver decision is copied below.

“Declaration of Emergency and Authorization for Temporary Extensions of Time and Duty-Free Importation of Solar Cells and Modules from Southeast Asia

“JUNE 06, 2022

“Electricity is an essential part of modern life that powers homes, business, and industry. It is critical to the function of major sectors of the economy, including hospitals, schools, public transportation systems, and the defense industrial base. Even isolated interruptions in electric service can have catastrophic health and economic consequences. A robust and reliable electric power system is therefore not only a basic human necessity, but is also critical to national security and national defense.

“Multiple factors are threatening the ability of the United States to provide sufficient electricity generation to serve expected customer demand. These factors include disruptions to energy markets caused by Russia’s invasion of Ukraine and extreme weather events exacerbated by climate change. For example, in parts of the country, drought conditions coupled with heatwaves are simultaneously causing projected electricity supply shortfalls and record electricity demand. As a result, the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation have both warned of near-term electricity reliability concerns in their recent summer reliability assessments.

“In order to ensure electric resource adequacy, utilities and grid operators must engage in advance planning to build new capacity now to serve expected customer demand. Solar energy is among the fastest growing sources of new electric generation in the United States. Utilities and grid operators are increasingly relying on new solar installations to ensure that there are sufficient resources on the grid to maintain reliable service. Additions of solar capacity and batteries were expected to account for over half of new electric sector capacity in 2022 and 2023. The unavailability of solar cells and modules jeopardizes those planned additions, which in turn threatens the availability of sufficient electricity generation capacity to serve expected customer demand. Electricity produced through solar energy is also critical to reducing our dependence on electricity produced by the burning of fossil fuels, which drives climate change. The Department of Defense has recognized climate change as a threat to our national security.
In recent years, the vast majority of solar modules installed in the United States were imported, with those
from Southeast Asia making up approximately three-quarters of imported modules in 2020. Recently, however, the United States has been unable to import solar modules in sufficient quantities to ensure solar capacity additions necessary to achieve our climate and clean energy goals, ensure electricity grid resource adequacy, and help combat rising energy prices. This acute shortage of solar modules and module components has abruptly put at risk near-term solar capacity additions that could otherwise have the potential to help ensure the sufficiency of electricity generation to meet customer demand. Roughly half of the domestic deployment of solar modules that had been anticipated over the next year is currently in jeopardy as a result of insufficient supply. Across the country, solar projects are being postponed or canceled.

“The Federal Government is working with the private sector to promote the expansion of domestic solar manufacturing capacity, including our capacity to manufacture modules and other inputs in the solar supply chain, but building that capacity will take time. Immediate action is needed to ensure in the interim that the United States has access to a sufficient supply of solar modules to assist in meeting our electricity generation needs.

“NOW, THEREFORE, I, JOSEPH R. BIDEN JR., President of the United States, by the authority vested in me by the Constitution and the laws of the United States of America, including by section 318(a) of the Tariff Act of 1930, as amended, 19 U.S.C. 1318(a), do hereby declare an emergency to exist with respect to the threats to the availability of sufficient electricity generation capacity to meet expected customer demand. Pursuant to this declaration, I hereby direct as follows:

“Section 1. Emergency Authority.

“(a) To provide additional authority to the Secretary of Commerce(Secretary) to respond to the emergency herein declared, the authority under section 1318(a) of title 19, United States Code, is invoked and made available, according to its terms, to the Secretary.

“(b) To provide relief from the emergency, the Secretary shall consider taking appropriate action under section1318(a) of title 19, United States Code, to permit, until 24 months after the date of this proclamation or until the emergency declared herein has terminated, whichever occurs first, under such regulations and under such conditions as the Secretary may prescribe, the importation, free of the collection of duties and estimated duties, if applicable, under sections 1671, 1673, 1675, and 1677j of title19, United States Code, of certain solar cells and modules, exported from the Kingdom of Cambodia, Malaysia, the Kingdom of Thailand, and the Socialist Republic of Vietnam, and that are not already subject to an antidumping or countervailing duty order as of the date of this proclamation, and to temporarily extend during the course of the emergency the time therein prescribed for the performance of any act related to such imports.

“(c) The Secretary shall consult with the Secretary of the Treasury and the Secretary of Homeland Security, or their designees, before exercising, as invoked and made available under this proclamation, any of the authorities set forth in section 1318(a) of title 19, United States Code.

“Sec. 2. General Provisions.

“(a) Nothing in this proclamation shall be construed to impair or otherwise affect:

“(i) the authority granted by law to an executive department or agency, or the head thereof; or

“(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

“(b) This proclamation shall be implemented consistent with applicable law and subject to the availability of appropriations.

“(c) This proclamation is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

“IN WITNESS WHEREOF, I have hereunto set my hand this sixth day of June, in the year of our Lord two thousand twenty-two, and of the Independence of the United States of America the two hundred and forty-sixth.

“JOSEPH R. BIDEN JR.”

The action of President Biden basically puts on hold for two years the anticircumvention investigation (or at least any findings from such an investigation if pursued). Normally, such action would be viewed by this author as unacceptable, essentially interfering with statutory rights to have trade remedies enforced and circumvention addressed. And there may be some who question the legality of the emergency action as issued.

However, the President’s coupling the action with use of the Defense Production Act and government procurement steps creates a potential win-win, where domestic producers and their workers get expanded production opportunities at costs not reflecting dumped or subsidies inputs while solar assemblers and their workers get access to cheap solar modules while production capacity is expanding. it is also the case, that the emergency action does not disturb existing coverage of the orders, just gives a two year window when anticircumvention duties will not be applied if found due on a number of Southeast Asian countries..

The White House Fact Sheet on the above actions provides a more detailed explanation of what the Administration’s actions are intended to achieve. See White House Briefing Room, FACT SHEET: President
Biden Takes Bold Executive Action to Spur Domestic Clean Energy Manufacturing, JUNE 06, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/06/fact-sheet-president-biden-takes-bold-executive-action-to-spur-domestic-clean-energy-manufacturing/. The Fact Sheet is copied below.

“FACT SHEET: President Biden Takes Bold Executive Action to Spur Domestic Clean Energy Manufacturing

“JUNE 06, 2022

“Historic Actions Include Authorizing Defense Production Act to Lower Energy Costs, Strengthen Power Grid, and Create Good-Paying Jobs

“Today’s clean energy technologies are a critical part of the arsenal we must harness to lower energy costs for families, reduce risks to our power grid, and tackle the urgent crisis of a changing climate. From day one, President Biden has mobilized investment in these critical technologies. Thanks to his clean energy and climate agenda, last year marked the largest deployment of solar, wind, and batteries in United States history, and our nation is now a magnet for investment in clean energy manufacturing.

“Since President Biden took office, the private sector has committed over $100 billion in new private capital to make electric vehicles and batteries in the United States. We have made historic investments in clean hydrogen, nuclear, and other cutting-edge technologies. And companies are investing billions more to grow a new domestic offshore wind industry.

“We are also now on track to triple domestic solar manufacturing capacity by 2024. The expansions to domestic solar manufacturing capacity announced since President Biden took office will grow the current base capacity of 7.5 gigawatts by an additional 15 gigawatts. This would total 22.5 gigawatts by the end of his first term – enough to enable more than 3.3 million homes to switch to clean solar energy each year.

“While President Biden continues pushing Congress to pass clean energy investments and tax cuts, he is taking bold action to rapidly build on this progress and create a bridge to this American-made clean energy future. Today, President Biden is taking action to:

“o Authorize use of the Defense Production Act (DPA) to accelerate domestic production of clean energy technologies, including solar panel parts;

“o Put the full power of federal procurement to work spurring additional domestic solar manufacturing capacity by directing the development of master supply agreements, including “super preference” status; and

“o Create a 24-month bridge as domestic manufacturing rapidly scales up to ensure the reliable supply of components that U.S. solar deployers need to construct clean energy projects and an electric grid for the 21st century, while reinforcing the integrity of our trade laws and processes. 

“Together, these actions will spur domestic manufacturing, construction projects, and good-paying jobs – all while cutting energy costs for families, strengthening our grid, and tackling climate change and environmental injustice. With a stronger clean energy arsenal, the United States can be an even stronger partner to our allies, especially in the face of Putin’s war in Ukraine.

“The stakes could not be higher. That is why President Biden also continues to urge Congress to quickly pass tax cuts and additional investments that advance U.S. clean energy manufacturing and deployment. Failing to take these actions would deny consumers access to cost-cutting clean energy options, add risks to our power grid, and stall domestic clean energy construction projects that are critical to tackling the climate crisis. At the same time, President Biden will keep using his executive authority to take bold action to build an American-made clean energy future.

INVOKING THE DEFENSE PRODUCTION ACT FOR CLEAN ENERGY

“Today, President Biden is authorizing the use of the Defense Production Act (DPA) to accelerate domestic production of clean energy technologies – unlocking new powers to meet this moment. Specifically, the President is authorizing the Department of Energy to use the DPA to rapidly expand American manufacturing of five critical clean energy technologies:

“o Solar panel parts like photovoltaic modules and module components;

“o Building insulation;

“o Heat pumps, which heat and cool buildings super efficiently;

“o Equipment for making and using clean electricity-generated fuels, including electrolyzers, fuel cells, and related platinum group metals; and

“o Critical power grid infrastructure like transformers.

“In deploying the DPA, the Biden-Harris Administration will strongly encourage the use of strong labor standards, including project labor agreements and community benefits agreements that offer wages at or above the prevailing rate and include local hire provisions. The Administration also will strongly encourage projects with environmental justice outcomes that empower the clean energy transition in low-income communities historically overburdened by legacy pollution.

“Following this announcement, the White House and the Department of Energy will convene relevant industry, labor, environmental justice, and other key stakeholders as we maximize the impact of the DPA tools made available by President Biden’s actions and strengthen domestic clean energy manufacturing.

BOOSTING MADE-IN-AMERICA CLEAN ENERGY WITH FEDERAL PROCUREMENT

“President Biden is also putting the full power of federal procurement to work spurring additional domestic solar manufacturing capacity. Today, the President directed the development of two innovative tools to accelerate Made-in-America clean energy:

“o Master Supply Agreements for domestically manufactured solar systems to increase the speed and efficiency with which domestic clean electricity providers can sell their products to the U.S. Government; and

“o So-called “Super Preferences” to apply domestic content standards for federal procurement of solar systems, including domestically manufactured solar photovoltaic components, consistent with the Buy American Act.

“These federal procurement measures can stimulate demand for up to a gigawatt of domestically produced solar modules in the near term, and up to 10 gigawatts over the next decade from U.S. government demand alone. To further increase the impact of these actions, the Administration will also partner with state and local governments and municipal utilities in these innovative arrangements – increasing the potential market impact over the next decade to as much as over 100 gigawatts. These procurement actions will provide a significant demand anchor for a revitalized domestic solar manufacturing industry.

“SUPPORT FOR U.S. GRID-STRENGTHENING, CLEAN ENERGY CONSTRUCTION PROJECTS

“Because of private investor confidence in President Biden’s leadership and our national commitment to a clean energy future, the United States is now on track to triple its solar manufacturing capacity by 2024. The expansions to domestic solar manufacturing capacity announced since the President took office will grow the current 7.5 gigawatts of capacity by an additional 15 gigawatts of capacity, for a total of 22.5 gigawatts by the end of his first term – enough to enable more than 3.3 million homes to switch to clean solar energy every year. To rapidly build on this progress and create a bridge to this American-made clean energy future, we need to boost short-term solar panel supply to support construction projects in the United States right now. This is because grid operators around the country are relying on planned solar projects to come online to ensure there is sufficient power to meet demand, and to ensure we can continue to deploy solar at the rates needed to keep us on track to meet the President’s climate goals. 

“Today, President Biden is using his powers to create a 24-month bridge for certain solar imports while reinforcing the integrity of our trade laws and processes. Specifically, the President is:

“o Temporarily facilitating U.S. solar deployers’ ability to source solar modules and cells from Cambodia, Malaysia, Thailand, and Vietnam by providing that those components can be imported free of certain duties for 24 months in order to ensure the U.S. has access to a sufficient supply of solar modules to meet electricity generation needs while domestic manufacturing scales up; and

“o Reinforcing his commitment to safeguarding the integrity and independence of all ongoing trade investigations by career officials at the Department of Commerce and recognizing the vital role these processes play in strengthening our economy.

ADDITIONAL STEPS TO CUT COSTS, SUPPORT GOOD-PAYING JOBS, AND ADVANCE ENVIRONMENTAL JUSTICE

“Today’s actions build on this Administration’s existing initiatives to grow domestic clean energy innovation and manufacturing and to lower energy costs for Americans, including:

“o Permitting More Clean Energy on Public Lands. As part of the Biden-Harris Permitting Action Plan, a new five-agency collaboration is expediting reviews of clean energy projects on public lands through the Department of the Interior, helping us race ahead toward permitting at least 25 gigawatts by 2025 – enough to power around five million homes. These actions have already increased clean energy permitting activities by 35 percent, including major solar project approvals and leases. We have also launched five new Renewable Energy Coordination Offices and reduced rents and fees by more than 50 percent for solar and wind projects on public lands.

“o Boosting Community-Based Clean Energy in Cities and Rural Areas. The Biden-Harris Administration is helping 17 local communities remove red tape with the SolarAPP+ online tool to enable same-day approvals for residential solar installation permits, and an additional 400 interested communities are in the pipeline. The National Climate Task Force launched new initiatives on increasing deployment of Distributed Energy Resources, including rooftop solar, with a focus on bringing the benefits of these projects to underserved communities. The United States Department of Agriculture provided the largest-ever investment in rural renewable energy last year. In addition, the Department of Energy and the Department of Health and Human Services are partnering to develop and pilot a digital platform that will connect customers who are eligible for the Low Income Home Energy Assistance Program with community solar subscriptions, to further reduce customer energy costs. Likewise, the U.S. Department of Housing and Urban Development is working with municipalities to enable residents of affordable housing to directly benefit from low-cost community solar power without seeing a rent increase or adjustment to their utility allowance.

“o Supporting a Diverse Solar Workforce with Good-Paying Jobs, including pathways to stable careers with the free and fair choice to join a union. Solar industry jobs consistently rank among the top fastest-growing in the nation, and many require only a high school education or GED. The Economic Development Administration recently awarded funding to support solar employment training in tribal and coal-impacted communities. In addition, the Department of Energy has issued a Request for Information and hosted six workshops to determine common goals and needs from stakeholders, including industry, unions, and training organizations. DOE will continue to explore these issues, including by providing funding, new collaborations with industry, other federal agencies, and state-based job boards to develop equitable worker-centric training and education programs, work-based learning opportunities, and support services such as career counseling, mentorship, and job readiness programs.

“o Developing Clean Energy Domestic Manufacturing for Export and Building Capacity in Allied Nations. The Export-Import Bank of the United States (EXIM) Make More in America Initiative, approved by the EXIM board in April, will prioritize investments to expand clean energy manufacturing. The U.S. International Development Finance Corporation supports building resilient clean energy manufacturing supply chains in allied nations around the world, reducing global dependence on China.

“o Investing in Clean Energy for Resilience in Puerto Rico: The Biden-Harris Administration joined forces with the Commonwealth of Puerto Rico to advance dozens of solar energy projects that will enable Puerto Rico to meet its target of 100% renewable electricity, while improving power sector resilience and increasing access to more affordable energy and cleaner air.”

A few thoughts 

In a year marked by an extraodinary set of challenges, the Biden Administration is fighting to move forward a clean energy agenda, combat the supercharged inflation of recent months, address the challenges to the global order from the Russian invasion of Ukraine and more. The Administration is committed to rapidly expanding renewable energy resources in the U.S. It is also committed to strong enforcement of trade remedy laws and expanding domestic manufacturing and manufacturing jobs.

The current anticircumvention investigations on a number of Southeast Asian countries on solar modules and components and the strong pressure from solar assemblers/installers created a challenging political environment for the Biden team. The solution picked — combining expanded domestic production, government procurement support and a temporary waiver of any additional duties on selected countries not yet subject to trade remedies on solar modules or components — is a creative whole of government approach to expand renewable energy installations while expanding domestic production and increasing manufacturing jobs in the United States. Let’s hope the approach proves successful in fact.

European Council May 30-31, 2022 Meeting — finally EU sanctions on most Russian oil; food security from Russian invasion of Ukraine remains problematic

In a two day European Council meeting this week, the Council addressed a wide range of issues including finally approving significant sanctions on Russian oil and continuing to focus on what can be done to reduce the food insecurity caused by Russia’s invasion of Ukraine. The conclusions from the two day meeting can be found at European Council, Special meeting of the European Council (30 and 31 May 2022), Conclusions, https://www.consilium.europa.eu/media/56562/2022-05-30-31-euco-conclusions.pdf. The conclusions are eleven pages in length and cover a range of topics. The document is embedded below and the section on sanctions (page 2) and food security are copied below.

2022-05-30-31-euco-conclusions

“Sanctions

“4. The European Council is committed to intensify pressure on Russia and Belarus to thwart Russia’s war against Ukraine. The European Council calls on all countries to align with EU sanctions. Any attempts to circumvent sanctions or to aid Russia by other means must be stopped.

“5. The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline.

“6. The European Council therefore urges the Council to finalise and adopt it without delay, ensuring a well-functioning EU Single Market, fair competition, solidarity among Member States and a level playing field also with regard to the phasing out of our dependency on Russian fossil fuels. In case of sudden interruptions of supply, emergency measures will be introduced to ensure security of supply. In this respect, the Commission will monitor and report regularly to the Council on the implementation of
these measures to ensure a level playing field in the EU Single Market and security of supply.

“7. The European Council will revert to the issue of the temporary exception for crude oil delivered by pipeline as soon as possible.”

“II. FOOD SECURITY

“19. The European Council strongly condemns the destruction and illegal appropriation by Russia of agricultural production in Ukraine. The Russian war of aggression against Ukraine is having a direct impact on global food security and affordability. The European Council calls on Russia to end its attacks on transport infrastructure in Ukraine, to lift the blockade of Ukrainian Black Sea ports and to allow food exports, in particular from Odesa. The European Union is taking active measures to facilitate Ukraine’s agricultural exports and to support Ukraine’s agricultural sector in view of the 2022 season. In this regard, the European Council invites Member States to accelerate work on “Solidarity Lanes” put forward by the Commission, and to facilitate food exports from Ukraine via different land routes and EU ports.

“20. The European Council calls for effective international coordination to ensure a comprehensive global food security response. In this respect, it welcomes the Food and Agriculture Resilience Mission (FARM) – based on the three pillars: trade, solidarity and production – which aims to mitigate consequences for price levels, production and access to and supply of grain. It also supports the UN Global Crisis Response Group, the upcoming G7 initiative establishing a Global Alliance for Food Security (GAFS) and other EU and multilateral actions and initiatives. It reiterates its commitment to keep global trade in food commodities free of unjustified trade barriers, enhance solidarity towards the most vulnerable countries and increase local sustainable food production so as to reduce structural dependencies. The European Council invites the Commission to explore the possibility of mobilising reserves from the European Development Fund to support the most affected partner countries. The European Union welcomes the commitment and support of its partners and of international organisations.

“21. The European Council underlines the importance of the Common Agriculture Policy (CAP) in the EU’s contribution to food security and calls for the swift adoption of the CAP Strategic Plans.

“22. In view of the ongoing fertiliser shortages in the global market, the European Council calls for more concerted efforts to work with international partners to promote a more efficient use of and alternatives to fertilisers.”

It has been clear since the beginning of Russia’s war with Ukraine that the most challenging sanctions for the EU would be on banning Russian oil and gas. The EU has put in place sanctions on Russian coal and will be adding oil on a transitional basis by the end of the year for some 90% of oil imports from Russia with a carve out for oil delivered by pipeline — a carve out needed to address Hungary’s concerns and that of several other Central European countries.

Moreover, on May 31st, the EU and the U.K. agreed to ban insuring ships carrying Russian oil which will likely significantly affect Russia’s ability to export crude oil by ship. See Financial Times, UK and EU hit Russian oil cargoes with insurance ban, May 31, 2022, https://www.ft.com/content/10372dd3-be3c-42b9-982b-241a38efcc88.

The insurance ban is one of several other sanctions that the EU is including in its sixth package. See European Commission statement, Opening remarks by President von der Leyen at the joint press conference with President Michel following the special meeting of the European Council of 30 May 2022
Brussels, 31 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/statement_22_3382 (“Indeed, we had a very good discussion tonight. And I am very glad that the Leaders were able to agree in principle on the sixth sanctions package. This is very important. Thanks to this, the Council should now be able to finalise a ban on almost 90% of all Russian oil imports by the end of the year. This is an important step forward. We will soon return to the issue of the remaining 10% of pipeline oil. I want to note that other elements in the package are also important. It is the de-SWIFTing of the Sberbank. The Sberbank is the biggest Russian bank, with 37% of the Russian banking sector. So this is good that we now de-SWIFT the Sberbank. There is a ban on insurance and reinsurance of Russian ships by EU companies; a ban on providing Russian companies with a whole range of business services. And, very important, there is the suspension of broadcasting in the European Union of three further Russian state outlets that were very typically spreading broadly the misinformation that we have witnessed over the last weeks and months.”).

The actions by the EU and the UK are resulting in higher oil prices at least for the present. Russia is also expanding the countries it is choosing not to supply gasl to. See Financial Times, Dutch and Danish set to be cut off by Russia over gas payment dispute, May 30, 2022, https://www.ft.com/content/6715e4e9-d315-4594-8d57-80ce88613685; CNBC, Oil prices jump after EU leaders agree to ban most Russian crude imports, May 30, 2022, https://www.cnbc.com/2022/05/31/oil-prices-eu-russian-crude.html

So there is little question but that the sanctions imposed by the U.S., EU, UK, Canada, Japan, Australia and others are being ratcheted up and will present increased challenges for Russia and continued pain at the pump for many global consumers and businesses.

By contrast, the efforts of the EU and others to address the growing food crisis caused by the disruption of Ukrainian agricultural exports, while continuing and being supported by multilateral organizations, seem unlikely to result in significant movement of Ukrainian wheat and other products in the coming months. The EU has been working hard to develop alternative export routes for Ukrainian goods as is reflected in the European Council’s conclusions from the May 30-31 meeting. See also Financial Times, EU steps up effort to bring millions of tonnes of grain out of Ukraine, May 30, 2022, https://www.ft.com/content/0e0f6cd9-03f0-4150-b330-62032f9a86ad.

However, a recent Politico article reviews the serious challenges to being able to make a significant dent in the exports of Ukrainian agricultural products with the Black Sea effectively closed. See Politico, Only black Sea ships will allow Ukraine to feed the world again, The EU plan to export grain by road and rail will barely move a fifth of regular food supplies, May 31, 2022, https://www.politico.com/news/2022/05/31/only-black-sea-ships-will-allow-ukraine-to-feed-the-world-again-00035970#:~:text=The%20EU%20plan%20to%20export,fifth%20of%20regular%20food%20supplies.

Time will tell what options those opposing Russia’s invasion of Ukraine or who are suffering from food shortages caused by the war are able to implement to address the food security challenges that will likely harm tens of millions of people around the world. See May 24, 2022:  How severe is the food security challenge?, https://currentthoughtsontrade.com/2022/05/24/how-severe-is-the-food-security-challenge/.

How severe is the food security challenge?

The lead story in the New York Times on May 24, 2022 had the following headline — Live Updates: World Leaders Call for Action to Free Trapped Ukrainian Food. https://www.nytimes.com/live/2022/05/24/world/russia-ukraine-war (“Russia’s blockade of seaports and attacks on grain warehouses have choked off one of the world’s breadbaskets. Western officials are accusing Russia of using food as a weapon.”). The article reviews presentations made at the World Economic Forum this week by European Commission President Ursula von der Leyen and UN World Food Programme Executive Director David Beasley.

EC President von der Leyen’s statement at Davos is copied in part below (section dealing with food security) and includes both the EU view on the challenges being faced as well as steps the EU is taking to try to reduce the severity of the food insecurity crisis. See European Commission, Special Address by President von der Leyen at the World Economic Forum, Davos, 24 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_3282.

“We are witnessing how Russia is weaponising its energy supplies. And indeed, this is having global repercussions. Unfortunately, we are seeing the same pattern emerging in food security. Ukraine is one of the world’s most fertile countries. Even its flag symbolises the most common Ukrainian landscape: a yellow field of grain under a blue sky. Now, those fields of grain have been scorched. In Russian-occupied Ukraine, the Kremlin’s army is confiscating grain stocks and machinery. For some, this brought back memories from a dark past – the times of the Soviet crop seizures and the devastating famine of the 1930s. Today, Russia’s artillery is bombarding grain warehouses in Ukraine – deliberately. And Russian warships in the Black Sea are blockading Ukrainian ships full of wheat and sunflower seeds. The consequences of these shameful acts are there for everyone to see. Global wheat prices are skyrocketing. And it is the fragile countries and vulnerable populations that suffer most. Bread prices in Lebanon have increased by 70%, and food shipments from Odessa could not reach Somalia. And on top of this, Russia is now hoarding its own food exports as a form of blackmail – holding back supplies to increase global prices, or trading wheat in exchange for political support. This is: using hunger and grain to wield power.

“And again, our answer is and must be to mobilise greater collaboration and support at the European and global level. First, Europe is working hard to get grain to global markets, out of Ukraine. You must know that there are currently 20 million tons of wheat stuck in Ukraine. The usual export was 5 million tons of wheat per month. Now, it is down to 200,000 to 1 million tons. By getting it out, we can provide Ukrainians with the needed revenues, and the World Food Programme with supplies it so badly needs. To do this, we are opening solidarity lanes, we are linking Ukraine’s borders to our ports, we are financing different modes of transportation so that Ukraine’s grain can reach the most vulnerable countries in the world. Second, we are stepping up our own production to ease pressure on global food markets. And we are working with the World Food Programme so that available stocks and additional products can reach vulnerable countries at affordable prices. Global cooperation is the antidote against Russia’s blackmail.

“Third, we are supporting Africa in becoming less dependent on food imports. Only 50 years ago, Africa produced all the food it needed. For centuries, countries like Egypt were the granaries of the world. Then climate change made water scarce, and the desert swallowed hundreds of kilometres of fertile land, year after year. Today, Africa is heavily dependent on food imports, and this makes it vulnerable. Therefore, an initiative to boost Africa’s own production capacity will be critical to strengthen the continent’s resilience. The challenge is to adapt farming to a warmer and drier age. Innovative technologies will be crucial to leapfrog. Companies around the world are already testing high-tech solutions for climate-smart agriculture. For example, precision irrigation operating on power from renewable; or vertical farming; or nanotechnologies, which can cut the use of fossil fuels when producing fertilisers.

“Ladies and Gentlemen,

“The signs of a growing food crisis are obvious. We have to act urgently. But there are also solutions, today and on the horizon.

“This is why – again, an example of cooperation – I am working with President El-Sisi to address the repercussions of the war with an event on food security and the solutions coming from Europe and the region. It is time to end the unhealthy dependencies. It is time to create new connections. It is time to replace the old chains with new bonds. Let us overcome these huge challenges in cooperation, and that is in the Davos spirit.”

The New York Times article provides excerpts from Mr. Beasley’s comments. “’It’s a perfect storm within a perfect storm,’ said David Beasley, the executive director of the World Food Program, a United Nations agency. ‘If we don’t get the port of Odesa open, it will compound our problems.’ Calling the situation ‘absolutely critical,’ he warned, ‘We will have famines around the world.’”

The UN World Food Programme has a press release on its webcite that addresses the food security crisis caused by the war in Ukraine. See UN World Food Programme, Failing to open Ukrainian ports means declaring war on global food security, WFP Chief warns UN Security Council, 19 May 2022, https://www.wfp.org/news/failing-open-ukrainian-ports-means-declaring-war-global-food-security-wfp-chief-warns-un. The release is copied below.

“NEW YORK – The UN World Food Programme (WFP) Executive Director, David Beasley, addressed the United Nations Security Council today on the impact of the war in Ukraine on global food security. Here are selected highlights from his remarks:

“’We truly are in an unprecedented crisis. Food pricing is our number one problem right now, as a result of all this perfect storm for 2022. But by 2023 it very well will be a food availability problem. When a country like Ukraine that grows enough food for 400 million people is out of the market, it creates market volatility, which we are now seeing.

“’In 2007 and 2008, we all witnessed what happened when pricing gets out of control. There were over 40 nations with political unrest, riots and protests. We’re already seeing riots and protesting taking place as we speak. Sri Lanka, Indonesia, Pakistan, Peru… We’ve seen destabilizing dynamics already in the Sahel from Burkina Faso, Mali, Chad… these are only signs of things to come. And we have enough historical experience to understand the consequences when we failed to act. When a nation that is the breadbasket of the world becomes a nation with the longest bread lines of the world, we know we have a problem.

“’As the Secretary General clearly spoke, we’re now reaching about 4 million people inside Ukraine. In fact, we’re scaling up to 900,000 on cash-based transfers as we speak. That will put liquidity back into the marketplace, but that does not solve the problem outside of Ukraine. That’s why we’ve got to get these ports running. We’ve got to empty the silos so that we can help stabilize the food crisis that we’re facing around the world.

“’Truly, failure to open those ports in Odesa region will be a declaration of war on global food security. And it will result in famine and destabilization and mass migration around the world.

“’Leaders of the world, it’s time that we do every possible thing that we can to bring the markets to stability because things will get worse, but I do have hope. We averted famine. We averted destabilization over the past many years because many of you in this room stepped up and we delivered. And we can do that again. But we’ve got things that have to happen. Getting the ports open, stabilizing the markets, increasing production around the world. We’ll get through this storm, but we must act and we must act with urgency.’”

See also, reliefweb, War in Ukraine: WFP renews call to open Black Sea ports amid fears for global hunger, originally posted on May 20, 2022, updated May 22, 2022, https://reliefweb.int/report/world/war-ukraine-wfp-renews-call-open-black-sea-ports-amid-fears-global-hunger#:~:text=The%20World%20Food%20Programme%20(WFP,of%20lives%20%E2%80%93%20around%20the%20world (“In impassioned pleas to the specially convened ‘call to action’ group on 18 May, attended by US Secretary of State Antony Blinken and the UN Secretary-General António Guterres, Beasley added: ‘The silos are full. Why are the silos full? Because the ports are not operating … It is absolutely essential that we allow these ports to open because this is not just about Ukraine, this is about the poorest of the poor around the world who are on the brink of starvation as we speak’”.).

As reviewed in earlier posts, there are production issues on grains in a number of other countries flowing from heat or draught or low inventories. Challenges in other countries are complicating the ability to substitute products from other countries for the large volumes not being shipped from Ukraine. See May 16, 2022:  Wheat prices spike following Indian export ban, https://currentthoughtsontrade.com/2022/05/16/wheat-prices-spike-following-indian-export-ban/; May 15, 2022:  India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine, https://currentthoughtsontrade.com/2022/05/15/india-bans-exports-of-wheat-complicating-efforts-to-address-global-food-security-problems-posed-by-russias-war-in-ukraine/; April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/; April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/.

While many countries are expressing the desire to help out in the crisis and while the WTO and other multilateral organizations are taking or talking about some actions that are available to them, the crisis is likely to significantly worsen in the coming months as there is little likelihood that Russia will permit the reopening of the Black Sea ports to Ukrainian wheat and other products. The crisis will likely exceed the level of the challenges from the 2007-2008 period and will reduce global GDP growth, including forcing some areas into recession, will increase starvation and malnurishment and result in increased political instability in a number of countries around the world. Expect larger parts of the global community to view Russia as a pariah state. While trade is an important part of the answer, the war started by Russia is not controllable by global trade rules in fact. We are in for a challenging period with much of the harm born by those least able to handle the harm being inflicted.

“The Future of the World Trade Organization” a virtual event by the Bipartisan Policy Center, discussion of dispute settlement

Last week on May 12, 2022, the Bipartisan Policy Center presented a program on the Future of the World Trade Organization. See https://bipartisanpolicy.org/event/the-future-of-the-world-trade-organization/. The program was structured with two segments. The opening segment was a discussion between the moderator of the program, Amb. Dennis Shea (former U.S. Ambassador to the WTO in the Trump Administration) and Roberto Azevedo (former Director-General of the WTO and a former Brazilian Ambassador to the WTO). The second segment was a panel discussion consisting of Thomas Graham (a former WTO Appellate Body member and former Chair of the Appellate Body), William Reinsch (currently a Senior Advisor and Scholl Chair in International Business at the Center for Strategic and International Studies), and Nazak Nikakhar (former Assistant Secretary for Industry and Analysis, U.S. Department of Commerce during the Trump Administration).

The discussion with the former DG of the WTO was wide ranging and pointed up the near impossibility of achieving consensus among the 164 WTO Members as there is no common vision of the organization’s mission and a widely split view of Members on whether reform is needed and even whether some Members prefer a non-functioning organization. Much of the discussion with former DG Azevedo is summarized in an Inside U.S. Trade article from May 13. Inside U.S. Trade’s World Trade Online, Former WTO director-general: Finding consensus largely ‘impossible’, May 13, 2022, https://insidetrade.com/daily-news/former-wto-director-general-finding-consensus-largely-%E2%80%98impossible%E2%80%99.

The moderator asked Azevedo about the Appellate Body and the topic of dispute settlement reform was taken up in the second segment with the lead being taken by the former AB member Thomas Graham.

Today’s post looks at the discussion of dispute settlement and what implications the views presented may have for meaningful progress at the 12th Ministerial Conference in terms of agreeing on a work program for dispute settlement reform.

In the discussion with former Director-General Roberto Azevedo, the topic of dispute settlement came up in two contexts. The first had to do with a discussion of the need for reform including the U.S. perceived need for tools to address Chinese distortions from their economic system . Azevedo noted that reform would be difficult on a consensus basis in general and dealing with China’s practices specifically. Azevedo mentioned the Appellate Body had complicated the operation of the WTO as they had “legislated too much” in his view. He noted that the Appellate Body should have had “greater circumspection” and limited their decision to the minimum needed. In his view, the actions of the Appellate Body did not facilitate the ability of Members to achieve a political bargain.

The second context in which dispute settlement arose was in the discussion of the 12th Ministerial Conference which starts in Geneva on June 12th. While Mr. Azevedo didn’t view the outcome of the 12th Ministerial as a “make or break” moment for the WTO, he did view whether dispute settlement is addressed meaningfully as suggesting “success” or continued problems. For him, getting dispute settlement moving was the important element regardless of the specifics that are to be worked out by Members.

I have in prior posts noted the likelihood that if there is a WTO reform work program, it is likely that the U.S. would agree to having dispute settlement included in such a work program even though the lack of movement by other Members to address underlying U.S. concerns raised questions about the likelihood of a successful process. April 28, 2022:  WTO Reform and the 12th Ministerial Conference — What Is likely on Dispute Settlement?, https://currentthoughtsontrade.com/2022/04/28/wto-reform-and-the-12th-ministerial-conference-what-is-likely-on-dispute-settlement/. As I stated in that post,

“The Biden Administration, like the Trump Administration, believes that the operation of the dispute settlement system is in need of significant reform. The Trump Administration characterized the challenge as getting Members to explore why the Appellate Body felt at liberty to disregard the clear limitations on its authority in the Dispute Settlement Understanding and why Members had not moved earlier to ensure the limited role for the Appellate Body was respected. The Trump Administration also expressed concern that the dispute settlement system was not permitting Members to address the massive distortions caused to the global trading system from state-directed economies such as China. The Trump Administration was also not committed to a two-tier review system in light of the problems with the Appellate Body.

“The Biden Administration has expressed similar concerns although Amb. Pagán’s comments appear to change the focus from why did the Appellate Body view itself as permitted to deviate from its limited role to a review of what Members “real interests” are. It is unclear if the different language reflects a change in focus or just a rearticulation of the need to find reforms that will deliver a dispute settlement system that is limited to and achieves the objectives Members have articulated.”

In last week’s program, Thomas Graham gave a forceful argument for why blocking appointment of new Appellate Body members was correct in both 2017 and in 2022. As he notes, “the blockage was meant to force a discussion among Members of the U.S. critique that has been building for 20 years and is deeply bipartisan and, at a minimum, solidly sound on the text and the negotiating history. The discussion was badly needed and it still hasn’t occurred.”

Mr. Graham views the critique provided by the U.S. as not widely understood. Basically it is that “the Appellate Body was negotiated and authorized only to be a modest check on occasional egregious errors by panels in applying the specific rules. And it made itself into an international court issuing broad interpretations and requiring adherence to precedence. That coincides incidentally with what former Director-General Azevedo said in his critique which I wanted to applaud of the Appellate Body. By doing this, the Appellate Body altered the rights and obligations negotiated by Member governments and expressed in the Agreements without any way to check or reign them in.”

“As an aside, there is all the talk about restarting the dispute settlement system. There is a dispute settlement system – panels. And if people don’t like it, they can go to arbitration under Article 25, or they can go to other arbitration, or they can use the good offices of the Director-General which is within the Dispute Settlement Understanding. So there is a live question which Dennis you’ve raised yourself on several occasions on whether a second tier is actually even needed.”

Mr. Graham reviewed that during 2019, the last year of the Appellate Body’s operation, at each monthly Dispute Settlement Body meeting, Amb. Shea sought to have Members discuss the how and why of the Appellate Body deviating so much from its limited role. The only response was the Amb. Walker (NZ; Chair of the DSB) process. “The only thing that could be agreed upon by most but not all Members, still not even unanimous, were procedural things (conclude cases in 90 days and hortatory words (don’t overreach). That simply demonstrated actually the accuracy of the U.S. critique. That is consistent with what I observed inside the Appellate Body as well. The U.S. critique, for lack of a better way to put it, was treated with disdain and dismissed. It was frequently said they’re just mad about zeroing; they’re just mad about a few cases. To which I would reply, you are right that they are mad about that and other things because of what it shows about how the Appellate Body is operating. Real reform of the dispute settlement system would require starting from scratch and confronting the kinds of questions that Dennis and the U.S. and a few others have been asking. Does the WTO really need a second tier of dispute settlement? And if so, what should be the purpose and what should it be? And until those discussions start, nothing is going to happen. I am not even optimistic that some path to dispute settlement can come out of the Ministerial because if one is not going to go to those fundamentals on the dispute settlement system, then the rules become important and need to be more express because you can’t stand on the dispute settlement system to interpret the rules as they are correctly. They are going to have to be done together.”

William Reinsch expressed the view that it was important to restart the appointment of Appellate Body members on the theory that the problem with the AB was one of personnel which arguably the U.S. could handle through the appointment process versus structural and hence requiring reexamination of the dispute settlement process. In the alternative, he would support a system where panel decisions are binding. The key in his view is a binding system of dispute settlement. Nazak Nikakhar took the position that a second tier of review was needed because of the possibility of erroneously decided panel cases citing a panel decision involving Russia and Ukraine and limiting the authority of Members to take action for national security reasons without WTO review.

With less than four weeks to the start of the WTO’s 12th Ministerial, WTO Members are struggling to see what deliverables are possible. WTO reform is one of the core topics needing some definition. While dispute settlement reform will likely be part of the reform package (if one is agreed) what that means and whether a meaningful work program can be envisioned and developed are open questions.

Wheat prices spike following Indian export ban

In yesterday’s post, I reviewed India’s decision to restrict exports of wheat last Friday. May 15, 2022:  India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine, https://currentthoughtsontrade.com/2022/05/15/india-bans-exports-of-wheat-complicating-efforts-to-address-global-food-security-problems-posed-by-russias-war-in-ukraine/. Despite India’s efforts to walk back the extent of the export ban on Saturday, world market prices for wheat shot up on May 16. See, e.g., Financial Times, Wheat prices rise almost 6% as India export ban shakes markets, May 16, 2022, https://www.ft.com/content/226f3f09-33ff-40c8-b439-08a36c515aba (“Wheat prices rose by the maximum amount allowed on Monday after India imposed a ban on exports, stoking pressure on food costs as tight global supplies roiled international markets. Futures traded in Chicago rose as much as 5.9 per cent to $12.47 a bushel, their highest level in two months.”); Bloomberg, Wheat Soars in Risk to Food Inflation as India Restricts Exports, May 15, 2022 updated May 16, 2022, https://www.bloomberg.com/news/articles/2022-05-15/world-s-food-problems-piling-up-as-india-restricts-wheat-exports (“Wheat jumped by the exchange limit to near a record high after India’s move to restrict exports, exposing just how tight global supplies are during the war in Ukraine and threatening to drive up food prices even more.”); Market Watch,  Wheat prices surge to highest in more than 2 months following India’s ban on exports, May 16, 2022, https://www.marketwatch.com/story/wheat-prices-surge-to-highest-in-more-than-two-months-following-indias-ban-on-exports-11652683058 (“India’s Commerce Secretary B.V.R. Subrahmanyam told reporters on Sunday that the country’s wheat production has dropped by 3 million tons from 106 million tons last year. Prices have surged 20% to 40% in India. However, India also said Sunday that it would continue to export to needy nations — the country mainly provides wheat to Bangladesh, Nepal and Sri Lanka. India consumes most of what it produces, exporting 7 million tons of wheat last year out of 109 million tons produced, said Subrahmanyam.”); Quartz India, India’s wheat export ban is another reality check for its lofty soft power goals, May 16, 2022, https://qz.com/india/2165965/indias-wheat-export-ban-sends-global-prices-soaring/ (“A few weeks ago, it [India] claimed it could feed the world should the World Trade Organization allow it. Later, on May 4, prime minister Narendra Modi reiterated his desire to “save the world from hunger.” After all, in the wake of the Russia-Ukraine war, India had got the perfect window to become a major wheat exporter. On May 14, however, India banned the export of wheat, largely owing to a record high domestic food inflation. Lower yield due to intense heat waves piled on the country’s agony.”).

Based on the price spike today being capped by daily exchange rate increase limits, India’s action will likely result in even higher prices in the coming days.

The U.S., EU and others are looking at ways to reduce the food insecurity flowing from the Russian war in Ukraine including looking to help Ukraine export its agricultural products through western Europe. U.S. Secretary of State Anton Blinken was in Berlin this past weekend and at a press conference noted efforts that will take place in New York this week. See U.S. Department of State, Secretary Antony J. Blinken at a Press Availability, Berlin, May 15, 2022, https://www.state.gov/secretary-antony-j-blinken-at-a-press-availability-18/ (excerpts copied below).

“We’ve marshaled a robust transatlantic response to the humanitarian crisis caused by the war – more than 6 million Ukrainians have fled their homeland.  They’ve been welcomed in countries across Europe and across the Atlantic.  The United States has provided millions of dollars in assistance to countries taking in Ukrainian citizens to help provide essential support and services.  Our countries are also coming together to address some of the broader consequences that are flowing from Russia’s aggression, like the global food shortages and rising food prices that we’re seeing.  Ukraine supplies a great deal of the world’s corn, its wheat, its oil seeds for cooking oil.

“Russia is blocking Ukraine’s ports; it’s destroying its farmland, warehouses, roads, equipment.  That’s not only striking a major blow to Ukraine’s economy, but it’s also designed to inflict pain on the rest of the world to weaken support to the Ukrainian people.  Later this week in New York, we will be convening an emergency session of the UN Security Council and also the foreign ministers to focus on the steps that we can take together to address the immediate challenges for food and to address food insecurity, as well as to look at some of the medium-term and longer-term answers to food insecurity.”

While the WTO Director-General and a significant number of WTO Members are looking for action at the WTO’s 12 Ministerial Conference starting on June 12th not only on a WTO response to the COVID-19 pandemic but also on addressing the problem of rising food insecurity, a number of major countries are having trouble not restricting agricultural exports and hence are exacerbating the challenges of food insecurity which have been worsened by the Russian war in Ukraine. Actions like that taken by India will complicate the global response to food insecurity and cause even higher world prices for core agricultural commodities.

India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine

While the WTO permits countries to restrict exports of agricultural products in certain circumstances, history is replete with examples of price swings being exacerbated by the imposition of export restraints on food. As reviewed in a recent post, Russia’s war in Ukraine has caused already high food prices to spike to all time highs in products like wheat where Ukraine and Russia are major exporters. April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/; March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/.

While many WTO Members are urging the WTO membership to avoid imposition of export restraints at the present time to reduce food insecurity, a number of countries have shut down exports to protect their domestic consumers. India, which is the world’s second largest producer of wheat and had been looked to to help reduce the challenges in Africa and Asia from Ukraine’s inability to get grain harvested or exported, has faced very high temperatures this spring. In the last days, it has reversed its position of increasing exports to help countries in need to the position of shutting off exports immediately with the exception of volumes under contract and with a possible willingness to work with countries with food security issues. See Reuters, India bans wheat exports as heat wave hurts crop, domestic prices soar, May 15, 2022, https://www.reuters.com/markets/commodities/india-prohibits-wheat-exports-with-immediate-effect-2022-05-14/ (“India banned wheat exports on Saturday days after saying it was targeting record shipments this year, as a scorching heat wave curtailed output and domestic prices hit a record high. The government said it would still allow exports backed by already issued letters of credit and to countries that request supplies ‘to meet their food security needs’.”); Washington Post, India bans wheat exports amid soaring global prices, May 14, 2022, https://www.washingtonpost.com/world/2022/05/14/india-wheat-ban-ukraine/ (“In a Commerce Ministry order, Indian officials said they made the decision after considering India’s own needs and those of neighboring countries. India’s food security was ‘at risk’ because of surging international prices, the ministry said. The announcement was an abrupt reversal weeks after Indian officials and international analysts talked up the possibility of India’s significantly ratcheting up exports to fill the gap created partly by the war in Ukraine. International food prices have soared to record highs in recent months, putting pressure on billions of people, particularly the world’s poorest, officials at the United Nations have warned.”); ABC News, India open to exporting wheat to needy nations despite ban, May 15, 2022, https://abcnews.go.com/International/wireStory/india-open-exporting-wheat-needy-nations-ban-84728532 (“India on Sunday said it would keep a window open to export wheat to food-deficit countries at the government level despite restrictions announced two days earlier. India’s Commerce Secretary B.V.R. Subrahmanyam told reporters the government will also allow private companies to meet previous commitments to export nearly 4.3 million tons of wheat until July. India exported 1 million tons of wheat in April.”); The Times of India, Explained: Why India has banned wheat exports despite big trade plans, May 14, 2022, https://timesofindia.indiatimes.com/business/india-business/explained-why-did-india-ban-wheat-exports-despite-big-trade-plans/articleshow/91565703.cms; Hindustan Times, G7 criticises India decision to stop wheat exports: Germany, May 14, 2022, https://www.hindustantimes.com/world-news/g7-criticises-india-decision-to-stop-wheat-exports-germany-101652533657311.html (“‘If everyone starts to impose export restrictions or to close markets, that would worsen the crisis,’ German agriculture minister Cem Ozdemir said at a press conference in Stuttgart.”).

Press accounts indicate that China’s wheat production for this year is uncertain because of weather considerations as well. See New York Times, War and Weather Sent Food Prices Soaring. Now, China’s Harvest Is Uncertain, May 12, 2022, https://www.nytimes.com/2022/05/11/business/china-wheat-food-prices-inflation.html (“Ukraine’s wheat exports have been mostly halted since Russia’s invasion, while drought has damaged crops in India and the United States. China’s upcoming harvest is another concern..”).

The U.S. Department of Agriculture develops periodic forecasts for production and consumption of major agricultural crops. USDA released its latest global forecast for various crops for 2022-2023 including wheat on May 12, 2022. See USDA, World Agricultural Supply and Demand Estimates, May 12, 2022, https://www.usda.gov/oce/commodity/wasde/wasde0522.pdf. The description of wheat supply and demand is copied below.

“WHEAT: The outlook for 2022/23 U.S. wheat is for reduced supplies, exports, domestic use stocks,
and higher prices. U.S. 2022/23 wheat supplies are projected down 3 percent, as lower beginning
stocks more than offset a larger harvest. All wheat production for 2022/23 is projected at 1,729
million bushels, up 83 million from last year, as higher yields more than offset a slight decrease in
harvested area. The all wheat yield, projected at 46.6 bushels per acre, is up 2.3 bushels from last
year. The first survey-based forecast for 2022/23 winter wheat production is down 8 percent from last
year as lower Hard Red Winter and Soft Red Winter production more than offset an increase in White
Wheat production. Abandonment for Winter Wheat is the highest since 2002 with the highest levels in
Texas and Oklahoma. Spring Wheat production for 2022/23 is projected to rebound significantly from
last year’s drought-reduced Hard Red Spring and Durum crops primarily on return-to-trend yields.

“Total 2022/23 domestic use is projected down 1 percent on lower feed and residual use more than
offsetting higher food use. Exports are projected at 775 million bushels, down from revised 2021/22
exports and would be the lowest since 1971/72. Projected 2022/23 ending stocks are 6 percent
lower than last year at 619 million bushels, the lowest level in nine years. The projected 2022/23
season-average farm price (SAFP) is a record $10.75 per bushel, up $3.05 from last year’s revised
SAFP. Wheat cash and futures prices are expected to remain sharply elevated through the first part
of the marketing year when the largest proportion of U.S. wheat is marketed.

“The global wheat outlook for 2022/23 is for lower supplies and consumption, increased trade, and
lower ending stocks. Global production is forecast at 774.8 million tons, 4.5 million lower than in
2021/22. Reduced production in Ukraine, Australia, and Morocco is only partly offset by increases in
Canada, Russia, and the United States. Production in Ukraine is forecast at 21.5 million tons in
2022/23, 11.5 million lower than 2021/22 due to the ongoing war. Canada’s production is forecast to
rebound to 33.0 million tons in 2022/23, up significantly from last year’s drought-affected crop.

“Projected 2022/23 world use is slightly lower at 787.5 million tons, as increases for food use are more
than offset by declining feed and residual use. The largest feed and residual use reductions are in
China, the European Union, and Australia as well as a sizeable decline in food use in India.
Projected 2022/23 global trade is a record 204.9 million tons, up 5.0 million from last year. Imports
are projected to rise on increased exportable supplies from Russia and Canada more than offsetting
reductions for Ukraine and Australia. Russia is projected as the leading 2022/23 wheat exporter at
39.0 million tons, followed by the European Union, Australia, Canada, and the United States.
Ukraine’s 2022/23 export forecast is 10.0 million tons, down sharply from last year on reduced
production and significant logistical constraints for exports. India is expected to remain a significant
wheat exporter in 2022/23. Projected 2022/23 world ending stocks are reduced 5 percent to 267.0
million tons and would be the lowest level in six years. The largest change is for India, where stocks
are forecast to decline to 16.4 million tons, a five-year low.”

With likely reduced availability of product globally and with reduced stocks of wheat on hand, tThe G7, led by the EU and US, are working to find ways to help Ukraine move its wheat production to export despite Russia’s closure of the Black Sea. Such efforts if successful will reduce the global damage done on food security on products like wheat. As reviewed in my last post,

“The EU is working to facilitate movement of Ukrainian agricultural products by land through EU member states. But the main challenges are the blockage of Black Sea ports by Russia and the reported theft of agricultural products and equipment from Ukrainian farms and depots. See, e.g., CNN, Russians steal vast amounts of Ukrainian grain and equipment, threatening this year’s harvest, May 5, 2022, https://www.cnn.com/2022/05/05/europe/russia-ukraine-grain-theft-cmd-intl/index.html; Voice of America, Russian Blockade of Ukrainian Sea Ports Sends Food Prices Soaring, May 7, 2022, https://www.voanews.com/a/russian-blockade-of-ukrainian-sea-ports-sends-food-prices-soaring/6561914.html; Politico, EU plans to help Ukraine’s food exports dodge Black Sea blockade, EU farm chief warns Russia wants to portray itself as feeding the poor, while it destroys Ukraine’s farmland. May 10, 2022, https://www.politico.eu/article/eu-plans-to-boost-ukraines-food-exports-black-sea-blockade/.”

May 11, 2022:  Less than five weeks to the WTO’s 12th Ministerial Conference — what are likely deliverables?, https://currentthoughtsontrade.com/2022/05/11/less-than-five-weeks-to-the-wtos-12th-ministerial-conference-what-are-likely-deliverables/.

Hopefully, India will in fact work to facilitate exports to many of the nations dependent on wheat from Ukraine in the coming months to help reduce the food insecurity flowing from Russia’s war in Ukraine. But the announcement on Friday of banning exports is a concerning signal and will likely lead to even higher prices for wheat in the coming weeks and months.

Less than five weeks to the WTO’s 12th Ministerial Conference — what are likely deliverables?

On May 9-10, the WTO held a General Council meeting which followed an informal Trade Negotiations Committee (TNC) and Heads of Delegation meeting from May 4. The meetings resulted in a series of news releases from the WTO focusing on the Director-General’s views on areas for focus for the upcoming Ministerial as well as initial reactions from Members to the paper put forward following negotiations between the European Union, United States, India and South Africa on what, if any, modifications to TRIPS obligations were needed to help WTO Members address the COVID-19 pandemic. See WTO News Release, General Council, Members welcome Quad document as basis for text-based negotiations on pandemic IP response, 10 May, 2022, https://www.wto.org/english/news_e/news22_e/gc_10may22_e.htm; WTO News Release, General Council, DG Okonjo-Iweala urges WTO members to “meet the many challenges of our time”, 9 May 2022, https://www.wto.org/english/news_e/news22_e/gc_09may22_e.htm; WTO News Release, Trade Negotiations Committee, DG Okonjo-Iweala: Members can deliver results at MC12 despite challenging circumstances, 4 May 2022, https://www.wto.org/english/news_e/news22_e/tnc_04may22_e.htm.

The Director-General highlighted at the May 4 informal TNC and Heads of Delegation meeting a possible list of achievables by the 12th Ministerial Conference in the difficult political and economic environment that Members find themselves in.

“One potential MC12 deliverable is a WTO response to the current and future pandemics, including intellectual property issues, where members will discuss possible elements of a compromise at a time to be determined by the Chair of the TRIPS Council, the DG said. Other potential deliverables include concluding an agreement on fisheries subsidies, achieving outcomes on agriculture and making progress on reforming the WTO in addition to various initiatives members are taking forward, she added.

“The Director-General pointed to the threat of a global crisis in food security, with prices for food, fertilizer and energy rising sharply from already high levels.  She suggested members could use MC12 as a platform to take actions on these issues separately from the ongoing agriculture negotiations.”

A WTO Response to the COVID-19 Pandemic

The WTO achieving a response to the COVID-19 pandemic became more likely with the release of the draft text from the EU, US, India and China. I reviewed the main changes from the earlier draft in a recent post. May 4, 2022:  Access to vaccines – the public release of the text from the U.S., EU, India and South Africa to the full WTO Membership for consideration by the Council for Trade Related Aspects of Intellectual Property Rights, https://currentthoughtsontrade.com/2022/05/04/access-to-vaccines-the-public-release-of-the-text-from-the-u-s-eu-india-and-south-africa-to-the-full-wto-membership-for-consideration-by-the-council-for-trade-related-aspects-of-intellectual-prop/. While Members were not ready to sign off on the draft language and were awaiting instructions from capitals on positions to take, it is clear that the text will be the basis for negotiations. Moreover, as reflected in the WTO press release on the May 10 General Council session, China indicated it would not avail itself of the flexibilities on vaccines in the proposal. As reviewed in my May 4th post, China’s action will facilitate agreement on the text as it will permit adoption of language that makes the provisions available to all developing countries but encourages countries with strong export capabilities to not avail themselves of the provisions. China has self-identified itself as a developing country, but has been the largest manufacturer and exporter of COVID-19 vaccines, The U.S. and EU had drafted language that would have excluded China’s eligibility (as the only developing countries with exports of more than 10% of global totals in 2021). China’s position permits broader eligibility, hence avoiding what China would view as discriminatory language aimed at it. The implicit quid pro quo for using the broader language was China indicating it would not utilize the provisions.

However, there are remaining issues needing resolution in the draft text including whether diagnostics and therapeutics will be included in the provisions immediately versus subject to a separate determination to include within six months. And there is the broader set of issues including transparency, export restrictions, trade facilitation important to many countries as part of any WTO response to the pandemic. The European Union reviewed its views on the broader issues during the General Council meeting. See European Union interventions at the General Council, 09-10 May 2022, https://www.eeas.europa.eu/delegations/world-trade-organization-wto/european-union-interventions-general-council-09-10-may_en?s=69,

Item 4. A. WTO RESPONSE TO THE PANDEMIC – REPORT BY THE CHAIR

“The European Union thanks the Facilitator for his report.

“The European Union has been a strong proponent of the WTO response to the pandemic from the onset of discussions that members had in this forum. We argued for a holistic approach, which would encompass all the necessary elements of the response, including intellectual property.

Now that we have made a substantial step forward in the TRIPS Council, it is high time we had a fresh look at other elements of the pandemic, such as transparency, export restrictions, or trade facilitation. The “strategic pause” allowed us to reflect deeper on how to move the process forward and arrive at a multilateral outcome demonstrating that the WTO can meaningfully contribute to a response to the crisis and learn from it. In that regard, we also note the statement of Brazil in document WT/GC/W/845 on various aspects of the response to the pandemic.

“The European Union and the United States have invested great efforts into allowing progress towards a credible outcome. We have reached a common understanding on the minimum or the landing zone that could be the final outcome in a number of areas, acknowledging that other Members have additional issues of interest that they would like to see reflected in the text. Our new compromise paper presents the essentials of the Walker text, which we value the most, in a condensed format. We are encouraged by the positive feedback we have received so far and we will take account of the comments received.

The new paper attempts to propose a balance that would be acceptable to all members. Even if slightly shorter on ambition than the Walker text, we believe that it still maintains the credibility of the WTO.

“As MC12 will start in a month time, we do not have the luxury of time. Our collective interest is to engage in a spirit of self-restraint and in a consensus-oriented mode.

We are hopeful that all members will be able to engage constructively so that we could all resume and promptly finalize the negotiating process before Ministers arrive in Geneva.

To get to a final agreement on a WTO response to the pandemic will require significant effort, but is looking hopeful at the moment.

Agriculture negotiations

While there has been a large agenda of items being discussed in agriculture, there are several possible deliverables besides a work program going forward. First, there has been agreement on tariff rate quota administration. See WTO News Release, General Council, General Council endorses final decision on Bali tariff rate quota underfill mechanism, 31 March 2022, https://www.wto.org/english/news_e/news22_e/gc_31mar22_e.htm; WTO Committee on Agriculture, REVIEW OF THE OPERATION OF THE BALI DECISION ON TRQ ADMINISTRATION REPORT BY THE CHAIRPERSON TO THE GENERAL COUNCIL, Addendum, G/AG/32/Add.1 (29 March 2022). G/AG/32/Add.1 is enclosed below.

32A1

It is unlikely that other aspects of the agriculture reform program will have concrete results by the 12th Ministerial with the possible exception of not blocking exports of agricultural goods to the UN World Food Programme. See WTO News Release, Agriculture Committee, MC12 outcome must help end hunger, improve food security, says chair, 27 April 2022, https://www.wto.org/english/news_e/news22_e/agng_02may22_e.htm; WTO, State of Play 13 December 2021, Agriculture negotiations, https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bfagric_e.htm (topics include Public stockholding for food security purposes, Domestic support, Cotton, Market access, Special safeguard mechanism, Export prohibitions or restrictions, Export competition, Transparency).

Specifically, it is not clear that much progress has been made in 2022 on any of the topics being pursued. The last draft text from the Chair that has been released publicly dates from November 2021. COMMITTEE ON AGRICULTURE IN SPECIAL SESSION, REPORT BY THE CHAIRPERSON, H.E. MS GLORIA ABRAHAM PERALTA, TO THE TRADE NEGOTIATIONS COMMITTEE, TN/AG/50 (23 November 2021). The document is embedded below and basically lays out a work program on each topic going forward with an annex exempting food purchases by the UN World Food Programme from any export restrictions. Presumably some modified version of the November 2021 draft text will be presented to Ministers at the `2th Ministerial Conference.

50

Food security flowing from Russian invasion of Ukraine

As reviewed in prior posts and reflected in the various WTO news releases, there is a current food security crisis flowing from the Russian invasion of Ukraine. See, e.g., April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/; March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/; WTO News Release, Agriculture Committee, MC12 outcome must help end hunger, improve food security, says chair, 27 April 2022, https://www.wto.org/english/news_e/news22_e/agng_02may22_e.htm. Multilateral organizations have been calling for swift action to address the food security concerns. WTO News Release, WTO and other organizations, World Bank, IMF, WFP and WTO call for urgent coordinated action on food security, 13 April 2022, https://www.wto.org/english/news_e/news22_e/igo_13apr22_e.htm.

At this week’s General Council meeting there were two agenda items that addressed the food security issue. Item 8 and item 12. See WTO General Council, Proposed Agenda, WT/GC/W/846, 6 May 2022. Item 8 dealt with a document entitled “Joint Statement on Open and Predictable Trade in Agricultural and Food Products” and was presented by the United Kingdom. Signatories to the document included Albania; Australia; Canada; Chile; Costa Rica; European Union; Georgia; Iceland; Israel; Japan; Republic of Korea; Liechtenstein; Mexico; Republic of Moldova; Montenegro; New Zealand; North Macedonia; Norway; Paraguay; Singapore; Switzerland; The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Ukraine; United Kingdom and United States (51 WTO Members). The document is embedded below.

248

A number of countries have imposed export restrictions which worsen the pricing spikes being experienced on key agricultural commodities where Ukraine is a major exporter. The action by the 51 WTO Members is an important step whether or not it will generate a consensus document by the 12th Ministerial Conference meeting or not.

The EU’s comments on item 8 are likely representative of those supporting maintaining open markets for agricultural products at the present time.

“Item 8 – JOINT STATEMENT ON OPEN AND PREDICTABLE TRADE IN AGRICULTURAL AND FOOD PRODUCTS – REQUEST FROM THE UNITED KINGDOM

The European Union would like to thank the United Kingdom and other co-sponsors for their support in raising attention in the WTO to the global food security crisis that we see emerging.

The crisis triggered by Russia’s unprovoked, illegal and unjustified aggression against Ukraine, is not only a dramatic humanitarian crisis for Ukraine. It has increased food insecurity in many developing countries around the world.

We are witnessing a dramatic surge in food, fertilizer and energy prices, which exceed the levels reached during the last major food crisis in 2011, as well as risks to supply of staple commodities with immediate impacts on world food security and nutrition.

Let me be clear that any negative impact on agricultural production in Ukraine, and therefore on global food security, prices or availability of commodities on the world market is a result of the destabilising effects of the Russian aggression and military activities on Ukrainian soil.

The EU considers that the emerging food security challenges should be addressed as a priority at the 12th WTO Ministerial Conference.

We hope this plurilateral statement may help in focussing attention on the crucial importance of responding to these challenges.

The discussions in the recent food security seminar, including contributions from FAO, WFP and other organisations, were also useful.   

The plurilateral statement is also a  response to the call of  Director-General Okonjo-Iweala for coordinated actions in areas like export restrictions on food, and transparency, including transparency of stocks.

We call for unanimous support for a decision exempting World Food Programme humanitarian purchases from export restrictions. This would facilitate sourcing supplies by the WFP in these critical times. The EU expects the WTO and its members to act at this critical moment in order to help ensure open trade, strong rules, resilient markets, and less trade distortions.

The EU will remain engaged in negotiations towards MC12 for outcomes, which will provide a tangible response to the food security challenges.

European Union interventions at the General Council, 09-10 May 2022, https://www.eeas.europa.eu/delegations/world-trade-organization-wto/european-union-interventions-general-council-09-10-may_en?s=69

Item 12 was a topic raised by the Russian Federation in its submission of 16 March 2022 (WT/GC/245) in which it alleges that the food security and other supply chain problems flow from sanctions imposed on Russia by various WTO members. See COMMUNICATION FROM THE RUSSIAN FEDERATION, WT/GC/245 (16 March 2022). The document is embedded below.

WTGC245

The countries imposing sanctions on Russia strongly disagree with Russia’s characterization of the causes for the food security challenge as the EU’s intervention at the General Council meeting makes clear.

Item 12 – TRADE-DISRUPTIVE PRACTICES OF CERTAIN MEMBERS AND THEIR IMPLICATIONS FOR THE WTO – COMMUNICATION FROM THE RUSSIAN FEDERATION (WT/GC/245)

Let us be clear from the outset: it is the Russian army that has invaded the Ukrainian territory. We strongly condemn the illegal, unprovoked, unjustifiable aggression of Ukraine by the Russian Federation, which has brought catastrophic loss of life and human suffering in Ukraine and poses a direct threat to the European and international security order.

The Russian Federation’s hostile act is a blatant violation of international law and the rules-based international order, the consequences of which have already extended well beyond Ukraine’s borders.

We are greatly concerned about the global trade consequences of the aggression; in particular as regards the supply of a number of commodities, including oil and gas, staple foods, and critical minerals.

The European Union also strongly specifically condemns Russia’s actions targeting Ukraine’s food supply and production. Credible reports highlighted that Russian forces are attacking and plundering grain silos in Ukraine as well as damaging and removing Ukrainian farm equipment. Furthermore, the closure of the Black Sea by Russian armed forces effectively blocks the exports of grains via Ukrainian seaports.

The food security situation is already dramatic for those directly involved in Ukraine. The impact of the Russian aggression is however not just restricted to Ukraine and its citizens but is seriously challenging food availability in some vulnerable net food-importing countries in particular. Russia’s war of aggression in Ukraine is thus jeopardizing the food supply to some of the most vulnerable parts of the world, particularly in developing countries, and pushing millions of people into food insecurity.

The Russian Federation has now embarked on a further campaign of disinformation in the context of the WTO. In the face of this, the European Union, alongside our partners, deems it important to set the record straight for the benefit of the membership.

In a transparent manner, the European Union have issued a Joint Statement together with partners in relation to the trade measures that the European Union and other members are adopting towards Russia, including measures that deny the Russian Federation the benefits which the WTO Agreement provides, such as the benefit of the most-favoured nation treatment. The measures include export restrictions and import restrictions targeting the Russian Federation.

The European Union considers these actions necessary to protect its essential security interests within the meaning of the applicable security exceptions of the WTO Agreement. The purpose of these measures is to restore peace and security, in full respect of Ukraine’s territorial integrity, sovereignty and independence within its internationally recognised borders. Therefore, these measures are fully consistent with WTO rules.

The European Union would like to underline that the EU’s sanctions do not target the agricultural sector of the Russian Federation. The sanctions are primarily directed at the Russian Government, the financial sector and the economic elites. They target the ability to finance the Russian aggression against Ukraine and its people.

Therefore, the European Union, alongside our partners, strongly condemns Russia’s attempts at putting the blame on international sanctions for the global food security crisis that is directly caused by Russia’s aggression against Ukraine and its people.

“In this context, we are committed to helping Ukraine cope with the trade consequences of the aggression. We will seek to facilitate access and transit for imports from Ukraine to our markets and encourage Members to do likewise – including by eliminating tariffs and other restrictions to imports, facilitating the use of infrastructure and facilitating customs procedures in a manner commensurate with their capacity and consistently with WTO rules.

The European Union will continue to provide humanitarian aid to alleviate the suffering of Ukrainian civilians by securing their access to basic goods and services, notably food. The European Union will also help Ukrainian farmers to continue planting and growing cereals and oilseeds, much needed for themselves and for the world, and to facilitate their exports.

We call on the Russian Federation to immediately stop its military aggression in Ukraine, which is also the only way to stop the humanitarian and food security crisis.

European Union interventions at the General Council, 09-10 May 2022, https://www.eeas.europa.eu/delegations/world-trade-organization-wto/european-union-interventions-general-council-09-10-may_en?s=69.

A number of WTO Members are providing temporary duty free treatment to goods from Ukraine besides the EU — Canada and U.K.. The U.S. has removed Section 232 tariffs on steel from Ukraine for the next year as well.

The EU is working to facilitate movement of Ukrainian agricultural products by land through EU member states. But the main challenges are the blockage of Black Sea ports by Russia and the reported theft of agricultural products and equipment from Ukrainian farms and depots. See, e.g., CNN, Russians steal vast amounts of Ukrainian grain and equipment, threatening this year’s harvest, May 5, 2022, https://www.cnn.com/2022/05/05/europe/russia-ukraine-grain-theft-cmd-intl/index.html; Voice of America, Russian Blockade of Ukrainian Sea Ports Sends Food Prices Soaring, May 7, 2022, https://www.voanews.com/a/russian-blockade-of-ukrainian-sea-ports-sends-food-prices-soaring/6561914.html; Politico, EU plans to help Ukraine’s food exports dodge Black Sea blockade, EU farm chief warns Russia wants to portray itself as feeding the poor, while it destroys Ukraine’s farmland. May 10, 2022, https://www.politico.eu/article/eu-plans-to-boost-ukraines-food-exports-black-sea-blockade/.

While many WTO Members will push for a WTO decision to bolster food security, it is unlikely that Russia and those engaging in export restraints will permit a consensus decision.

Fisheries Subsidies

While many Members and the WTO Director-General talk about delivering an agreement on fisheries subsidies, there has not been a lot of progress in recent months according to WTO news releases on meetings to review the issues. See, e.g., WTO News Release, Negotiations on Fisheries Subsidies, Chair of fisheries subsidies negotiations reports on consultations with members, 15 February 2022, https://www.wto.org/english/news_e/news22_e/fish_15feb22_e.htm.

After more than 21 years of negotiations, there is obviously a feeling that Members need to reach agreement. However, considering the entrenched positions of some and the current geopolitical situation, any agreement is likely to be modest in actual effect. I have reviewed developments in the negotiations in prior posts. See, e.g., https://www.wto.org/english/news_e/news22_e/fish_15feb22_e.htm.

WTO Reform

Much has been written on WTO reform in recent years. What is important to WTO Members varies although most support the need for reform. Changes to reinvigorate the negotiating function, improving transparency, agricultural reform, addressing dispute settlement concerns of the U.S. and others, addressing industrial subsidies (and subsidies more broadly), state-owned and state-invested enterprises, problems of global excess capacity in various industries, special and differential treatment, compatability of state-directed economies with WTO rules are just a handful of issues important to some Members. I have addressed some of these topics in prior posts. See, e.g., April 28, 2022:  WTO Reform and the 12th Ministerial Conference — What Is likely on Dispute Settlement?, https://currentthoughtsontrade.com/2022/04/28/wto-reform-and-the-12th-ministerial-conference-what-is-likely-on-dispute-settlement/; April 23, 2022:  The WTO’s upcoming 12th Ministerial Conference to be held in Geneva the week of June 13, 2022 — What can be expected in the current geopolitical environment?, https://currentthoughtsontrade.com/2022/04/23/the-wtos-upcoming-12th-ministerial-conference-to-be-held-in-geneva-the-week-of-june-13-2022-what-can-be-expected-in-the-current-geopolitical-environment/; February 14, 2022:  Dispute Settlement Reform at the WTO — What Needs to Precede Negotiations?, https://currentthoughtsontrade.com/2022/02/14/dispute-settlement-reform-at-the-wto-what-needs-to-precede-negotiations/.

There will likely be a document identifying some areas for future negotiations with a timeline of the 13th Ministerial as the target date for completion of the analysis. The level of ambition agreed up is not likely to be high in the current environment. Certainly, there won’t be agreement on tackling core issues such as the need for convergence of economic systems. While I would expect dispute settlement to be included, there has been no real movement by Members to come to grips with underlying U.S. concerns. Without that happening, there will likely be little chance of an agreed reform package by the 13th Ministerial.

There could also be a decision on transparency at the 12th Ministerial. See, e.g., General Council agenda item 9 and JOB/GC/204/Rev.9 (document from 50 Members). The latest version of the proposed decision is embedded below. The key to movement is eliminating any “penalties” for noncompliance and addressing concerns of some developing countries and LDCs on the challenges they face (capacity building, assistance, etc.). Those seem to be addressed in the latest draft, so hopefully agreement can be reached in the coming weeks.

JobsGC204R9

Joint Statement Initiatives (JSIs)

As reviewed in prior posts, there has been good progress in a number of the JSIs which are essentially open plurilaterals. A few have results which will be presented at the 12th Ministerial. Others have ambitions to be concluded in the next year or so. See, e.g., April 23, 2022:  The WTO’s upcoming 12th Ministerial Conference to be held in Geneva the week of June 13, 2022 — What can be expected in the current geopolitical environment?, https://currentthoughtsontrade.com/2022/04/23/the-wtos-upcoming-12th-ministerial-conference-to-be-held-in-geneva-the-week-of-june-13-2022-what-can-be-expected-in-the-current-geopolitical-environment/ (“There are a host of Joint Statement Initiatives that are at various stages of progress on a plurilateral basis, with India and South Africa raising objections to plurilateral agreements being part of the WTO without consensus agreement. See, e.g., April 14, 2022:  Challenging China’s Trade Practices — What Role for the WTO?,  https://currentthoughtsontrade.com/2022/04/14/challenging-chinas-trade-practices-what-role-for-the-wto/ (“Ongoing JSI include those on electronic commerce, investment facilitation for development, plastics pollution and environmentally sustainable plastics trade, services domestic regulation, informal working group on MSMEs, and trade and environmental sustainability.  The WTO issues periodic press releases on developments in the talks.  See, e.g., JOINT INITIATIVE ON E-COMMERCE, E-commerce negotiators seek to find common ground, revisit text proposals, 21 February 2022,  https://www.wto.org/english/news_e/news22_e/jsec_23feb22_e.htm (hoping to have convergence on majority of issues by end of 2022)(86 WTO Members participating accounting for 90% of e-commerce trade including China, U.S. and most other major countries);  INVESTMENT FACILITATION FOR DEVELOPMENT, Investment facilitation negotiators take steps to assess needs of developing countries, 15 February 2022, https://www.wto.org/english/news_e/news22_e/infac_23feb22_e.htm (looking to complete by end of 2022)(over 100 WTO Members participate including China and most developed countries, but not the U.S.); INFORMAL DIALOGUE ON PLASTICS POLLUTION AND ENVIRONMENTALLY SUSTAINABLE PLASTICS TRADE, Plastics dialogue emphasizes need for international collaboration, cooperation, 30 March 2022, https://www.wto.org/english/news_e/news22_e/ppesp_31mar22_e.htm  (70 Members participate including China and most major developed countries but not the U.S.); Joint Initiative on Services Domestic Regulation, Negotiations on services domestic regulation conclude successfully in Geneva, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm (67 Members participated including China, the U.S. and other major developed countries); . MICRO, SMALL AND MEDIUM-SIZED ENTERPRISES (MSMES), Working group on small business welcomes three more members, 8 February 2022, https://www.wto.org/english/news_e/news22_e/msmes_08feb22_e.htm (94 participants including China and most major developed countries but not the U.S.).”).

India, Namibia and South Africa have raised issues with whether such plurilateral agreements can be made part of the WTO body of agreements without consensus. See THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES, Revision, WT/GC/W/819/Rev.1 (30 April 2021). While that question will not likely be resolved at the 12th Ministerial Conference, important progress is being made on the JSIs.

Moratorium on Imposing Customs Duties on Electronic Transmissions

During prior Ministerial Conferences there was agreement both on Members holding off on non-violation nullification and impairment cases under the TRIPS Agreement and also agreement to extend the moratorium on imposing customs duties on electronic transmissions. WTO Members have already agreed to extend til the 13th Ministerial the ban on non-violation TRIPS cases. But a number of developing countries are seeking to end the moratorium on customs duties citing studies on loss of government revenue from the moratorium and the increased importance of electronic commerce.

Some Members have also expressed concern about the JSI on e-commerce in light of the ongoing work program on e-commerce within the WTO.

In the briefing note on e-commerce on the WTO webpage from January 11, 2022, the following is a discussion of activities in 2020 and 2021 on the topics.

“In summer 2020, WTO members put forward proposals on the implications of the moratorium, its scope, the definition of electronic transmissions and the implication of the moratorium on revenue loss for developing countries. This discussion is part of the broader developmental aspect of e-commerce: developing and least-developed countries face various challenges related to e-commerce, such as connectivity, infrastructure and capacity to implement policies related to e-commerce.

“The General Council continued to review progress in the Work Programme based on reports submitted by the chairs of the relevant WTO bodies. The General Council Chair convened a Structured Discussion under the Work Programme in July 2021. The discussion focused on three themes: electronic transmissions, imposition of internal non-discriminatory taxes on electronic transmissions, and e-commerce challenges and opportunities particularly in light of the COVID-19 pandemic.

“In a subsequent submission in November 2021, some members outlined that it is necessary to have more clarity on the definition of electronic transmissions, consensus on the scope of the moratorium and an understanding of the impact of the moratorium in order to enable the WTO members to take an informed decision at MC12 on whether or not to extend the moratorium on customs duties.

“In November 2021, a group of WTO members put forward a proposal that contains draft ministerial text for possible adoption by ministers at MC12 for the extension of the moratorium and continuing the reinvigoration of the work programme. Views of members vary and consultations led by the General Council chair continued ahead of the conference scheduled to start on 30 November.”

It is likely that the moratorium will be extended to the 13th Ministerial but it will likely be a late agreed topic and will be coupled with a “reinvigorated” WTO work program on e-commerce and a likely lack of agreement on the role of plurilaterals moving forward.

Conclusion

At a time of tremendous trade challenges globally, the WTO continues to struggle to demonstrate its relevance to addressing current issues. The large number of Members, the very different perspectives on what they look to the WTO to provide, the emergence of economically important Members with economic systems not really compatible with existing WTO rules, the consensus based system and many other factors make restoring relevance for many of the current challenges a daunting task. The geopolitical crisis flowing from Russia’s invasion of Ukraine has both expanded the challenges and made resolution through the WTO more difficult.

The WTO Director-General is urging Members to achieve results at the 12th Ministerial even if less ambitious than might have been possible in a different environment. As the above review suggests, a modest package is possible but not at all certain. There is very little time to close the gaps and get a meaningful package ready. Let’s hope that Members can rise to the occasion.

Latest round of sanctions against Russia and Belarus for unprovoked war against Ukraine

The G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, the United States and the European Union) released a joint statement on May 8, 2022 emphasizing their continued solidarity with Ukraine and announcing new sanctions being put in place or finalized by member countries. See White House Briefing Room, G7 Leaders’ Statement, May 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/08/g7-leaders-statement-2/. Paragraph 12 of the statement reviews the new sanctions G-7 members are pursuing.

“12. Our unprecedented package of coordinated sanctions has already significantly hindered Russia’s war of aggression by limiting access to financial channels and ability to pursue their objectives. These restrictive measures are already having a significant impact on all Russian economic sectors – financial, trade, defence, technology, and energy – and will intensify pressure on Russia over time. We will continue to impose severe and immediate economic costs on President Putin’s regime for this unjustifiable war. We collectively commit to taking the following measures, consistent with our respective legal authorities and processes:

“a. First, we commit to phase out our dependency on Russian energy, including by phasing out or banning the import of Russian oil. We will ensure that we do so in a timely and orderly fashion, and in ways that provide time for the world to secure alternative supplies. As we do so, we will work together and with our partners to ensure stable and sustainable global energy supplies and affordable prices for consumers, including by accelerating reduction of our overall reliance on fossil fuels and our transition to clean energy in accordance with our climate objectives.

“b. Second, we will take measures to prohibit or otherwise prevent the provision of key services on which Russia depends. This will reinforce Russia’s isolation across all sectors of its economy.

“c. Third, we will continue to take action against Russian banks connected to the global economy and systemically critical to the Russian financial system. We have already severely impaired Russia’s ability to finance its war of aggression by targeting its Central Bank and its largest financial institutions.

“d. Fourth, we will continue our efforts to fight off the Russian regime’s attempts to spread its propaganda. Respectable private companies should not provide revenue to the Russian regime or to its affiliates feeding the Russian war machine.

“e. Fifth, we will continue and elevate our campaign against the financial elites and family members, who support President Putin in his war effort and squander the resources of the Russian people. Consistent with our national authorities, we will impose sanctions on additional individuals.”

The U.S. released a fact sheet on its new sanctions. See White House Briefing Room, FACT SHEET: United
States and G7 Partners Impose Severe Costs for Putin’s War Against Ukraine, May 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/08/fact-sheet-united-states-and-g7-partners-impose-severe-costs-for-putins-war-against-ukraine/. In the fact sheet, the U.S. outlines the sanctions it is imposing in this latest round.

Targeting State-Controlled Media Within Russia That Bolster Putin’s War. The United States will sanction three of Russia’s most highly-viewed directly or indirectly state-controlled television stations in Russia – Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company. All three stations have been among the largest recipients of foreign revenue, which feeds back to the Russian State’s revenue.

Banning Services that Help Finance Putin’s War and Aid Sanctions Evasion. The United States will prohibit U.S. persons from providing accounting, trust and corporate formation, and management consulting services to any person in the Russian Federation. These services are key to Russian companies and elites building wealth, thereby generating revenue for Putin’s war machine, and to trying to hide that wealth and evade sanctions. This action builds on previous prohibitions to restrict the export of goods related to aerospace, marine, electronics, technology, and defense and related materiel sectors of the Russian economy.

Cutting off Imports of Russian Oil and Reducing Dependence on Russian Energy. The United States has already banned the import of Russian oil, gas, and coal. Today, the entire G7 committed to phasing out or banning the import of Russian oil. This will hit hard at the main artery of Putin’s economy and deny him the revenue he needs to fund his war. The G7 also committed to work together to ensure stable global energy supplies, while accelerating our efforts to reduce dependence on fossil fuels.

Impose further export controls and sanctions to degrade Russia’s war efforts.  The United States will issue a new rule that imposes additional restrictions on Russia’s industrial sector, including a broad range of inputs and products including wood products, industrial engines, boilers, motors, fans, and ventilation equipment, bulldozers, and many other items with industrial and commercial applications. These new controls will further limit Russia’s access to items and revenue that could support its military capabilities. The United States also sanctioned Limited Liability Company Promtekhnologiya, which produces rifles and other weapons that have been used in military operations in Ukraine; seven shipping companies, which own or operate 69 vessels; and one marine towing company. The Nuclear Regulatory Commission will also suspend general licenses for exports of source material, special nuclear material, byproduct material, and deuterium to Russia.

Impose Sanctions on Russian Elites and their Family Members and Visa Restrictions on Russian and Belarusian Officials Undermining the Sovereignty, Territorial Integrity, or Political Independence of Ukraine. The United States imposed approximately 2,600 visa restrictions on Russian and Belarusian officials in response to their ongoing efforts to undermine the sovereignty, territorial integrity, or political independence of Ukraine. Additionally, the United States issued a new visa restriction policy that applies to Russian Federation military officials and Russia-backed or Russia-installed purported authorities who are believed to have been involved in human rights abuses, violations of international humanitarian law, or public corruption in Ukraine. The United States also sanctioned eight executives from Sberbank– the largest financial institution in Russia and uniquely important to the Russian economy, holding about a third of all bank assets in Russia; twenty-seven executives from Gazprombank – a prominent Russian bank facilitating business by Russia’s Gazprom, one of the largest natural gas exporters in the world; and Moscow Industrial Bank and its ten subsidiaries.”

Canada’s Prime Minister was in Kyiv on May 8th and met with the Ukrainian President. Canada also announced new sanctions. See Canada Prime Minister Justin Trudeau, Prime Minister visits Kyiv, Ukraine, May 8, 2022, https://pm.gc.ca/en/news/news-releases/2022/05/08/prime-minister-visits-kyiv-ukraine; Radio Free Europe/Radio Liberty’s Ukrainian Service, Canadian Prime Minister Announces New Military Aid, Sanctions After Meeting In Kyiv With Zelenskiy, May 8, 2022, https://www.rferl.org/a/ukraine-zelenskiy-trudeau-weapons-equipment-canada/31840100.html (“‘Today, I’m announcing more military assistance, drone cameras, satellite imagery, small arms, ammunition, and other support, including funding for demining operations,’ Trudeau said. ‘And we’re bringing forward new sanctions on 40 Russian individuals and five entities, oligarchs, and close associates of the regime in the defense sector, all of them complicit in Putin’s war,’ in a reference to Russian President Vladimir Putin.”). Canada is also granting duty free treatment to Ukrainian goods for the next year. Canada was the first G-7 country to announce a ban on energy imports from Russia.

The United Kingdom similarly announced additional sanctions and duty free treatment for Ukrainian imports under the U.K.-Ukraine FTA. See Government of the United Kingdom, Press release
UK punishes Putin with new round ofsanctions on £1.7 billion of goods, May 8, 2022, https://www.gov.uk/government/news/uk-punishes-putin-with-new-round-of-sanctions-on-17-billion-of-goods. A section of the press release is copied below.

“The UK is today announcing a new package of sanctions on Russia and Belarus targeting £1.7 billion worth of trade in a move designed to further weaken Putin’s war machine.

“It will bring the total value of products subjected to full or partial import and export sanctions since Russia’s illegal invasion of Ukraine began to more than £4 billion.

“The sanctions announced today by the International Trade Secretary and the Chancellor of the Exchequer include import tariffs and export bans.

“The new import tariffs will cover £1.4 billion worth of goods – including platinum and palladium – hampering Putin’s ability to fund his war effort.

“Russia is one of the leading platinum and palladium producing countries and is highly dependent on the UK for exports of platinum and palladium products.

“Meanwhile, the planned export bans intend to hit more than £250 million worth of goods in sectors of the Russian economy most dependent on UK goods, targeting key materials such as chemicals, plastics, rubber, and machinery.”

The European Commission has proposed phasing out imports of Russian crude oil within six months and all refined oil products by the end of 2022 with some possible exceptions. The European Parliament and European Council still have the proposal under consideration. See EC Press Release, Speech by President von der Leyen at the EP Plenary on the social and economic consequences for the EU of the Russian war in Ukraine – reinforcing the EU’s capacity to act, Strasbourg, 4 May 2022, file:///C:/Users/tps/Downloads/Speech_by_President_von_der_Leyen_at_the_EP_Plenary_on_the_social_and_economic_consequences_for_the_EU_of_the_Russian_war_in_Ukraine___reinforcing_the_EU_s_capacity_to_act%20(1).pdf. EC President von der Leyen’s proposal on sanctions is copied below.

“Today, we are presenting the sixth package of sanctions. First, we are listing high-ranking military officers
and other individuals who committed war crimes in Bucha and who are responsible for the inhuman siege of the city of Mariupol. This sends another important signal to all perpetrators of the Kremlin’s war: We know who you are, and you will be held accountable. Second, we de-SWIFT Sberbank – by far Russia’s largest bank, and two other major banks. By that, we hit banks that are systemically critical to the Russian financial system and Putin’s ability to wage destruction. This will solidify the complete isolation of the Russian financial sector from the global system. Third, we are banning three big Russian state-owned broadcasters from our airwaves. They will not be allowed to distribute their content anymore in the EU, in whatever shape or form, be it on cable, via satellite, on the internet or via smartphone apps. We have identified these TV channels as mouthpieces that amplify Putin’s lies and propaganda aggressively. We should not give them a stage anymore to spread these lies. Moreover, the Kremlin relies on accountants, consultants and spin doctors from Europe. And this will now stop. We are banning those services from being provided to Russian companies.

“My final point on sanction: When the Leaders met in Versailles, they agreed to phase out our dependency on Russian energy. In the last sanction package, we started with coal. Now we are addressing our dependency on Russian oil. Let us be clear: it will not be easy. Some Member States are strongly dependent on Russian oil. But we simply have to work on it. We now propose a ban on Russian oil. This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined. We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimises the impact on global markets. This is why we will phase out Russian supply of crude oil within six months and refined products by the end of the year. Thus, we maximise pressure on Russia, while at the same time minimising collateral damage to us and our partners around the globe. Because to help Ukraine, our own economy has to remain strong.”

The unprovoked war has created major challenges for the global trading system as reviewed in earlier posts particularly in food security for many countries, and in energy and fertilizers. The countries imposing sanctions and providing security and economic assistance to Ukraine are attempting to secure the multinational order that has preserved peace in Europe and many other parts of the world for the last 70+ years. Imposing costs on the Russian Federation and Belarus for their conduct and the unmentionable atrocities will continue and will likely increase as the brutal war started by Russia likely will last for some time yet.

Access to vaccines – the public release of the text from the U.S., EU, India and South Africa to the full WTO Membership for consideration by the Council for Trade Related Aspects of Intellectual Property Rights

In a post from March 17, 2022, I had reviewed a draft of language under consideration by the U.S., EU, India and South Africa meant to be reviewed by the full WTO Membership once agreement was reached by the four WTO Members. March 17, 2022:  Possible Compromise on Access to Vaccines — draft understanding between EU, US, South Africa and India, https://currentthoughtsontrade.com/2022/03/17/possible-compromise-on-access-to-vaccines-draft-understanding-between-eu-us-south-africa-and-india/.

On May 3, 2022, the WTO’s Director-General forwarded to the Chair of the TRIPS Council the text (including brackets) as forwarded by the four Members for consideration by the full Membership through the TRIPS Council. The Trips Council held an informal meeting on May 3. The Chair of the TRIPS Council released the text to the membership in a public document. See Communication from the Chairperson, IP/C/W/688 (3 May 2022). The document (including note from the Director-General and the two page document (“TRIPS COVID-19)) is embedded below.

W688

There are only two changes from the draft document reviewed in mid-March. The first is the most important and concerns the definition of “an eligible member” contained in footnote 1. Originally, footnote 1 consisted of the following – “For the purpose of this Decision, developing country Members who exported more than 10 percent of world exports of COVID-19 vaccine doses in 2022 are not eligible Members.” From public data, this language would have excluded China from being an eligible Member. In the footnote 1 forwarded to the Membership on May 3, there are two bracketed sentences, the second of which is what was in the earlier draft. The other bracketed option would make all developing countries “eligible Members” — “[For the purpose of this Decision, all developing country Members are eligible Members. Developing country Members with capacity to export vaccines are encouraged to opt out from this Decision.]” Should China opt out of the Decision, the resulting potentially eligible countries would be the same. The opt out language could also arguably get additional Members who have significant vaccine producing and exporting capacity to voluntarily opt out as well (e.g., India).

The second change is the bracketing of paragraph 3.(a) with an additional footnote indicating that “This paragraph is under further consideration as to whether to keep or delete.” The paragraph (which is unchanged from the earlier draft other than the addition of brackets) reads,

“(a) [With respect to Article 31(a), an eligible Member may issue a single authorization to use the subject matter of multiple patents necessary for the production or supply of a COVID-19 vaccine. The authorization shall list all patents covered. In the determination of the relevant patents, an eligible member may be assisted by WIPO’s patent landscaping work, including on underlying technologies on COVID-19 vaccines, and by other relevant sources. An eligible Member may update the authorization to include other patents.]”

It was reported that China was pushing to be included in the small group discussions and took exception to the footnote 1 language which would exclude only it. Presumably the alternative bracketed language in footnote 1 is designed to address China’s concerns. However, it is less likely that the U.S. will accept a final package if China doesn’t opt out of the decision.

Consistent with the earlier draft, the Decision, if adopted would remain in effect for either three or five years (numbers are braketed alternatives).

Many NGOs have raised concerns about the lack of immediate coverage of therapeutics and diagnostics. Paragraph 8 continues to read, “No later than six months from the date of this Decision, Members will decide on its extension to cover the production and distribution of COVID-19 diagnostics and therapeutics.” Thus, a decision on coverage of therapeutics and diagnostics will occur, absent a change in language in the text, by the end of 2022, if the decision is adopted.

If the text is accepted by the WTO membership (or modified in ways acceptable to all), then there should be an agreed WTO response to the pandemic at the 12th Ministerial. For reasons noted in recent posts, the value of such a response will be more in the other aspects of the response (keeping markets open, limits on export restraints, transparency, etc.) than on the document dealing with access to vaccines via TRIPS actions. See, e.g., May 1, 2022:  Financial Times article from May 1, 2022 reaffirms current excess capacity for COVID-19 vaccines, https://currentthoughtsontrade.com/2022/05/01/financial-times-article-from-may-1-2022-reaffirms-current-excess-capacity-for-covid-19-vaccines/; April 30, 2022:  World Trade Organization 12th Ministerial Conference — the possible response to the COVID-19 pandemic amid the declining demand for vaccines, https://currentthoughtsontrade.com/2022/04/30/world-trade-organization-12th-ministerial-conference-the-possible-response-to-the-covid-19-pandemic-amid-the-declining-demand-for-vaccines/. Nonetheless, an agreed response, including the vaccine TRIPS provisions, would be an important accomplishment in the current times.

Aiding Ukraine economically — EU’s efforts to suspend all tariffs and antidumping duties for a year on imports from Ukraine; will others make similar efforts?

The unprovoked invasion of Ukraine by the Russian Federation has resulted in hundreds of billions of dollars of destruction across the country of Ukraine in terms of destroyed infrastructure, factories, buildings and more. With the Black Sea not accessible for Ukrainian exports and with the war seriously disrupting both agriculture and manufacturing, Ukraine has been dependent on assistance from countries and multilateral organizations for funds to keep the country functioning. The United States, European Union, IMF, World Bank and others have been providing billions in economic assistance and will likely need to continue to do so for many months to come.

On April 27, 2022, the European Commission proposed a one year suspension of customs duties and antidumping and safeguard duties on imports from Ukraine to bolster Ukraine’s economy. The European Commission’s press release is embedded below.

EU_takes_steps_to_suspend_all_duties_on_imports_from_Ukraine

The draft regulation forwarded to the European Parliamant and European Council is embedded below.

COM2022195_0

A summary of what is proposed is shown on page 1 of the draft regulation and is copied below.

“Therefore, the Commission is proposing a Regulation of the European Parliament and of the Council introducing trade-liberalising measures in the form of the three following measures, which should apply for a period of one year:

“– Temporary suspension of all outstanding tariffs under Title IV of the Association Agreement between the EU and Ukraine (hereinafter referred to as ‘the Association Agreement’)1 establishing a deep and comprehensive free trade area (DCFTA). This concerns three categories of products:

“ industrial products subject to duty phase out by the end of 2022;

“ fruits and vegetables subject to the entry-price system;

“ agricultural products and processed agricultural products subject to tariff-rate quotas.

“– Temporary non-collection of anti-dumping duties on imports originating in Ukraine as of the date of entry into force of this Regulation; and

“– Temporary suspension of the application of the common rules for imports (safeguard)2 with respect of imports originating in Ukraine.

“These temporary and exceptional measures will contribute to supporting and fostering the existing trade flows from Ukraine to the Union. This is in line with one of the main objectives of the Association Agreement, which is to establish conditions for enhanced economic and trade relations leading towards Ukraine’s gradual integration in the EU Internal Market.”

This type of trade assistance is obviously important to help keep Ukrainian businesses operating where possible and is appreciated by Ukraine during the challenging times they are living through. See, e.g., Reuters, EU to suspend tariffs on Ukraine imports for one year, Kyiv grateful, April 27, 2022, https://www.reuters.com/business/eu-suspend-tariffs-ukraine-imports-one-year-2022-04-27/ (“Ukrainian President Volodymyr Zelenskiy said he had discussed the proposal with European Commission President Ursula von der Leyen on Wednesday and expressed his gratitude. ‘Right now this will allow us to maintain economic activity in Ukraine, our national production, as much as possible. But this decision needs to be considered not only in the Ukrainian context,’ he said in a late-night video address. ‘Sufficient export of our products to European and global markets will be a significant tool against crises.'”).

For the European Union, the temporary suspension of remaining tariffs and existing antidumping and safeaguard duties on Ukrainian goods would be done under the cover of a 2016 Free Trade Agreement with Ukraine (Associate Agreement). It is unclear what level of increased exports Ukraine is capable of sending to the EU in light of the massive destruction of assets within Ukraine. But hopefully if the proposal is adopted, it will facilitate improved economic performance in Ukraine on some products.

While many other trading partners don’t have FTAs with Ukraine, expedited consideration of what temporary trade liberalization measures could be taken on Ukrainian imports could be important additional assistance to Ukraine in the months ahead.

For example, the United States has limited imports from Ukraine – just $1.856 billion in 2021. Much of the imports are in categories that are duty free (unless subject to trade remedies). For example, HS 72 iron and steel mill products accounted for $1.021 billion. HS 73 articles of iron and steel accounted for $137.8 million in 2021. HS 72 is largely duty free in the U.S. and most of HS 73 is duty free as well although there are eight antidumping duty orders in place as well as Section 232 tariffs of 25% on steel products. While it is unlikely that the U.S. would eliminate antidumping duties and would likely need to limit quantities of steel to avoid the 25% 232 tariffs on Ukrainian imports, a temporary suspension of ordinary customs duties and agreement to limit steel imports as a way of voiding the 25% 232 duties would be helpful to Ukraine and would cost the U.S. very little. Indeed, customs duties reported on the US International Trade Commission dataweb page for 2021 for all imports of goods from Ukraine were $52.4 million ($35.8 million on imports of HS 72 and 73 products). Perhaps a temporary modification of the U.S. Generalized System of Preferences to add Ukraine would be an approach that could be pursued by the Biden Administration and the Congress.

Helping Ukraine keep its trade flowing is an important step many countries can take in 2022. Let’s hope that the European Commission’s proposal is adopted by the European Parliament and European Council quickly and used for inspiration by the U.S. and many others in the very near term.

Financial Times article from May 1, 2022 reaffirms current excess capacity for COVID-19 vaccines.

In yesterday’s post, I reviewed current information showing that the WTO’s efforts to develop a response to the COVID-19 pandemic was facing a situation where demand for vaccines was falling far behind production capacity resulting in reduced production and the closing of some facilities. April 30, 2022:  World Trade Organization 12th Ministerial Conference — the possible response to the COVID-19 pandemic amid the declining demand for vaccines, https://currentthoughtsontrade.com/2022/04/30/world-trade-organization-12th-ministerial-conference-the-possible-response-to-the-covid-19-pandemic-amid-the-declining-demand-for-vaccines/.

Today’s Financial Times article updates challenges at a major vaccine factory in South Africa. Financial Times, Africa’s top Covid vaccine plant faces uncertain future after production halted, May 1, 2022, https://www.ft.com/content/ffaaff95-1c1d-41df-b02e-f7c31acdcadf. The articles states, in part, that

“Production at Africa’s largest Covid-19 vaccine manufacturing plant has been halted for the past
month because of a collapse in demand, putting its future in doubt and threatening to undermine
efforts to build a homegrown vaccine industry on the continent.

“Executives at Aspen Pharmacare, a South Africa-based pharmaceutical company that has produced
about 180mn doses of the Johnson & Johnson vaccine, fear they will have to permanently shut
their two Covid jab production lines, unless a new order comes in shortly.”

The need globally to achieve WHO objectives of 70% vaccination rates by this summer which focus on low-income and lower middle-income countries which have low vaccination rates are not related in 2022 to capacity or availability of vaccines but rather the low uptake rate in many countries. Joint efforts of multilateral organizations like the WHO, IMF, World Bank and WTO are important as are national efforts to increase assistance on addressing health infrastructure. On vaccines, changes to intellectual property will not solve the vaccination situation in 2022.

World Trade Organization 12th Ministerial Conference — the possible response to the COVID-19 pandemic amid the declining demand for vaccines

One of the hoped for outcomes from the upcoming 12th Ministerial Conference in Geneva June 12-15, 2022 is a possible agreed outcome on the WTO’s response to the COVID-19 pandemic including some action on intellectual property issues. See, e.g., WTO News Release, DG Okonjo-Iweala concludes US mission, 28 April 2022, https://www.wto.org/english/news_e/news22_e/dgno_28apr22b_e.htm (“Director-General Ngozi Okonjo-Iweala met on 28 April with US Trade Representative Katherine Tai to discuss prospects for the upcoming 12th Ministerial Conference, the WTO’s response to the pandemic including intellectual property, reform of the organization, the looming food shortage crisis and disruptions to global supply chains.”).

I have previously reviewed the possible elements of the response to the pandemic and a not finalized draft intellectual property document among the European Union, United States, India and South Africa. See, e.g., March 17, 2022:  Possible Compromise on Access to Vaccines — draft understanding between EU, US, South Africa and India, https://currentthoughtsontrade.com/2022/03/17/possible-compromise-on-access-to-vaccines-draft-understanding-between-eu-us-south-africa-and-india/; November 22, 2021:  Trade and Health at the WTO’s 12th Ministerial Conference, https://currentthoughtsontrade.com/2021/11/22/trade-and-health-at-the-wtos-12th-ministerial-conference/.

Equitable access to vaccines has been a matter of concern to many countries and the focus of the effort by India and South Africa to obtain a waiver from TRIPS obligations for vaccines, therapeutics and more for a period of years to address the pandemic.

There has been dramatic increases in production capacity for existing vaccines with significant efforts to expand production in developing countries including low income countries. See, e.g., February 21, 2022:  The EU – AU Summit and the promise of a resolution to the WTO pandemic response package, https://currentthoughtsontrade.com/2022/02/21/the-eu-au-summit-and-the-promise-of-a-resolution-to-the-wto-pandemic-response-package/; February 16, 2022:  Building Vaccine Capacity in Africa – Exciting News from BioNTech, https://currentthoughtsontrade.com/2022/02/16/building-vaccine-capacity-in-africa-exciting-news-from-biontech/.

The WHO has set the objective of getting 70% of the world’s population vaccinated by this summer, a goal that should be achievable based on production capacity. Unfortunately, it is clear that for low income countries generally and for Africa as a continent, the 70% target will not be met. It is also not likely that lower middle income countries will reach the target either. The WTO-IMF vaccine information available from the WTO webpage is currently updated through the end of March 2022. See WTO-IMF COVID-19 Vaccine Trade Tracker, Last updated: 28 April 2022, Table 6, https://www.wto.org/english/tratop_e/covid19_e/vaccine_trade_tracker_e.htm. Specifically when examined on an income level basis (World Bank definition), low income countries have only 12.0% of their population fully vaccinated (15.2% with at least one dose); lower middle income countries have 48.4% of their population fully vaccinated (57.3% with at least one dose). These rates compare to 72.6% of Upper middle income countries’ populations being fully vaccinated and 73.2% of high income countries’ populations. On a continent-wide basis, Africa has only 15.3% of its population fully vaccinated; Oceania is at 62.3%; North America is at 62.7%; Europe is 65.1%;, Asia is 67.8%; and South America is 73.0%.

Shockingly, data on a monthly basis show total supply declining in each of the first three months of 2022 compared to December 2021 and, in fact, below every month since June 2021. March 2022 appears to be roughly 1/3 of supply from December 2021. WTO-IMF COVID-19 Vaccine Trade Tracker, at Table 4. This decline in volume is despite new vaccine producers of vaccines being approved and UNICEF’s tracking of capacity showing 2022 ranging from 16.8-20.9 billion doses versus the 2021 rate of 11.5 billion. UNICEF, COVID-19 Vaccine Market Dashboard, accessed 4-30-2022, https://www.unicef.org/supply/covid-19-vaccine-market-dashboard.

Since last fall, there have been news stories about countries with low vaccination rates not being able to accept all deliveries scheduled. See, e.g., Reuters exclusively reports South Africa delays COVID vaccine deliveries as inoculations slow, November 24, 2021, ttps://www.reutersagency.com/en/reutersbest/article/reuters-exclusively-reports-south-africa-delays-covid-vaccine-deliveries-as-inoculations-slow/ (“Reuters exclusively reported that South Africa has asked Johnson & Johnson and Pfizer to delay delivery of COVID-19 vaccines because it now has too much stock, as vaccine hesitancy slows an inoculation campaign. About 35% of South Africans are fully vaccinated, higher than in most other African nations, but half the government’s year-end target. It has averaged 106,000 doses a day in the past 15 days in a nation of 60 million people.”).

The causes can vary from vaccine hesitancy (which can be higher in countries with low death rates such as much of Africa), to challenges with distribution (particularly to rural parts of countries), to weak health care infrastructure and more.

Moderna, one of the major mRNA vaccine producers, had its annual shareholders meeting on April 28, 2022. One of the shareholder initiatives voted on was whether the company should generate a Report on Feasibility of Transferring Intellectual Property. The proposal was rejected by over 3/4th of the votes. But in a document released by the company, there is a description of the large volume of production that has not been accepted or delayed and the resulting reduction of production that Moderna is going through because of a lack of demand. See Moderna, Global Access to COVID-19 Vaccines, April 28, 2022, https://s29.q4cdn.com/435878511/files/doc_news/2022/04/Access-Statement_4.28_817am.pdf. A section of the document pertaining to COVAX and the Africa Union is copied below.

Committing Vaccines to COVAX and the African Union

“Beginning in the summer of 2020, the Moderna team was engaged with Gavi, the Vaccine Alliance, on behalf of the COVAX Facility, hoping to secure a commitment from them to procure a significant number of Moderna COVID-19 vaccines. An agreement was not reached until April 2021, though we were pleased to commit up to 500 million doses to COVAX – a number that was subsequently increased to 650 million doses. Similarly, we were proud to reach an agreement with the African Union to supply 110 million doses, which we were prepared to start delivering as early as the fourth quarter of 2021. In each case, we offered these vaccines at our lowest price, and in the latest agreements the price for each of these organizations was $7 per 100 μg dose.

“Despite our efforts, ultimately COVAX and the African Union deferred or declined hundreds of millions of doses of Moderna’s vaccine. While we were prepared to deliver tens of millions of doses to the African Union in December 2021, they asked us to delay delivery, noting that they did not have the means of distributing them. They also declined to exercise an option for 60 million doses that were available to them in the second quarter of this year.

“Similarly, COVAX has declined options for over 320 million doses that Moderna was prepared to deliver in 2022, noting that they have ample access to vaccines. And even for those doses where COVAX submitted a firm order covering the first and second quarters, they have asked to defer delivery. As a result, Moderna is incurring significant costs as it winds down relationships with outside manufacturers who were engaged to produce these declined doses.

“Asking Moderna to transfer intellectual property to local manufacturers—as the Oxfam America proposal suggested—when hundreds of millions of doses are being declined and already operating manufacturing plants are being idled will do nothing to accelerate the end of the pandemic. It would also require diverting Moderna personnel already engaged in manufacturing with other partners, or who are working on other initiatives, including the company’s Global Health strategy as described below.

The document in its entirety is embedded below.

Access-Statement_4.28_817am-1

The WTO-IMF COVID-19 Vaccine Trade Tracker in its table 4 on total supply shows that supply by all or nearly all major COVID vaccine producers has declined on a monthly basis since December 2022 including for Sinovac, AstraZeneca, Pfizer, Sinopharm, Moderna, J&J, Sputnik and other. Thus, the reduction in production is not limited to mRNA products or to just Moderna. The table from the current WTO-IMF Vaccine Trade Tracker is copied below.

So the challenges of vaccinating the world against the COVID-19 pandemic continue but are not driven in 2022 by availability of the vaccine or even access to the vaccine. Neither waiver of TRIPS obligations nor easier compulsory licensing of the COVID-19 vaccines will solve the underlying ongoing issue of vaccinations.

The draft intellectual property document being worked on by the EU, U.S., India and South Africa that when signed off on by those four will need to be considered by the WTO Membership as a whole, is limited to vaccines, with therapeutics and other elements of goods needed to address the pandemic potentially addressable in six months after an agreement. If the draft agreement among the four (actual language has not been finalized and reportedly has not been signed off on by the U.S., India and South Africa) is the intellectual property part of the WTO’s response to the pandemic, its relevance, if any, will be how Members might look at future pandemics and actions by WTO Members. Its utility for the COVID-19 pandemic is at the most very limited with more capacity than demand in 2022 and with the major drivers of nonvaccination this year not being availability of vaccines. This means that while there will be potentially symbolic relevance to the IP portion of the package, the meat of the response will be in the areas of keeping markets open, limiting export restraints, improved transparency, etc.

WTO Reform and the 12th Ministerial Conference — What Is likely on Dispute Settlement?

With the 12th WTO Ministerial Conference now set for June 12-15, 2022 in Geneva, the WTO Members have a limited amount of remaining time to achieve progress on pending matters and to decide how to move forward with WTO reform (and what such reform might cover). For many Members, the issue of dispute settlement — whether restoration of the Appellate Body through starting selecting new AB members or reform of the system — is an important component of any WTO reform agenda.

Earlier this week on April 27, the Dispute Settlement Body held its monthly meeting. As has been true for several years, the agenda included the question of Appellate Body vacancies/appointments. WTO, Dispute Settlement Body, 27 April 2022, Proposed Agenda, WT/DSB/W/697 (Agenda item 3). While the WTO’s news release on the meeting is titled “Members commit to engagement on dispute settlement reform”, the summary of the discussion that followed sounds virtually identical to the summaries of dozens of prior Dispute Settlement Body meetings on the same topic. Compare WTO News Release, Members commit to engagement on dispute settlement reform, 27 April 2022, https://www.wto.org/english/news_e/news22_e/dsb_27apr22_e.htm (Appellate Body appointments section) with WTO News Release, WTO panels to review Russian procurement measures, Dominican duties, 20 December 2021, https://www.wto.org/english/news_e/news21_e/dsb_20dec21_e.htm (Appellate Body appointments section) and WTO News Release, Members pledge flexible arrangements in WTO dispute proceedings during COVID pandemic, 18 December 2020, https://www.wto.org/english/news_e/news20_e/dsb_18dec20_e.htm (Appellate Body appointments). Moreover the full statement of the U.S. on the topic is quite similar to earlier statements. See USTR, Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, April 27, 2022, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2022/04/Apr27.DSB_.Stmt_.as_.deliv_.fin_.pdf (agenda item 3, Statement by Ambassador Maria Pagán.

While Members will likely agree to include dispute settlement reform in any WTO reform agenda agreed to at the 12th Ministerial, the difference in positions reflected in the WTO news release among Members suggest a continued yawning gap between the needs of the United States and the positions of many other WTO Members.

Below is the summary of the discussion contained in the April 27, 2022 WTO News Release.

“Appellate Body appointments

“Mexico, speaking on behalf of 123 members, introduced for the 53rd time the group’s proposal to start the selection processes for filling vacancies on the Appellate Body. The extensive number of members submitting the proposal reflects a common concern over the current situation in the Appellate Body which is seriously affecting the overall WTO dispute settlement system against the best interest of members, Mexico said for the group.

“The United States said that its longstanding concerns with WTO dispute settlement remain unaddressed, and that it does not support the proposed decision to commence the appointment of Appellate Body members.  Many members share US concerns with the functioning of the system and its negative impact on the WTO’s negotiating and monitoring functions, it said.

“The US added that it wants to be clear it supports WTO dispute settlement reform and that it is prepared for continued and deepened engagement with members on the basis that such discussions should aim to ensure that WTO dispute settlement reflects the real interests of members and not prejudge what a reformed system would look like.

“More than 20 delegations (including the European Union for its 27 members, Nigeria for the African Group and St Vincent and the Grenadines for the Organization of Eastern Caribbean States) took the floor to reiterate the importance of the WTO’s two-tiered dispute settlement system to the stability and predictability of the multilateral trading system.  They called on all members to engage in constructive discussions in order to restore a fully functioning dispute settlement system, which some cited as a top priority for reform of the organization.

“For the 123 members, Mexico again came back to say the fact a member may have concerns about certain aspects of the functioning of the Appellate Body cannot serve as pretext to impair and disrupt the work of the Dispute Settlement Body (DSB) and dispute settlement in general, and that there was no legal justification for the current blocking of the selection processes, which is causing concrete nullification and impairment of rights for many members.

“The DSB chair, Ambassador Athaliah Lesiba Molokomme of Botswana, said she hoped members would be able to find a solution to this matter.”

The statement of the new Deputy U.S. Trade Representative in Geneva, Amb. Maria Pagán, is copied below.

“Statement by Ambassador Maria Pagán

“• Thank you, Chair. This is my first DSB meeting since arriving in Geneva, and I am pleased to be here. The United States values the work of Members in the DSB, and I look forward to supporting you as Chair in this important body.

“• Members are aware of the longstanding U.S. concerns with WTO dispute settlement. Those concerns remain unaddressed, and the United States does not support the proposed decision.

“• But let me be clear: The United States supports WTO dispute settlement reform. Like Ambassador Tai, I have personally participated in various dispute settlement proceedings, and I can appreciate the benefits of a system that effectively meets the needs of Members.

“• WTO dispute settlement currently fails in this regard – for many years it has not met the needs of Members, including the United States, for example, due to its complexity, delays, lack of transparency, and interpretive overreach. We know well that many Members share U.S. concerns with the functioning of the system and its negative impact on the WTO’s negotiating and monitoring functions.

“• This fact underscores the importance of understanding better the interests of all Members, and not just ‘what does the United States want’. A true reform discussion should aim to ensure that WTO dispute settlement reflects the real interests of Members, and not prejudge what a reformed system would look like.

“• My delegation has been, and will continue to be, hard at work meeting with Members to better understand the interests of all Members. This important first step provides us with the greatest chance of achieving durable, lasting reform. That is the goal of the United States and we are prepared for continued and deepened engagement with Members on that basis.”

The Biden Administration, like the Trump Administration, believes that the operation of the dispute settlement system is in need of significant reform. The Trump Administration characterized the challenge as getting Members to explore why the Appellate Body felt at liberty to disregard the clear limitations on its authority in the Dispute Settlement Understanding and why Members had not moved earlier to ensure the limited role for the Appellate Body was respected. The Trump Administration also expressed concern that the dispute settlement system was not permitting Members to address the massive distortions caused to the global trading system from state-directed economies such as China. The Trump Administration was also not committed to a two-tier review system in light of the problems with the Appellate Body.

The Biden Administration has expressed similar concerns although Amb. Pagán’s comments appear to change the focus from why did the Appellate Body view itself as permitted to deviate from its limited role to a review of what Members “real interests” are. It is unclear if the different language reflects a change in focus or just a rearticulation of the need to find reforms that will deliver a dispute settlement system that is limited to and achieves the objectives Members have articulated.

With the major efforts of the U.S. and EU to work together on a host of trade and non-trade issues under the Biden Administration’s time and knowing the importance the EU has always placed on reobtaining binding dispute settlement, it is clear that the U.S. will agree to have dispute settlement reform as part of the WTO reform agenda as in indicated by Amb. Pagán’s statement. That doesn’t mean there is an obvious path to reform or that a two year time period (to the 13th Ministerial Conference) in the current circumstances will permit reform in all areas needing to be addressed. Nor is there any indication that Members are willing to consider corrections to the errant Appellate Body decisions to restore rights Members had when the WTO was launched.

But at a time where the ability of the WTO Members to deliver meaningful outcomes is even more limited than usual because of the Russian war in Ukraine, agreeing on an agenda for WTO reform topics may hold out the best hope for achieving a promise of a better future for Members at the upcoming 12th Ministerial.

The WTO’s upcoming 12th Ministerial Conference to be held in Geneva the week of June 13, 2022 — What can be expected in the current geopolitical environment?

The COVID-19 pandemic has twice delayed the 12th Ministerial Conference from its original date in June 2020. Assuming the Ministerial Conference in fact takes place the week of June 13, 2022 (and isn’t delayed by a new surge in COVID-19 infrections or by other complications), there will have been a four and a half year delay from the 11th Ministerial Conference held in Buenos Aires in late 2017. Ministerial conferences are intended to be held every two years. Considering the challenges facing the World Trade Organization, many will be looking to see if this year’s Ministerial can help restore the WTO’s relevancy. The effort to get positive results at the 12th Ministerial Conference has been complicated by Russia’s invasion of Ukraine.

The list of challenging issues is long. Fisheries Subsidies is the only new multilateral agreement under discussion. While it is nearing the finish line, negotiations have been ongoing for more than twenty years, and it is unclear the level of ambition that will be agreed to if negotiations are concluded.

There are a range of agriculture issues that have been under discussion for years. The topics under discussion include public stockholding for food security purposes, domestic support (subsidies other than export subsidies), cotton, market access, special safeguard mechanism, export prohibitions or restrictions, export competition and transparency, See WTO Briefing Note, Agriculture Negotiations, State of Play 13 December 2021, https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bfagric_e.htm. In the most recent WTO press notice on the agriculture negotiations is from March 23, 2022 and notes the challenges from the Russian invasion. See WTO, Agriculture negotiators chart path towards MC12, 23 March 2022, https://www.wto.org/english/news_e/news22_e/agng_21mar22_e.htm (“WTO agriculture negotiators met on 21 March to discuss the way forward ahead of the 12th Ministerial Conference (MC12), which is now scheduled to take place the week of 13 June. The chair of the agriculture negotiating group, Ambassador Gloria Abraham Peralta (Costa Rica), noted the impact of the conflict in Ukraine on global food markets and the agriculture negotiation environment. She asked members to prepare for intensive negotiations and use the remaining time wisely so as to achieve pragmatic, meaningful outcomes at MC12.”).

The WTO Members have also been seeking to reach agreement on a response package to the COVID-19 pandemic, including on whether some form of waiver or other action is needed on intellectual property rights during the COVID-19 pandemic. See, e.g., March 17, 2022:  Possible Compromise on Access to Vaccines — draft understanding between EU, US, South Africa and India, https://currentthoughtsontrade.com/2022/03/17/possible-compromise-on-access-to-vaccines-draft-understanding-between-eu-us-south-africa-and-india/; February 21, 2022:  The EU – AU Summit and the promise of a resolution to the WTO pandemic response package, https://currentthoughtsontrade.com/2022/02/21/the-eu-au-summit-and-the-promise-of-a-resolution-to-the-wto-pandemic-response-package/; February 16, 2022:  Building Vaccine Capacity in Africa – Exciting News from BioNTech, https://currentthoughtsontrade.com/2022/02/16/building-vaccine-capacity-in-africa-exciting-news-from-biontech/.

There are a host of Joint Statement Initiatives that are at various stages of progress on a plurilateral basis, with India and South Africa raising objections to plurilateral agreements being part of the WTO without consensus agreement. See, e.g., April 14, 2022:  Challenging China’s Trade Practices — What Role for the WTO?, https://currentthoughtsontrade.com/2022/04/14/challenging-chinas-trade-practices-what-role-for-the-wto/ (“Ongoing JSI include those on electronic commerce, investment facilitation for development, plastics pollution and environmentally sustainable plastics trade, services domestic regulation, informal working group on MSMEs, and trade and environmental sustainability.  The WTO issues periodic press releases on developments in the talks.  See, e.g., JOINT INITIATIVE ON E-COMMERCE, E-commerce negotiators seek to find common ground, revisit text proposals, 21 February 2022, https://www.wto.org/english/news_e/news22_e/jsec_23feb22_e.htm (hoping to have convergence on majority of issues by end of 2022)(86 WTO Members participating accounting for 90% of e-commerce trade including China, U.S. and most other major countries);  INVESTMENT FACILITATION FOR DEVELOPMENT, Investment facilitation negotiators take steps to assess needs of developing countries, 15 February 2022, https://www.wto.org/english/news_e/news22_e/infac_23feb22_e.htm (looking to complete by end of 2022)(over 100 WTO Members participate including China and most developed countries, but not the U.S.); INFORMAL DIALOGUE ON PLASTICS POLLUTION AND ENVIRONMENTALLY SUSTAINABLE PLASTICS TRADE, Plastics dialogue emphasizes need for international collaboration, cooperation, 30 March 2022, https://www.wto.org/english/news_e/news22_e/ppesp_31mar22_e.htm  (70 Members participate including China and most major developed countries but not the U.S.); Joint Initiative on Services Domestic Regulation, Negotiations on services domestic regulation conclude successfully in Geneva, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm (67 Members participated including China, the U.S. and other major developed countries); . MICRO, SMALL AND MEDIUM-SIZED ENTERPRISES (MSMES), Working group on small business welcomes three more members, 8 February 2022, https://www.wto.org/english/news_e/news22_e/msmes_08feb22_e.htm (94 participants including China and most major developed countries but not the U.S.).”).

There are many issues that have been raised as potential subjects for WTO reform including dispute settlement, industrial subsidies, state-owned and state-invested enterprises, excess capacity, transparency and many others.

With the U.S., EU, U.K., Japan, Canada and others seeking to reduce the role the Russian Federation can play in multilateral and plurilateral organizations while its war against Ukraine continues, it is unclear what progress will be made on the trade agenda at the WTO ahead of the 12th Ministerial. For example, G7 countries, the EU and others have suspended most favored nation status on goods and services from the Russian Federation. March 20, 2022:  Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine, https://currentthoughtsontrade.com/2022/03/20/banned-imports-higher-tariffs-other-actions-by-trading-partners-as-russia-and-belarus-lose-most-faovered-nation-treatment-by-g-7-countries-and-eu-during-the-conflict-in-ukraine/.

They have also announced that they are removing the Russian Federation from the WTO Developed Countries Coordinating Group. See March 5, 2022:  Joint letter from European Union and United States on removing the Russian Federation from the WTO Developed Countries Coordinating Group, https://currentthoughtsontrade.com/2022/03/05/joint-letter-from-european-union-and-united-states-on-removing-the-russian-federation-from-the-wto-developed-countries-coordinating-group/.

Russia’s President Putin has indicated that he wants a revised WTO strategy by June 1 to deal with sanctions imposed by western countries. See Reuters, Russia to update its strategy in World Trade Organization amid sanctions, says Putin, April 20, 2022, https://www.reuters.com/world/russia-update-its-strategy-world-trade-organization-amid-sanctions-says-putin-2022-04-20/ (“Russian President Vladimir Putin said on Wednesday that ‘illegal’ restrictions on Russian companies by Western states ran counter to World Trade Organization rules and told his government to update Russia’s strategy in the WTO by June 1. Speaking at a government meeting on the country’s metals industry, Putin said that Western countries had banned Russia from buying components needed to produce rolled metal, steel sheets and other products.”). It is unclear if that “revised strategy” will include blocking consensus in the WTO on topics being negotiated/discussed for the 12th Ministerial Meeting. Western countries have also opted to walk out of meetings when Russian delegates are participating/speaking. See, e.g., NPR, Janet Yellen and other finance ministers walk out of G20 meeting as Russia speaks, April 20, 2022, https://www.npr.org/2022/04/20/1093841174/janet-yellen-crystia-freeland-canada-rishi-sunak-uk-g20-walk-out-russia (“Treasury Secretary Janet Yellen and other global financial leaders walked out of a G20 session as Russian officials were speaking on Wednesday in an effort to underscore Moscow’s isolation following the invasion of Ukraine.”).

Thus, the atmosphere for moving trade talks forward is clouded at best at the present time.

As prior Director-Generals have done for prior Ministerial Confernces, WTO Director-General Ngozi Okonjo-Iweala has been traveling the world seeking support from major countries to a successful Ministerial Conference. See, e.g., WTO news release, DG calls on Brazil’s support in preventing food crisis, seeks leadership towards MC12, 19 April 2022, https://www.wto.org/english/news_e/news22_e/dgno_19apr22_e.htm (” Director-General Ngozi Okonjo-Iweala concluded a two-day trip to Brazil on 18-19 April, her first to Latin America as head of the WTO, meeting government officials, parliamentarians and businesspeople. She thanked Brazil for its constructive role in the WTO, highlighted the country’s potential role in alleviating risks of a food security crisis linked to the conflict in Ukraine and acknowledged the government’s concerns about the difficulties in securing fertilizers. She also sought Brazil’s continued and strong support for multilateralism and a fruitful 12th Ministerial Conference (MC12).”). The Director-General will be in Washington the week of April 25, 2022. See, e.g., Inside U.S. Trade’s World Trade Online, WTO director-general to visit Washington next week in lead-up to MC12, April 20, 2022, https://insidetrade.com/daily-news/wto-director-general-visit-washington-next-week-lead-mc12. The Inside U.S. Trade article reviews the tensions caused by the Russian invasion and the resulting uncertainty about what, if any, outcomes are possible for the 12th Ministerial Conference.

“Her conversations in Washington are likely to focus significantly on the waiver and on the upcoming 12th ministerial conference, set for the week of June 13 in Geneva. If all went according to plan, the ministerial gathering was to be the venue for delivering a long-awaited agreement on fisheries subsidies, a step forward on agriculture and a pandemic response package, including a compromise IP waiver.

“But the twice-postponed gathering is poised to be derailed once again – if not actually rescheduled – by political and diplomatic tensions arising from Russia’s invasion of Ukraine. Whether WTO members will be able to produce deals at MC12 is in doubt as the WTO has had to adapt to conducting its negotiations around the tensions. Okonjo-Iweala said last week that plenary meetings of the full membership have become more difficult to hold, with members opting instead for small-group or bilateral meetings.”

There have also been efforts to develop a factual background to support some elements of a possible WTO reform agenda. The U.S., EU and Japan have been working over the last few years on potential modifications to the current Subsidies and Countervailing Measures Agreement to address some of the major distortions in industrial goods trade caused by China’s state-directed economy — industrial subsidies, state-owned and state-invested enterprises, global excess capacity. China has indicated a willingness to discuss subsidies if all subsidies (including agricultural subsidies) are included. On April 22, 2022, a report prepared by the staff of the IMF, OECD, World Bank and WTO was released. See IMF, OECD, World Bank and WTO, Subsidies, Trade, and International Cooperation, April 22, 2022, https://www.wto.org/english/news_e/news22_e/igo_22apr22_e.pdf; WTO news release, Greater international cooperation needed on subsidies data, analysis and reform — report, 22 April 2022, https://www.wto.org/english/news_e/news22_e/igo_22apr22_e.htm. The Executive Summary of the report (pages 3-4) is copied below.

“Dealing constructively with subsidies in global commerce is central to G20 leaders’ goal of reforming and
strengthening the multilateral trading system. The growing use of distortive subsidies alters trade and
investment flows, detracts from the value of tariff bindings and other market access commitments, and
undercuts public support for open trade. Sharp differences over subsidies are contributing to global trade
tensions that are harming growth and living standards.

“There are good reasons why this issue, which has challenged policymakers for decades, should be addressed now. Among them: distinguishing ‘good’ and ‘bad’ subsidies is analytically and politically fraught, while the unilateral responses available to trading partners (such as ‘trade defense’ measures) are a limited deterrent. The renewed drive toward industrial policies to promote ‘strategic’ sectors may distort international competition, especially against smaller, fiscally constrained developing countries. With the frequency and complexity of distortive subsidies increasing, even as the need grows for active policies to address climate, health, food, and other emergencies, subsidies and the subsidies debate have brought significant discord to the trading system. The issue demands global attention and cooperation.

“Subsidies are common in all sectors, used by countries at all stages of development, take many forms, and affect all countries. Despite important gaps in our information about subsidies, the broad landscape is clear. Most merchandise trade occurs in products and markets in which at least one subsidized firm operates. National and sub-national entities provide subsidies through—to name a few forms—direct grants, tax incentives, and favorable terms for financing, energy, land, or other inputs. Many subsidies are explicitly aimed at the important task of correcting market failures and may do this well. Many others, however, are designed in ways that do little to advance their stated objective, or do so at high domestic cost or with harmful effects on the global commons and on other countries, notably the poorest and most vulnerable countries. International cooperation can reduce the overall use of subsidies and improve their design.

“Existing international rules provide a strong basis for regulating subsidies. International subsidy disciplines were progressively strengthened, notably in 1995 with the WTO Agreement on Subsidies and
Countervailing Measures and the WTO Agreement on Agriculture, although the agenda to negotiate
detailed subsidy rules for services has been largely set aside. Many major countries also adhere to the
disciplines of the OECD Export Credit Arrangement. Some recent free trade agreements have also gone
beyond WTO rules, containing, for instance, provisions disciplining the behavior of state-owned enterprises and more extensive lists of prohibited subsidies.

“Still, both longstanding and recently-exposed gaps remain in these international rules. Extensive trade distorting domestic farm subsidies are still allowed in many cases, and WTO members have yet to agree
special disciplines for harmful fisheries subsidies that contribute to overfishing. The recognition of gaps is
shaped by such developments as the emergence of global value chains; digital markets and related network concentration effects; the global importance of economies in which the state plays a central role,
and of international SOEs; the urgent challenge of climate change; and the recognition that well-crafted
subsidies can be an important part of the public response to economic and health emergencies. These
developments make the issue of subsidies in the trading system both more complex and more urgent.
Investment incentives are widespread, often at sub-national levels where they can be hard to monitor.
Much of this debate occurs in the context of the industrial sector. This paper does not advocate particular
outcomes. However, international cooperation that delivers improved subsidy disciplines, improves
business certainty, and reduces trade frictions would be superior to unilateral actions and should be
expected to reduce their use.

“In many of these areas, better information, more extensive objective analysis, and regular dialogue can
help governments accelerate reform of their own subsidies and expedite negotiations toward improved
international disciplines. Careful, high-quality economic analysis is needed to understand not only how well current subsidy programs meet domestic policy objectives, and at what cost, but also how they spill over onto international markets and how they interact with international policy goals, like climate mitigation. That effort must improve the information available on existing subsidy programs and their effects, especially on trading partners. It should feed into a structured inter-governmental dialogue, informed by analysis, and lead to a more common perspective on the appropriate roles of subsidies that, in turn, facilitates the development of updated norms and standards. Improved transparency and analysis, more robust intergovernmental consultation, and strengthened international rules can be expected to reduce the use of harmful subsidies and to improve their design—leading to better outcomes with fewer negative effects at home or abroad.

“The international organizations (IOs) authoring this report can strengthen their individual and joint work to support governments in this endeavor. While the brunt of this work lies with finance ministries, trade
ministries, and sectoral and specialized agencies of national governments, international organizations have key roles to play. The four authoring institutions are examining ways to help, individually and jointly, such as by collecting, organizing, and sharing data, coordinating analytical work agendas to develop methodologies to assess the cross-border effects of different forms of subsidies, and supporting inter-governmental dialogues. This will involve reaching out to and working with other international institutions as well.”

The report also contains a list of some recent international reports relating to subsidies (Box 1 on page 6, copied below).

Box 1. Selected Recent International Reports Relating to Subsidies

“Noting that COVID-19 caused severe stress for tourism industries in the region and around the world, the Asian Development Bank’s Asian Economic Integration Report (ADB, 2021) examined measures to support tourism in selected ADB developing members. It draws positive lessons to help governments maintain critical levels of tourism infrastructure and to facilitate a rapid rebound in a sector that is key to many economies.

“Global Trade Alert set out to inventory subsidies of the “major players”—China, the EU, and the United States (Evenett and Fritz, 2021). It finds that in 2019, more than three-fifths of global goods trade was in products and on trade routes in which one or more subsidized Chinese, EU, or U.S. firms compete. When a major player introduces a new subsidy, the others usually respond within six months with their own subsidy.

“The 2021 FAO, UNDP, and UNEP report, A Multi-Billion-Dollar Opportunity: Repurposing Agricultural Support to Transform Food Systems, finds that some forms of support to agricultural producers are distortive and socially and environmentally harmful. It sets out a six-step guide for repurposing the provision of public goods and services for agriculture.

“The World Resources Institute 2021 report, Repurposing Agriculture Subsidies to Restore Farmland and Grow Rural Prosperity, likewise argues that public agricultural subsidies failed to achieve their stated objectives but that smart agricultural subsidies can restore degraded land and rural economies.\

“IMF (2020) advises governments on raising efficiency and managing other challenges related to SOEs—frequent recipients or providers of subsidies. It calls for global principles for multinational SOEs, noting that SOEs account for 20 percent of assets of the world’s largest 2,000 firms. Some IMF Article IV country reports have called for specific reforms of farm subsidies or industrial subsidies.

“As part of its ongoing work on agricultural support, OECD (2021a) provides country-comparable data and information and analyzes whether current support is helping to meet the triple challenge facing food systems (food security and nutrition, environmental sustainability, and livelihoods). OECD (2019a) and OECD (2019b) examine support received by the largest firms in the aluminum and semiconductor value chains; these reports shed light in particular on support provided through the financial system; current work also explores the environmental harm that can arise from subsidies.

“The case for international cooperation on subsidy disciplines was previously reviewed in WTO (2006), which also examined existing WTO subsidy disciplines. A recent World Trade Report (WTO, 2020) showed that international cooperation can shape the pursuit of digital development more effectively, while minimizing cross-border spillovers from national policies. WTO Trade Policy Reviews have triggered extensive discussions of subsidy policies in individual WTO members.

“Noting the growing role of the state in the context of COVID-19 and climate change, WEF (2021) calls for
international cooperation to tackle these global challenges and to address cross-border spillovers from state intervention. It outlines the current state of play and proposes ways forward across subsidies, state ownership and control, government procurement, investment screening, and trade remedies.”

The report from the four organizations was supported by a paper published from former WTO Deputy Director-General Alan Wm. Wolff last week, part of a forthcoming book World Trade Governance: The Future of the Multilateral Trading System. See Peterson Institute for International Economics, Working Paper 22-6 WTO 2025, Alan Wm. Wolff, Enhancing Global Trade Intelligence, April 2022, https://www.piie.com/sites/default/files/documents/wp22-6.pdf.

At most the staff report and the paper from former DDG Wolff support the need for reexamining subsidy disciplines. Any such reexamination will take years to complete but could be part of an announced package of WTO reform topics to be addressed going forward if there is agreement on such a list. See also November 24, 2020:  Responding to a comment received on yesterday’s post, WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/24/responding-to-a-comment-received-on-yesterdays-post-wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/; November 23, 2020:  WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/23/wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/.

The week of June 13, 2022 and the 12th Ministerial Conference is just eight weeks away. It is unclear what, if any, package of documents will be ready for adoption/release during the 12th Ministerial Conference in Geneva. In a member driven organization with a consensus system being the norm outcomes among 164 Members with dramatically different interests are hard to achieve. Thus, there has been limited progress in the past Ministerials. The Russian war in Ukraine adds a layer of uncertainty to what can be achieved at the Ministerial Conference in June this year.

Recent estimates of global effects from Russian invasion of Ukraine

As Russia’s unprovoked war against Ukraine moves through its eighth week, a variety of reports from multilateral organizations explain the severe global fallout from the war as well as the crippling effects on the Ukrainian economy.

On April 13, 2022, the World Bank, IMF, the UN World Food Program and WTO issued a joint statement which is copied below.

“WASHINGTON, 13 April 2022— The Heads of the World Bank Group (WBG), International Monetary Fund (IMF), United Nations World Food Program (WFP), and World Trade Organization (WTO) today called for urgent action on food security. World Bank Group President David Malpass, IMF Managing Director Kristalina Georgieva, WFP Executive Director David Beasley and WTO Director General Ngozi Okonjo-
Iweala issued the following joint statement ahead of the Spring Meetings of the IMF and World Bank Group next week:

“‘The world is shaken by compounding crises. The fallout of the war in Ukraine is adding to the ongoing COVID-19 pandemic that now enters its third year, while climate change and increased fragility and conflict pose persistent harm to people around the globe. Sharply higher prices for staples and supply shortages are increasing pressure on households worldwide and pushing millions more into poverty. The threat is highest for the poorest countries with a large share of consumption from food imports, but vulnerability is increasing rapidly in middle-income countries, which host the majority of the world’s poor. World Bank estimates warn that for each one percentage point increase in food prices, 10 million people are thrown into extreme poverty worldwide.’

“‘The rise in food prices is exacerbated by a dramatic increase in the cost of natural gas, a key ingredient of nitrogenous fertilizer. Surging fertilizer prices along with significant cuts in global supplies have important implications for food production in most countries, including major producers and exporters, who rely heavily on fertilizer imports. The increase in food prices and supply shocks can fuel social tensions in many of the affected countries, especially those that are already fragile or affected by conflict.’

“‘We call on the international community to urgently support vulnerable countries through coordinated actions ranging from provision of emergency food supplies, financial support, increased agricultural production, and open trade. We are committed to combining our expertise and financing to quickly step up our policy and financial support to help vulnerable countries and households as well as to increase domestic agricultural production in, and supply to, impacted countries. We can mitigate balance of payments pressures and work with all countries to keep trade flows open. In addition, we will further reinforce our monitoring of food vulnerabilities and are quickly expanding our multi-faceted policy advice to affected countries guided by the comparative advantages of our respective institutions.’

“‘We also urge the international community to help support urgent financing needs, including through grants. This should include financing of immediate food supplies, safety nets to address the needs of the poor, and for small farmers facing higher input prices. We also urge all countries to keep trade open and avoid restrictive measures such as export bans on food or fertilizer that further exacerbate the suffering of the most vulnerable people. It is especially important not to impose export restrictions on humanitarian food purchases by the UN’s World Food Program.’

“‘It is critical to quickly provide support for food insecure countries in a coordinated manner. We stand ready to work together with our multilateral and bilateral partners to help countries address this urgent crisis.’”

Joint Statement: The Heads of the World Bank Group, IMF, WFP, and WTO Call for Urgent Coordinated Action on Food Security, April 13, 2022, https://www.worldbank.org/en/news/statement/2022/04/13/joint-statement-the-heads-of-the-world-bank-group-imf-wfp-and-wto-call-for-urgent-coordinated-action-on-food-security

The World Bank has estimated that the Ukrainian economy will decline by 45% or more because of the war. Reuters, War to slash Ukraine’s GDP output by over 45%, World Bank forecasts, April 10, 2022, https://www.reuters.com/world/us/war-slash-ukraines-gdp-output-by-over-45-world-bank-forecasts-2022-04-10/. Effects in other countries are a combination of the war’s effects on prices of a number of agricultural and non-agricultural goods where Russia, Ukraine and/or Belarus are important global suppliers, supply chain disruptions that have continued from the pandemic and other inflationary pressures. So for example, the OECD has estimated the first year effects of the war and other challenges will reduce global GDP and will add to global inflation though the effects will vary by geographic area. OECD Economic Outlook, Interim Report, Economic and Social Impacts and Policy Implications of the War in Ukraine, MARCH 2022, https://www.oecd-ilibrary.org/docserver/4181d61b-en.pdf. Figure 5 from page 7 of the OECD paper provides estimates of the impact on GDP and on inflation for the Euro area, OECD countries in total, United States, World and World excluding Russia.

Similarly, Figure 3 from page 5 of the report shows the price increases for products where Russia and Ukraine are important sources of global trade.

The World Bank looks at various regions of the world in their Spring reports which show varying effects from the war. See World Bank, Reality Check: Forecasting Growth in the Middle East and North Africa in Times of Uncertainty, April 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37246/9781464818653.pdf (per capita GDP, “11 out of 17 MENA economies may not recover to pre-pandemic levels by the end of 2022″); World Bank, Africa’s Pulse, An Analysis of Issues Shaping Africa’s Economic Future, Boosting Resilience: The Future of Social Protection in Africa, April 2022 (Vol. 25), https://openknowledge.worldbank.org/bitstream/handle/10986/37281/9781464818714.pdf (Growth in Sub-Saharan Africa is projected to decelerate from 4% to 3.6% in 2022, and estimated at 3.9% or 4.2% in 2023 and 2024 respectively. The growth deceleration in 2022 reflects several short-term headwinds, the slowdown in the global economy, lingering effects of the coronavirus pandemic, elevated inflation, rising financial risks owing to high public debts reaching unsustainable levels, continued supply disruptions, and the war in Ukraine.”); World Bank, South Asia Economic Focus, Reshaping Norms: A New Way Forward, Spring 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37121/9781464818578.pdf (“South Asian economies are emerging from the deep COVID-19 recession, burdened by high inflation, rising current account deficits, and deteriorated fiscal balances, which are exacerbated by the impact of war in Ukraine. Even as the impact of the pandemic on growth is subsiding, partly because of increases in vaccination rates, the economic scars left behind after two years of the pandemic are deep. Inflation and deficits in trade balances reflect supply bottlenecks, pent-up demand, and rising commodity prices in international markets. Support measures and reduced revenues have deteriorated fiscal balances. All these problems have become more pressing because of the immediate impact of the war in Ukraine, which has pushed up prices of oil and other commodities in international markets.”); World Bank, Europe and Central Asia Economic Update, War in the Region, Spring 2022, https://www.worldbank.org/en/region/eca/publication/europe-and-central-asia-economic-update (“The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and Central Asia (ECA) region and the rest of the world. It is the second major shock in two years to trigger an economic contraction in the region,
with output in 2022 forecast to contract 4.1 percent—twice as steep as the recession in 2020 from the COVID-19 pandemic.”); World Bank, Semiannual Report for Latin America and the Caribbean, Consolidating the Recovery: Seizing Green Growth, April 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37244/9781464818677.pdf (“The Russian invasion of Ukraine in late-February 2022 has both imposed a drag on the regional recovery and injected vast uncertainty. Prices of wheat and energy soared in the immediate aftermath. Meanwhile, a new set of supply-chain disruptions—both arising from the war and from a new COVID lockdown in China—present
stagflationary forces that will complicate the job of monetary authorities. The direct depressive effects on global output may be modest, but the increased uncertainty and the sharp (even if short-term) rise in commodity prices will have first-order effects.”); World Bank, East Asia and the Pacific Economic Update, Braving the Storms, April 2022, https://openknowledge.worldbank.org/bitstream/handle/10986/37097/9781464818585.pdf (“At the beginning of 2022, the EAP countries appeared to be on the path of sustained recovery. The region had emerged from the difficult Delta wave and suffered relatively little from omicron wave. External trade and financial conditions remained benign, and governments were contemplating fiscal consolidation. since then, the acceleration in Us inflation prompted faster-than expected financial tightening, China saw a spike in CoViD-19 infections and continued strains on overleveraged real estate firms, and Russia invaded Ukraine. While some larger countries may be better equipped to weather these shocks, the repercussions of these events will dampen the growth prospects of most in the EAP region. Projections for regional growth in 2022 have therefore been reduced from 5.4 percent in the previous Update to 5 percent. In a low case scenario, if global conditions worsen and national policy responses are weak, growth could slow to 4 percent.”).

The World Trade Organization recently released a paper looking at the implications of the war in Ukraine on global trade and development. WTO, The Crisis in Ukraine, Implications of the war for global trade and development, April 2022, https://www.wto.org/english/res_e/booksp_e/imparctukraine422_e.pdf. The Executive Summary from the WTO paper is copied below.

“The crisis in Ukraine has created a humanitarian crisis of immense proportions and has also dealt a severe blow to the global economy. The brunt of the suffering and destruction are being felt by the
people of Ukraine themselves but the costs in terms of reduced trade and output are likely to be felt by people around the world through higher food and energy prices and reduced availability of goods exported by Russia and Ukraine. Poorer countries are at high risk from the war, since they tend to spend a larger fraction of their incomes on food compared to richer countries. This could impact political stability.

From a macroeconomic perspective, higher prices for food and energy will reduce real incomes and depress global import demand. Sanctions will impose economic costs on not only Russia directly but also on its trading partners. Besides Russia and Ukraine, depressed gross domestic product (GDP) will probably be seen mostly in Europe given the region’s geographic proximity and its dependence on Russian energy. Trade costs will rise in the near term due to sanctions, export restrictions, higher energy costs and transport disruptions. As a result, the impact the war will have on world trade in 2022 could be greater than the impact on global GDP.

While shares of Russia and Ukraine in world trade and output are relatively small, they are important
suppliers of essential products, notably food and energy
. Both countries accounted for 2.5 per cent in
world merchandise trade and 1.9 per cent in world GDP in 2021. Yet they supplied around 25 per cent of wheat, 15 per cent of barley and 45 per cent of sunflower products exports in 2019.1 Russia alone accounted for 9.4 per cent of world trade in fuels, including a 20 per cent share in natural gas exports. Many countries are highly dependent on food imports from Russia and Ukraine. For example, more than half of wheat imports in Egypt, the Lebanese Republic and Tunisia come from Russia and Ukraine. Other countries are more dependent on imports of fuels from Russia, such as Finland (63 per cent) and Turkey (35 per cent).

Russia and Ukraine are also key providers of inputs into industrial value chains. Russia is one of the main suppliers globally of palladium and rhodium, key inputs in the production of catalytic converters in the automotive sector and the manufacture of semiconductors. Semiconductor production also depends
to a substantial extent on neon supplied by Ukraine, which further provides a number of low-tech products to the European automobile value chain, such as wire harnesses. Prolonged disruptions in the supply of these goods could harm the recovery of automobile manufacturing.

Sanctions are already having a strong impact on Russia’s economy, with possible medium to long-term consequences. Disconnecting Russian banks from the SWIFT settlement system and blocking Russia’s use of foreign exchange reserves have triggered a sharp depreciation of the rouble, reducing real incomes in the country. Many international firms are also abandoning the Russian market. Oil and gas exports have yet to be strongly affected by the sanctions, but the crisis could accelerate the global transition towards greener energy sources.

Longstanding economic relationships have been disrupted by the war and by the sanctions imposed in its wake. WTO economists have simulated various scenarios to illustrate the channels through which trade could be affected and to explore possible short-run and long-run effects. Global trade growth is projected to slow by up to 2.2 percentage points in 2022. Longer term impacts could also be large and consequential. There is a risk that trade could become more fragmented in terms of blocs based on geopolitics. Even if no formal blocs emerge, private actors might choose to minimize risk by reorienting
supply chains. This could reduce global GDP in the long run by about 5 per cent, notably by restricting
competition and stifling innovation.

“The WTO has an important role to play in mitigating the negative effects of the crisis and in rebuilding
a post-war global economy. Keeping markets open will be critical to ensure that economic opportunities remain open to all countries. This will be especially true in the post-war period, when businesses and families will need to repair their balance sheets and rebuild their lives. Through its importance for international trade and its monitoring, convening and other functions, the WTO is central to ensuring that international trade continues to serve billions of people across the world.”

Rising energy prices and reduced volumes of some basic agricultural products are receiving a lot of attention because of the increasing hunger, malnutrition, number of people suffering extreme poverty that flow from the challenges being experienced at the moment. For example, the FAO paper on April 8, 2022 (CL 169/3) reviews in detail the challenges for food security from the disruption in exports from Russia and Ukraine of many food products, spiking prices for fertilizers from Russia as well as rising energy costs. See FAO Council, 169th Session, 8 April 2022, Impact of the Ukraine-Russia conflict on global food security and related matters under the mandate of the Food and Agriculture Organization of
the United Nations (FAO), https://www.fao.org/3/ni734en/ni734en.pdf. The Executive Summary to the report is copied below.

“The war that began on 24 February 2022 has caused extensive damage and loss of life in key population centres, spread across rural areas, and sparked massive displacement. More than 3.6 million people had been forced to abandon their homes and flee across borders to safety. Millions more are internally displaced. It is clear that the war has resulted in a massive, and deteriorating, food security challenge and disrupted livelihoods during the agricultural growing season in Ukraine and has also affected global food security.

“Already prior to the war in Ukraine, international food prices had reached an all-time high. This was mostly due to market conditions, but also high prices of energy, fertilizers and all other agricultural services. In February 2022, the FAO Food Price Index reached a new historical record, 21 percent above its level a year earlier, and 2.2 percent higher than its previous peak in February 2011.

“The Russian Federation and Ukraine are prominent players in global trade of food and agricultural products. In 2021, wheat exports by the Russian Federation and Ukraine accounted for about 30 percent of the global market. Russia’s global maize export market share is comparatively limited, standing at 3 percent between 2016/17 and 2020/21. Ukraine’s maize export share over the same period was more significant, averaging 15 percent and conferring it the spot of the world’s 4th largest maize exporter. Combined, sunflower oil exports from both countries represented 55 percent of global supply. The Russian Federation is also a key exporter of fertilizers. In 2020, it ranked as the top exporter of nitrogen fertilizers, the second leading supplier of potassium, and the third largest exporter of phosphorous fertilizer.

“Nearly 50 countries depend on the Russian Federation and Ukraine for at least 30 percent of their wheat import needs. Of these, 26 countries source over 50 percent of their wheat imports from these two countries. In that context, this war will have multiple implications for global markets and food security, representing a challenge for food security for many countries, and especially for low-income food import dependent countries and vulnerable population groups.

“Joint, coordinated actions and policy responses are needed to address the current challenges for the
people most in need and to mitigate the impact on food insecurity at global level.”

The heads of the International Monetary Fund and the World Bank, in statements on April 14 and 12 respectively provide sobering summaries of the challenges facing the world, including the war in Ukraine, and the implications for food security, global growth (or contraction), and a range of critical issues needing global cooperation such as climate change. See IMF, Speech of Kristalina Georgieva, IMF Managing Director, “Facing Crisis Upon Crisis: How the World Can Respond,” April 14, 2022, https://www.imf.org/en/News/Articles/2022/04/14/sp041422-curtain-raiser-sm2022; World Bank, Addressing Challenges to Growth, Security and Stability – Scene-Setter Speech by World Bank Group President David Malpass, April 12, 2022, https://www.worldbank.org/en/news/speech/2022/04/12/addressing-challenges-to-growth-security-and-stability-scene-setter-speech-by-world-bank-group-president-david-malpass. Some excerpts are provided below.

IMF Managing Director Georgieva:

“To put it simply: we are facing a crisis on top of a crisis.

“First, the pandemic: it turned our lives and economies upside down—and it is not over. The continued spread of the virus could give rise to even more contagious or worse, more lethal variants, prompting further disruptions—and further divergence between rich and poor countries.

‘Second, the war: Russia’s invasion of Ukraine, devastating for the Ukrainian economy, is sending shockwaves throughout the globe.

“Above all is the human tragedy—the suffering of ordinary men, women, and children in Ukraine, among them over 11 million displaced people. Our hearts go out to them.

“The economic consequences from the war spread fast and far, to neighbors and beyond, hitting hardest the world’s most vulnerable people. Hundreds of millions of families were already struggling with lower incomes and higher energy and food prices. The war has made this much worse, and threatens to
further increase inequality.

“And for the first time in many years, inflation has become a clear and present danger for many countries around the world.

“This is a massive setback for the global recovery.

“In economic terms, growth is down and inflation is up. In human terms, people’s incomes are
down and hardship is up.

“These double crises—pandemic and war—and our ability to deal with them, are further complicated by another growing risk: fragmentation of the world economy into geopolitical blocs—with different trade and technology standards, payment systems, and reserve currencies.

“Such a tectonic shift would incur painful adjustment costs. Supply chains, R&D, and production networks would be broken and need to be rebuilt.

“Poor countries and poor people will bear the brunt of these dislocations.

“This fragmentation of global governance is perhaps the most serious challenge to the rules-based framework that has governed international and economic relations for more than 75 years, and helped deliver significant improvements in living standards across the globe.

“It is already impairing our capacity to work together on the two crises we face. And it could leave us wholly unable to meet other global challenges—such as the existential threat of climate change.

“It is a consequential moment for the international community.

“The actions we take now, together, will determine our future in fundamental ways. It reminds me of Bretton Woods in 1944 when, in the dark shadow of war, leaders came together to envision a brighter world. It was a moment of unprecedented courage and cooperation.

“We need that spirit today, as we face bigger challenges and more difficult choices.”

World Bank President Malpas:

“We are again living through a dangerous period of overlapping crises and conflicts with Poland near the center. I have been deeply shocked and horrified at Russia’s invasion of Ukraine, the atrocities committed against the civilian population, and the loss of life and livelihoods for millions of Ukrainians. The attacks on people and infrastructure are causing tremendous suffering, threatening international peace and security, and endangering the basic social and economic needs of people around the world.”

* * *

Overlapping Global Crises

“The violence is unfortunately not confined to Ukraine. Just over the last year, we have witnessed serious setbacks for development and security, including Afghanistan’s collapse, Lebanon’s crisis, and coups and violence across the Sahel, Ethiopia, Somalia, and Yemen. Millions of Syrians are living in refugee camps in Jordan, Lebanon, and Turkey. Inter-ethnic and inter-religious strife plagues Myanmar and other parts of Asia. And in Latin America and the Caribbean, levels of crime and violence are alarmingly high, with some urban and rural areas controlled by criminal gangs or drug cartels.

“The trend toward insecurity is deeply concerning. This year, 39 of the 189 member countries of the World Bank Group – 39 of 189 – are experiencing open conflict situations or remain worryingly fragile. The number of people living in conflict areas nearly doubled between 2007 and 2020. Today, in the Middle East and North Africa, one in every five people lives in an area affected by conflict. This unraveling of security has brought a surge in the number of refugees, which more than doubled over the last decade to exceed 30 million refugees in 2020. The war in Ukraine has already displaced an additional 10 million people from their homes, pushing more than 4 million people – primarily women and children – into neighboring countries, most of them to Poland and Romania.

“We recognize that each of the ongoing crises hits the vulnerable the hardest, often women and girls. And all the while, we are still suffering the health, economic, and social setbacks of a global pandemic and economic shutdowns. Millions of lives have been lost and millions more are suffering amid the massive reversals in development that hit the poor particularly hard.

“Since the outbreak of COVID-19, violence against women and girls has intensified. Global indicators on food, nutrition, and health have worsened. And children lost more than a year of education due to school closures, with 1.6 billion children out of school globally at the peak of lockdowns, reversing a full decade of gains in human capital.

“Never have so many countries experienced a recession at once, suffering lost capital, jobs, and livelihoods. At the same time, inflation continues to accelerate, reducing the real incomes of households around the world, especially the poor. The extraordinary monetary and fiscal policies that advanced economies have been implementing to boost their demand, combined with supply constraints and disruptions, have fueled price increases and have worsened inequality around the globe. One measure that captures the growing concern of inflation and inequality is the stagnation in real median income across much of the world. Another measure is the likelihood that poverty increases will continue in 2022 as inflation, currency depreciation, and high food prices hit home.

“The war in Ukraine and its consequences are also creating sudden shortages of energy, fertilizer, and food, pitting people against each other and their governments. Even people who are physically distant from this conflict are feeling its impacts.

“Food price spikes hit everyone and are devastating for the poorest and most vulnerable. For every one percentage point increase in food prices, 10 million people are expected to fall into extreme poverty. The rich can afford suddenly expensive staples, but the poor cannot. Malnutrition is expected to grow, and its effects will be the hardest to reverse in children.

“Trade disruptions have already sent grain and commodity prices soaring. Wheat exports from Black Sea ports have been sharply curtailed. And intense drought in South America is reducing global food production. Global food commodity markets are large and well-established, and – after a lag – they tend to self-adjust to disruptions in production. However, additional factors are making the current food supply problems more acute – namely the supply of fertilizers, energy prices, and self-imposed food export restrictions.

“Fertilizer prices are dependent on natural gas prices, which have surged. As LNG is shipped to Europe, LNG shortages are occurring elsewhere, reducing fertilizer production, and disrupting the sowing season and harvest productivity. Russia and Belarus are both large fertilizer producers, adding materially to the problem.

“The financial repercussions of the energy shock are intertwined with the global community’s efforts on climate change. Russia has been an important source for the world’s energy, including oil, coal, and gas – the latter supplying Europe through a network of pipelines. I’ve been pleased to see Europe follow a path toward diversifying its energy mix away from Russia and considering LNG imports and nuclear power for electricity baseload, but these take time. The rapid addition of major new energy production in Europe and other parts of the world will be a necessary ingredient for global recovery and energy security in Europe.

“The World Bank Group strongly supports the integration of climate and development goals. This recognizes the urgency of growth and development at the core of our mission of alleviating poverty and boosting shared prosperity; and the global community’s pledges to slow the growth in human-linked greenhouse gas emissions. These pledges for global public goods will require hundreds of complex, multi-decade projects that reduce emissions and are funded by the global community. We are working to tackle these challenges through analytical work, including our Country Climate and Development Reports and our Infrastructure Sector Assessment Programs. We are pleased to support Poland’s efforts to increase energy efficiency and continue its transition away from coal.

Weakening Economic Outlook

“On the economic front, trends are not encouraging. Prior to the war in Ukraine, the recovery in 2022 was already losing momentum due to rising inflation and lingering supply bottlenecks. While advanced economies were expected to return almost to their pre-pandemic growth rates in 2023, developing economies were lagging substantially behind.

“The war in Ukraine and the COVID-19 lockdowns in China are further reducing the recovery path. Of concern, the repercussions are worsening the inequality as the war affects commodity and financial markets, trade, and migration linkages, and investor and consumer confidence. Advanced economies with well-developed social protection systems are cushioning parts of their populations from the damage from inflation and trade blockages, but poorer countries have limited fiscal resources and weaker systems to support those in need. Currency depreciations and inflation are hitting the poor hard, causing fast increases in 2022 poverty rates. Adding to the burden, developing country debt has risen sharply to a 50-year high—at roughly 250 percent of government revenues. Debt vulnerabilities are particularly acute in low-income countries, where sixty percent are already experiencing or at high risk of debt distress.

“Most emerging market and developing economies are ill-prepared to face the coming debt shock. Exposures to financial sector risk are opaque at this point, but one measure, the cost of insuring against default in emerging markets, has reached its highest point since the onset of the pandemic.”

A few thoughts

While there has been improved cooperation among multilateral institutions in addressing some of the crises identified, including supporting Ukraine during this period of enormous challenge from Russia’s unprovoked war, solutions to some of the inflationary spikes appear more remote during the pendency of the war and are aggravated by China’s lockdown of areas of the country in pursuit of its zero-COVID policy.

It is clear that Europe, the United States and some of their close allies will be changing investment and trade flows to address the unacceptable dependence on countries which don’t support the global rule of law and respect for national sovereignty. There will likely be spillover effects for other countries unable or unwilling to distance themselves from the Russian Federation. It is hard to see such fragmentation ending even with the end of Russia’s war whenever that occurs.

The increase in food security concerns are at least partially addressable by joint action to keep markets open and not impose export restrictions and ensure funding for UN World Food Program purchases during a period of inflated food prices. While the WTO’s efforts during the COVID-19 pandemic have improved transparency on export and import actions on food and medicines, it is unclear what level of cooperation will occur from countries with a history of imposing export restraints on food during periods of rising food prices. As history shows, increased food insecurity often leads to increased social unrest, as was true in 2007-2008.

While the need to move from fossil fuel imports is apparent for European countries and hence can have positive effects on increased use of renewable energy sources, the current high prices for fossil fuels and the role of Russia in the global supply of such fuels has countries scrambling to increase production to address short-term demand needs. Such increased production of fossil fuels and reduced cooperation among many countries on some issues will likely hurt global efforts to address the existential issue of climate change.

Russia has reportedly started a new phase of its invasion of Ukraine in the east this week. See New York Times, Ukraine Live Updates: Russia Declares New Phase of War as Forces Clash in East, April 19, 2022, https://www.nytimes.com/live/2022/04/19/world/ukraine-russia-war-news. How long the conflict will go on is, of course, unknown. But the rest of 2022 is likely to be challenging for governments and people around the world addressing the fallout from the war and other crises.